Week 10 (1)
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Transcript of Week 10 (1)
Week 10
Accounting for cashBank Reconciliations
Petty Cash
LEARNING OBJECTIVES
1. Define the term cash as it is used in accounting2. Identify the purpose and control features in
maintaining a bank account and prepare a bank reconciliation statement
3. Explain the purpose of a petty cash fund, understand how one operates, and account for petty cash
4. Explain the essential features of cash management
CASH DEFINED
• Cash includes– Money– Duplicates of credit card and EFTPOS sales– Negotiable instruments
• cheque• postal note
that a financial institution will accept
CONTROL OF CASH
• Cash is the asset most subject to theft• Need good internal control systems for handling
cash and recording cash transactions• Three important principles
1. Separation of responsibility for handling and custodianship of cash from maintaining records for cash
2. Banking intact each day’s cash receipts3. Making all payments by electronic transfer or by
cheque
BANK ACCOUNTS AND RECONCILIATION
• Cheque accounts– Essential element of internal control– Source documents
• Use of Electronic Funds Transfer– Gradually replacing cheques– Reduces processing costs
• The Bank Statement– Record of transactions from the bank
6
Reconciliation of the cash account
A report known as a Bank Reconciliation is used to compare (or reconcile) the balances of cash:
This is necessary because they rarely agree, due to:Timing differences
Outstanding deposits, unpresented chequesDirect deposits eg interest, direct charges eg bank
feesErrors (made by either the business or the bank)
Shown in the Business’ records
(ie GL Cash at Bank a/c )
Shown in the Bank’s records
(ie on the bank statement)to
BANK RECONCILIATION
• Cash at Bank account balance rarely agrees with balance as per bank statement
• Mainly due to “timing” differences• Common reasons:
– Items in journals not on bank statement• Unpresented (outstanding) cheques• Outstanding or late deposits
– Items originated by the bank• Service and bank charges, interest, EFT transactions etc.
– Errors either by bank or entity
Reconciliation Procedure
• To prepare a bank reconciliation you require:– Last bank reconciliation– Cash receipts and cash payments journals– Cash at bank ledger balance– Bank statement for the period since last
reconciliation
Reconciliation Procedure
• Step 1: Check all items and errors from last reconciliation have cleared– Any items still not cleared “roll over” into current
reconciliation• Step2: Compare
– Cash receipts journal with credits (deposits) on bank statement
– Cash payments journal with debits (withdrawals) on bank statement
– Mark entries that appear in both and identify any differences– Unmarked entries will explain difference
Reconciliation Procedure
• Step 3: Update cash journals for items captured by bank statement.
• Step 4: Deal with errors– Adjust cash journals for any errors made by entity– Notify bank of any errors in statement
• Note these errors on reconciliation until corrected.
• Step 5: Total cash journals and post to ledgers• Step 6: Prepare bank reconciliation
11
Bank rec format
Cathy’s ConsultingBank Reconciliation Statement
as at 30/6/ 2013
Balance as per bank statement Cr (or Dr) $ 000Add outstanding deposits 000
000Deduct unpresented cheques 00
0000 000
Balance as per Cash at Bank account Dr or (Cr) $ 000
EXAMPLE OF A BANK RECONCILIATION
R.ROBSON AND SONBank Reconciliation Statement
As at 31 July 2013
Balance as per bank statement 399.10 Cr
Add: Outstanding Deposit 219.40
618.50
Less: Unpresented cheques
1922 $10.00
1923 77.40
1924 22.05
1925 82.56 192.01
Balance as per Cash at Bank account 426.49 Dr
13
EXAMPLE OF A BANK RECONCILIATION with bank error
Any error by the bank appears here
R.ROBSON AND SONBank Reconciliation Statement
As at 31 July 2013
Balance as per bank statement 5,923.55 Cr
Add: Outstanding Deposit 642.90
6,566.45
Less: Unpresented cheques
248 $406.50
257 174.00 (781.90)
Less: Bank error Chq 251, $77 shown as $7
(70.00)
Balance as per Cash at Bank account
$5714.55 Dr
14
EXAMPLE OF A BANK RECONCILIATION with Debit
opening balanceR.ROBSON AND SON
Bank Reconciliation StatementAs at 31 July 2013
Balance as per bank statement (5923.55) DrAdd: Outstanding Deposit 642.90
(5280.65)Less: Unpresented cheques
248 $406.50257 174.00 (781.90)
Balance as per Cash at Bank account
($6062.55) Cr
15
Now try Exercise 11.9Cathy’s Consulting
Bank Reconciliation Statementas at 30/6/ 2016
Balance as per bank statement Cr (or Dr) $ 000Add outstanding deposits 000
000Deduct unpresented cheques 00
0000 000
Balance as per Cash at Bank account Dr or (Cr) $ 000
16
Second part of Reconciliation process - Postings to CRJ and CPJ
CRJ Debit Credit
Date
Account Post Bank Disc all
GST Coll
Sales Acc Rec Other GST Coll
31/7
Bill Rec 125 3,000 3,000
31/7
Interest Rev 415 50.00 50.00
31/7
Dish Chq- R.Song
120 (456.00) (456.00)
2,594 (456.00) 3,050
CPJ Debit Credit
Date Account Chq No
Post Purch Acc Pay Other GST Out
Bank Disc Rec
GST Out
31/7 Bank Fees 520 40.00 40.00 31/7 Our Error
adj 9.00 9.00
9.00 40.00 49.00
THE PETTY CASH FUND
• To avoid the expense and inconvenience of writing many cheques to cover minor expenses many entities have a petty cash fund
• Establishing the fundGeneral Journal
Jan 2 Petty Cash (Asset) 100
Cash at Bank 100
(Petty cash fund established)
18
THE PETTY CASH FUND
• To avoid the expense and inconvenience of writing many cheques to cover minor expenses many entities have a petty cash fund
• Establishing the fund
CPJ Debit CreditDate Account Chq
NoPost Purch Acc
PayOther GST
OutBank Disc
RecGST Out
2/1 Petty Cash
123 111 100.00 100.00
THE PETTY CASH FUND
• Making payments from the fund– Use a petty cash voucher or receipt
• Reimbursing the fund– Note that Petty Cash account is not touched
General JournalJan 31 Stationery Expense 15.22
Office Supplies Expense 12.30Postage Expense 56.47GST Outlays 8.40
Cash at Bank 92.39(Petty cash fund reimbursed)
20
Now attempt the following:
• Establish the petty cash fund for the amt of $300 (Chq 432)
• Show the transactions in the CPJ (show GST)• Record the following transactions:1. Jul 7 Office supplies $99.002. Jul 18 Stationery $55.003. Jul 20 Newspapers $33.004. Jul 23 Advertising expense $44.005. Jul 28 Taxi Fare $22.00transactions 1 to 5.• Reimburse the fund after transaction 5 and increase it to
$400. (Chq 894)
21
Account Cheque No.
Post Ref.
Accts Pay
GST Outlays
Other Disc Rec
Cash at Bank
A. Petty Cash 432 300.00 300.00 B. Stationery Exp.
5.00
50.00
Office Supplies Exp. 9.00 90.00
Advertising Exp.
4.00
40.00
Sundry Exp. 5.00 50.00 883 23.00 230.00 253.00 C. Petty Cash 894 100.00 100.00
SolutionCash Payments Journal
22
Account Cheque No.
Post Ref.
Accts Pay
GST Outlays
Other Disc Rec
Cash at Bank
A. Petty Cash 432 300.00 300.00 B. Stationery Exp.
5.00
50.00
Office Supplies Exp. 9.00 90.00
Advertising Exp.
4.00
40.00
Sundry Exp. 5.00 50.00 883 23.00 230.00 253.00 C. Petty Cash 894 100.00 100.00
SolutionCash Payments Journal
CASH MANAGEMENT
• Principles of cash management– Reduce collection time for accounts receivable– Postpone payments to accounts payable– Keep inventory levels to a minimum– Invest surplus cash– Plan for capital expenditures
• Analysing adequacy of cash flows– Short-term cash flow adequacy ratio– Cash flow adequacy ratio