Cash

1
Cash

• Coin and currency
• Checking, savings, and money market accounts
• Undeposited, cashier, and certified checks

LO1
2
Cash Equivalents

• Readily convertible to cash
• Original maturity to investor of three months or
  less

Examples

• Commercial paper
• U.S. Treasury bills
• Certain money market funds

3
Cash Management

• Necessary to ensure company has neither too
  little nor too much cash on hand
• Tools
• Cash flows statement
• Bank reconciliations
• Petty cash funds

LO2
4
Bank Statements
Cash balance, beginning of period
Cash balance, end of period

• Deposits
• Customer notes and interest collected by bank
• Interest earned

• Canceled checks
• NSF checks
• Service charges

5
Bank Reconciliation Step 1

• Trace deposits listed on the bank statement to
• the books.
• Identify the deposits in transit.
• Add to the bank balance.

Deposits in transit Late period deposits not
yet reflected on bank statement
6
Bank Reconciliation Step 2

• Trace checks cleared by the bank to the books.
• Identify outstanding checks.
• Subtract from the bank balance.

Outstanding checks Checks written but not yet
presented to bank
7
Bank Reconciliation Step 3
List all other additions (credit memoranda) shown
on the bank statement. Add to the book balance.
Credit memoranda Interest earned, customer
notes collected, etc.
8
Bank Reconciliation Step 4

• List all other subtractions (debit memoranda)
• shown on the bank statement.
• Subtract from the book balance.

Debit memoranda NSF checks, service charges,
etc.
9
Example of Reconciliation
Cash Account Adjustments Debit Memoranda
Balance per books, June 30
2,895.82 Add Customer note collected
500.00 Interest on customer note
50.00 Interest earned during June
15.45 Error in recording check 498
54.00 619.45 Deduct NSF
check 245.72 Collection fee on
note 16.50 Service charge
for lockbox 20.00
(282.22) Adjusted balance, June 30
3,233.05

10
Bank Reconciliation Step 5
Identify errors made by the bank or the company
in recording the transactions during the period.
11
Bank Reconciliation Step 6

• Use the information collected in steps 1 through
  5 to prepare the bank reconciliation.

12
Example of Reconciliation
Bank Statement Adjustments

• Balance per statement, June 30 3,308.59
• Adjusted balance, June 30 3,233.05

Cash Account Adjustments
Balance per books, June 30 2,895.82
Adjusted balance, June 30 3,233.05
13
Bank Reconciliation Adjusting Entries
Bank Reconciliation Balance per
bank Adjusted balance Balance per
books Adjusted balance
14
Bank Reconciliation Adjusting Entries

• Accounts Receivable 245.72
• Collection Fee Expense 16.50
• Rent ExpenseLockbox 20.00
• Cash 337.23
• Notes Receivable 500.00
• Interest Revenue 65.45
• Supplies 54.00
• To record bank reconciliation adjustments.

15
Petty Cash
Journalize establishment of fund
A check is written
Disbursement with proper documentation
Fund replenished
16
Petty Cash Transactions for Mickeys Marathon
Sports
Original fund balance 200.00 Petty
cash expenditures U.S. Post Office
55.00 Overnight delivery service
69.50 Office supply express
45.30 Coin and currency per count 26.50

• Prepare the journal entry to record the petty
  cash fund replenishment

17
Accounting for Petty Cash
Journal Entry to Replenish Fund
Postage Expense 55.00 Delivery
Expense 69.50 Office Expense 45.30 Cash
Over and Short 3.70 Cash
173.50

• 200.00 (55.00 69.50 45.30 26.50)
• 200.00 196.30 3.70 short

18
Internal Control System

• Consists of the policies and procedures necessary
  to ensure
• The safeguarding of an entitys assets
• The reliability of its accounting records
• The accomplishment of its overall objectives

LO3
19
Sarbanes-Oxley Act of 2002 (SOX)

• Act of Congress intended to bring reform
• to corporate accountability and stewardship
• in response to corporate scandals

20
Internal Control
Control Environment
Accounting System
Internal Control Procedures
21
The Control Environment

• Managements competence and operating style
• Personnel policies and practices
• Influence of board of directors

22
The Accounting System
Methods and records used to report transactions
and maintain financial information

• Can be manual, fully computerized, or a
  combination of both
• Use of journals is an integral part of any system

23
Internal Control Procedures
Independent Review and Appraisal
Independent Verification
The Design and Use of Business Documents
Safeguarding Assets and Records
Proper Authorizations
Segregation of Duties
LO4
24
Proper Authorizations

• Authority and responsibility go hand in hand

Segregation of Duties

• Separate physical custody from the accounting
• for assets

25
Independent Verification

• One individual or department acts as a check on
  the work of another

Safeguarding Assets and Records

• Protect assets and accounting records from loss,
• theft, unauthorized use, etc.

26
Independent Review and Appraisal

• Provide for periodic review and appraisal of the
  accounting system and the people operating it

27
The Design and Use of Business Documents

• Capture all relevant information about a
  transaction and assist in proper recording and
  classification.
• Are properly controlled

28
Limitations on Internal Control

• No system is entirely foolproof
• Employees in collusion can override the best
  controls
• Cost vs. benefit tradeoff

29

• Computerized Business Documents and Internal
  Control

• Cash receipts should be deposited intact in the
  bank on a daily basis
• All cash disbursements should be made by check

LO5
30
Control over Cash Receipts

• Cash received over the counter (e.g., cash sales)
• Cash received in the mail (e.g., credit sales)

31
Controls over Cash Received over the Counter

• Cash registers
• Locked-in cash register tape
• Prenumbered customer receipts

• Investigate recurring discrepancies

32
Controls over Cash Received in the Mail

• Two employees open mail
• Prelist prepared
• Monthly customer statements

33
Document Flow for Merchandise
34
End of Chapter 6