Topic 6 Cash

Topic 6: Accounting for Assets,[object Object],Cash,[object Object]

Accounting for Assets,[object Object],Current asset,[object Object],Examples: ,[object Object],cash, inventory, debtors (account receivables), prepaid items etc.,[object Object],Non-current,[object Object],Examples:,[object Object],Land, buildings (properties), vehicles, machineries, patent, trademark, goodwill and copy right.,[object Object]

Learning Objectives for Accounting for Cash,[object Object],Identify the principles of internal control.,[object Object],Explain the application of internal control principles to handling cash.,[object Object],Prepare a bank reconciliation.,[object Object],Explain the operation of a petty cash fund.,[object Object]

Internal Control,[object Object],Internal control consists all the processes used by management to achieve effective and efficient operations, compliance with laws, etc.,[object Object],It includes policies to:,[object Object],safeguard assets,[object Object],enhance accuracy and reliability of accounting records,[object Object],It is an essential part of risk management.,[object Object]

Principles of Internal Control,[object Object],Establishment of responsibility.,[object Object],Segregation of duties.,[object Object],Documentation procedures.,[object Object],Physical, mechanical and electronic controls.,[object Object],Independent internal verification.,[object Object]

CASH,[object Object],Cash is the most desirable asset because it is readily convertible into any other asset.,[object Object],Cash consists of ,[object Object],Cash on hand (notes and coins),[object Object],Cash at bank,[object Object],Cheque accounts,[object Object],Cash equivalents (bank overdrafts, deposits on money market, 90-day bank acceptance bills),[object Object]

Internal Control of Cash,[object Object],Cash receipts,[object Object],Cash Payments,[object Object],Establishment of responsibility.,[object Object],Segregation of duties.,[object Object],Documentation procedures.,[object Object],Physical, mechanical and electronic controls.,[object Object],Independent internal verification.,[object Object]

Internal Control of Cash,[object Object],1. Internal control over cash receipts,[object Object],Establishment of responsibility,[object Object],authorised personnel handle cash receipts,[object Object],Segregation of duties,[object Object],different individuals handle cash, record cash receipts and hold the cash,[object Object],Documentation procedures,[object Object],remittance advices, cash register tapes, deposit slips used,[object Object]

Internal Control of Cash (cont’d),[object Object],Physical, mechanical and electronic controls,[object Object],cash stored securely, cash banked frequently, cash registers used/direct deposits,[object Object],Independent verification,[object Object],cash receipts counted daily, comparison of receipts to bank deposits,[object Object]

Internal Control of Cash (cont’d),[object Object],2. Internal control over cash payments,[object Object],Establishment of responsibility,[object Object],authorised personnel only to sign cheques,[object Object],Segregation of duties,[object Object],separate tasks of approving and making payments, signatory not to record the payment, limit knowledge of PIN, etc.,[object Object],Documentation procedures,[object Object],pre-numbered cheques, approved invoices, account marked as paid,[object Object]

Internal Control of Cash (cont’d),[object Object],Physical mechanical and electronic controls,[object Object],blank cheques stored securely, limited access,[object Object],Independent internal verification,[object Object],compare cheques to invoices, reconcile bank statement monthly,[object Object]

Bank Reconciliation,[object Object],The use of a bank contributes significantly to good internal control over cash by: ,[object Object],Minimising the amount of cash that must be kept on hand.,[object Object],Providing a double record of all bank transactions:,[object Object],one by the business,[object Object],one by the bank,[object Object]

Bank Reconciliation (cont’d),[object Object],Helping a company safeguard its cash by using a bank as a depository and clearinghouse for cheques received and written.,[object Object]

Bank Reconciliation (cont’d),[object Object],Reconciling the bank account,[object Object],Lack of agreement between firm’s books and bank statement can result from:,[object Object],Time lags preventing the parties recording transactions in the same period.,[object Object],Time between when cheque is written and dated and date it is paid by the bank.,[object Object],Time between when receipts are recorded and when recorded by the bank.,[object Object],Errors by either party in recording transactions.,[object Object]

Bank Reconciliation (cont’d),[object Object],Reconciliation procedure,[object Object],Reconcile balance per books and balance per bank to their adjusted or correct balances.,[object Object],The reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.,[object Object]

Transactions - appear on the cash book. ,[object Object],1. Unpresented cheque:,[object Object], - Cheque which has been issued but not yet presented to the bank ,[object Object], Example: Seri Enterprise has issued a cheque worth RM 3,000 to Hunter Ltd (a supplier). Cash account of Seri Enterprise has been credited by RM 3,000, however Hunter Ltd has not cashed the cheque. ,[object Object]

Transactions - appear on the cash book……cont,[object Object],Deposit in transit: ,[object Object],- a cheque has been posted to bank (through mail service), which involves a few days before the cheque is cleared. ,[object Object],Example:,[object Object], A cheque worth RM 2,500 was send by Seri Enterprise to the bank. The transaction was debited in the cash book but the bank has no information on this transaction as it is still in transit. ,[object Object]

Transactions appear in bank statement,[object Object],Dishonoured cheque (bounced cheque) or NSF (non-sufficient fund),[object Object],Bank charges – bank commission/fees, cheque book and interest on loan,[object Object],Interest earned,[object Object],Errors in recording. E.g. A cheque RM 5,000 was issued to an employee. The amount recorded in journal was RM 500.,[object Object],Direct transfer of money ,[object Object]

Preparation of Bank Reconciliation Statement: ,[object Object],Example: ,[object Object],A summary of cash books for Seri Enterprise for the month ended 31 July 2007.,[object Object], ,[object Object], RM,[object Object],Opening balance 1,954,[object Object],Add: Receipts 361,537,[object Object], 363,491,[object Object],Less: Payment 343,287,[object Object],Closing balance 20,204,[object Object], ,[object Object],Closing balance of the bank statement is RM18,025 on 31 July 2007.,[object Object]

Other Information:,[object Object],A cheque worth RM 4,135was issued to a supplier, Anjung Murni Enterprise, however was not presented to the bank. Deposit in transit worth RM 5,350 is not recorded in the bank statement. ,[object Object],Seri Enterprise paid to ABC Ltd through direct debit from the bank account worth RM 150. The payment is for purchasing of a computer. The amount is not recorded in the cash book. ,[object Object],A cheque issued by Seri Enterprise worth RM 119, is recorded in the cash book as RM191.,[object Object],Bank charge of RM54. ,[object Object],The bank has incorrectly debited RM 832 to Seri Enterprise account. ,[object Object]

Method no.1:,[object Object], Cash Account (bank),[object Object],Opening bal. 20,204 Bank charge 54 ,[object Object],Error 72 Computer 150,[object Object], Closing bal 20,072,[object Object],20,27620,276,[object Object], Bank Reconciliation as at 31 July 2007RM,[object Object],Balance as per bank statement 18,025,[object Object],Add: Deposit in transit5,350,[object Object], Correction by bank 832 6,182,[object Object],Less: Unpresented cheque(4,135),[object Object], ,[object Object],Balance as per cash book20,072,[object Object]

Method no.2,[object Object],Bank Reconciliation as at 31 July 2007,[object Object],RM,[object Object], Balance as per cash book 20,204,[object Object],Add:,[object Object],Error 72,[object Object],Unpresented cheque 4,135 4,207,[object Object], 24,411,[object Object],Less:,[object Object],Bank charge 54,[object Object],Computer 150,[object Object],Deposit in transit 5,350,[object Object],Error by bank 832 (6,386),[object Object], ,[object Object], Balance as per Bank statement 18,025,[object Object]

Procedure after the preparation of Bank Reconciliation:,[object Object]

Petty Cash Fund,[object Object],A petty cash fund is a cash fund used to pay relatively small amounts.,[object Object]

The Petty Cash Fund,[object Object],1. Establishing the petty cash fund,[object Object],2. Making payments from the fund,[object Object],Amount of expenditure is limited.,[object Object],Receipt for the expense is required.,[object Object],Petty cash voucher for the expense is signed by an authorised person.,[object Object],Mar 1 Petty Cash 100 Cash at Bank 100 (To establish a petty cash fund) ,[object Object],Note: Sum of cash receipts and monies in fund should equal the petty cash total.,[object Object]

Petty Cash Fund (cont’d),[object Object],3. Replenishing the fund,[object Object],At times the petty cash receipts may not match the cash.,[object Object],A cash shortage (or surplus) is debited (or credited) to the Over and Short Account (an expense account).,[object Object],Mar 15 Postage Expense 44,[object Object], Supplies 38,[object Object], Miscellaneous Expense 5,[object Object], Cash at Bank 87 (To replenish petty cash fund) ,[object Object]

Oct. 1 A petty cash fund is established with a cheque for $130 issued to the petty cash custodian.,[object Object],Oct 31 A count of the petty cash fund disclosed the following items:,[object Object],Currency (notes) RM 8.00,[object Object], Coins 0.30,[object Object], Expenditure receipts:,[object Object], Office supplies RM 36.50,[object Object], Telephone and fax 21.30,[object Object], Postage 53.70,[object Object], Freight-out 8.80,[object Object]

Oct 31 A cheque was written to reimburse the fund and increase the fund to RM 260,[object Object],Journalise the entries in October, pertaining to the petty cash fund.,[object Object]

Topic 6 Cash

Topic 6 Cash

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Topic 6 Cash