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Internal Control and Cash

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CHAPTER 7 INTERNAL CONTROL AND CASH Chapter 7 Quiz (Unit 3 Quiz#1) will occur on Monday, Nov 17 I will allow only one page formula sheet (double sided) It is not open ... – PowerPoint PPT presentation

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Title: Internal Control and Cash


1
CHAPTER
7
INTERNAL CONTROL AND CASH Chapter 7 Quiz (Unit 3
Quiz1) will occur on Monday, Nov 17 I will allow
only one page formula sheet (double sided) ? It
is not open book nor group quiz
2
Summary
  • Bank Statement Balance
  • You add or subtract items which appeared in the
    book but they did not appear on Bank Statement of
    this month.
  • If the item increased Book Balance, then you add
    this item to BSB.
  • Book Balance
  • You add or subtract items which appeared the bank
    statement, but they did not appear on Book.
  • If the item decreased BSB, then you subtract this
    item from Book Balance.

3
Reconciling Journal Entries
  • Accounting Books
  • Each reconciling item in determining the adjusted
    balance per books MUST be journalized and posted
  • Bank Statement
  • Do NOT journalize any entries on bank side
    (because they are already recorded in accounting
    records)

4
REPORTING CASH
  • The term Cash does not mean just cash.
  • We debit cash if customer pay by
  • 1. Cash (such as coin, bill)
  • 2. Check
  • 3. Debit card
  • 4. Bank credit card
  • IOU (informal document indicating who owes whom)
    from employees and stamps are not cash.

5
REPORTING CASH
  • Cash reported on the Balance Sheet includes
  • 1. Cash on hand
  • 2. Cash in banks (checking account and
    savings account)
  • 3. Petty cash
  • All three forms of cash can be combined and
    reported as Cash in the balance sheet in some
    companies.
  • Cash is listed first in the balance sheet because
    it is the most liquid asset.

6
CASH EQUIVALENTS
  • More than 75 of Canadian public companies
    combine cash with cash equivalents in Balance
    Sheet.
  • Cash equivalents are highly liquid investments,
    with maturities of three months or less when
    purchased, that can be converted into a specific
    amount of cash.
  • Examples include money market funds, short-term
    notes, (GIC or CD) and treasury bills.

7
CASH EQUIVALENTS
  • More than 75 of Canadian public companies
    present their cash in this manner in Balance
    Sheet
  • Assets
  • Current Assets
  • Cash and short term investments 875

8
CASH EQUIVALENTS
  • Bank overdraft occurs when withdrawals or
    payments (debit payment or check payment) are
    more than the amount in the bank account.
  • This becomes a short term loan from the bank.
  • Most companies have overdraft protection up to a
    certain amount.

9
CASH EQUIVALENTS
  • In an overdraft situation, the Cash account shows
    a credit balance in the general ledger and is
    reported as a current liability called bank
    indebtedness.

10
USING THE INFORMATION IN THE FINANCIAL STATEMENTS
  • Management must perform a difficult balancing act
    to properly manage cash.
  • On one hand, it is critical to ensure that enough
    cash is available to pay bills or to buy
    inventory.
  • On the other hand, too much cash on hand may
    indicate that management is not maximizing its
    return on assets.

11
Classwork / Homework
  • P381 E7-9 and E7-10
  • P386 P7-7
  • Ex 7.13 (P383)
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