Cash l

REPORTING AND ANALYZING CASH

Lecture 3

CASH, CASH EQUIVALENTS, AND LIQUIDITY

CashCurrency, coins and amounts on

deposit in bank account, checking accounts, and some savings accounts.


Cash Equivalents are short-term, highly liquid investments that are:

Readily convertible to a known cash amount.

Close to maturity date and not sensitive to interest rate changes.


Liquidity How easily an asset can be converted into

another asset .

Inventory Cash

UNDERSTANDING ON THE MONEY

Restricted cash- To pay salary payable- To pay dividends- To pay loan- To develop production Bank overdrafts

On balance sheet:• 1-3 month- cash• 3-12 month – Shot term investment•Over 1 year- Long term investment

PETTY CASH SYSTEM OF CONTROL

Small payments required in most companies for items such as postage, courier fees, repairs and supplies.

OPERATING A PETTY CASH FUND

Petty Cashier

AccountantAccountant Petty CashierPetty Cashier

GENERAL JOURNAL Page 4Date Description PR Debit Credit

May 1 Petty Cash 200

Cash 200

Petty Cashier

Petty CashierPetty Cashier


$200


34¢

Stamps Courier



34¢

Stamps Courier

Receipts


Receipts$125

AccountantAccountant


May 15 Postage Expense 45

Courier Expense 80

Cash 125

$125To reimburse

petty cash fund

W use a CashOver and Short

account if needed.

W use a CashOver and Short

account if needed.


$75

$200


Receipts$125




Courier Expense 80

Cash Over and Short 3

Cash 128

$128To reimburse

petty cash fund

We use a CashOver and Short

account if needed.


account if needed.


$72


Receipts$125




Courier Expense 80

Cash Over and Short 4

Cash 121

$121To reimburse

petty cash fund


account if needed.


account if needed.


$79

PETTY CASH EXAMPLE

• Tension Co. maintains a petty cash fund of Tension Co. maintains a petty cash fund of $400. The following summary information $400. The following summary information was taken from petty cash vouchers for was taken from petty cash vouchers for July:July:– Travel Expenses $79.30– Customer Business Lunches 93.42– Express Mail Postage 55.00– Miscellaneous Office Supplies 32.48

• Let’s look at replenishing the fund if the Let’s look at replenishing the fund if the balance on July 31 was $137.80. balance on July 31 was $137.80.

PETTY CASH EXAMPLE

What amount of cash will be required to replenish the petty cash fund?a. $260.20b. $262.20c. $139.80d. $137.80

PETTY CASH EXAMPLE

The journal entry to replenish the petty cash fund is:


Jul 31 Travel Expense 79.30

Entertainment Expense 93.42

Postage Expense 55.00

Office Supplies Expense 32.48

Cash Over and Short 2.00

Cash 262.20

BANK RECONCILIATIONS

BANK RECONCILIATION

A bank reconciliation is prepared to explain the difference between cash reported on the bank

statement and the cash balance on company’s books.First National BankNashville, TN 37459 May 31, 2002

Clothes MartNashville, TN

Acct No 278609

Previous Balance Total Checks

Total Deposits

Current Balance

1488.79 1,367.09 2,604.22 2,725.92

5/1 55.00

5/2 1,251.88

5/4 279.50

5/7 44.75

5/9 21.81

5/12 37.55

5/15 825.04

5/18 175.98

5/21 288.31

5/27 12.54

5/30 527.30

5/31 451.65

Why are thebalances different?

*

Reasons for Differences Between Depositor’s Reasons for Differences Between Depositor’s Records and the Bank StatementRecords and the Bank Statement

Reasons for Differences Between Depositor’s Reasons for Differences Between Depositor’s Records and the Bank StatementRecords and the Bank Statement

Outstanding checksDeposits in transitService chargesCollectionsNot-sufficient-funds

(NSF) checksErrors

Outstanding checksDeposits in transitService chargesCollectionsNot-sufficient-funds

(NSF) checksErrors

RECONCILING BANK STATEMENT BALANCEDeduct: Outstanding checks.

Add: Deposits in transit.

Add or Deduct: Bank errors.

RECONCILING BOOK BALANCE

Deduct: NSF checks (NSF).

Deduct: Bank service charge.

Add: Interest earned and Collections made by the bank.

Add or Deduct Book errors.

THERE IS ONE TRUE CASH BALANCE...

Bank balance per statement is reconciled to the TRUE cash balance

Book balance (general ledger balance) is reconciled to the TRUE cash balance

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BANK RECONCILIATION EXAMPLE

Let’s prepare a July 31 bank reconciliation for the Simmons Company. The July 31 bank statement indicated a balance

of $9,610,

while the cash general ledger account on that date shows a balance of $7,430.

BANK RECONCILIATION EXAMPLE

Outstanding checks totaled $2,417.A $500 check mailed to the bank for deposit had

not reached the bank at the statement date.The bank returned a customer’s NSF check for

$225 received as payment on account receivable.The bank statement showed $30 interest earned

during July.Check No. 781 for supplies expense cleared the

bank for $268 but was erroneously recorded in our books as $240.

A $486 deposit by Acme Company was erroneously credited to our account by the bank.

Simmons CompanyBank Reconciliation

July 31, 2002

RECORDING ADJUSTING ENTRIES FROM BANK RECONCILIATION

Only amounts shown on the book portion of the reconciliation require an adjusting entry.

RECORDING ADJUSTING ENTRIES FROM BANK RECONCILIATION

After posting the reconciling entries the cash account looks like this:

Adjusted balance on July 31.

Cash accounting Chapter 6 М.Pollard. sheet- 163 Sheet 181-186 М.Pollard. ху- 186-189. О. Нүржигмаа.

Sheet 1-12

Cash l

Economy & Finance

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