slide1
Download
Skip this Video
Download Presentation
Chapter 7

Loading in 2 Seconds...

play fullscreen
1 / 40

Cash - PowerPoint PPT Presentation


  • 132 Views
  • Uploaded on

© Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. . Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc. Chapter 7. Cash. Accounting, 21 st Edition Warren Reeve Fess.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Cash' - fathi


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

© Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved.

Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

Chapter 7

Cash

Accounting, 21st Edition

Warren Reeve Fess

PowerPoint Presentation by Douglas CloudProfessor Emeritus of AccountingPepperdine University

slide2

Some of the action has been automated, so click the mouse when you see this lightning bolt in the lower right-hand corner of the screen. You can point and click anywhere on the screen.

slide3

Objectives

1.Describe the nature of cash and the importance of internal control over cash.

2.Summarize basic procedures for achieving internal control over cash receipts.

3.Summarize basic procedures for achieving internal control over cash payments, including the use of a voucher system.

4.Describe the nature of a bank account and its use in controlling cash.

After studying this chapter, you should be able to:

slide4

Objectives

5.Prepare a bank reconciliation and journalize any necessary entries.

6.Account for small cash transactions using a petty cash fund.

7.Summarize how cash is presented on the balance sheet.

8.Compute and interpret the ratio of cash to current liabilities.

slide5

Control Over Cash

  • Many companies need several cash accounts to account for different cash categories and funds.
  • Most companies have multiple bank accounts. The title for each bank account should be: Cash in Bank—(Name of Bank)
  • Preventive controlsprotect cash from theft and misuse of cash.
  • Detective controlsare designed to detect theft or misuse of cash and are also preventive in nature.
slide6

Mail Receipts

Retailers’ Sources of Cash

Register records

Cash Receipts

CASHIER’S DEPARTMENT

ACCOUNTINGDEPARTMENT

Remittance advices

slide7

Deposit receipt

Deposit ticket

Bank

Retailers’ Sources of Cash

CASHIER’S DEPARTMENT

ACCOUNTINGDEPARTMENT

1

controlling cash received from cash sales
Controlling Cash Received from Cash Sales

19 Cash 3 142 00

Cash Short and Over 8 00

Sales 3 150 00

To record cash sales and actual cash on hand.

Cash sales for March 19 totaled $3,150.00 per the cash register tape. After removing the change fund, only $3,142.00 was on hand.

slide9

Controlling Cash Received in the Mail

Most companies’ invoices are designed so that customers return a portion of the invoice, call a remittance advice.

slide10

Controlling Cash Received in the Mail

1.The employee who opens the mail should initially compare the amount received with the amount on the remittance advice.

2.The employee opening the mail stamps checks and money orders “For Deposit Only” in the bank account of the business.

3.All cash is sent to the Cashier’s Department where checks and money orders are combined with receipts from cash sales and a bank deposit ticket is prepared.

slide11

Controlling Cash Received in the Mail

4. The remittance advices and their summary totals are delivered to the Accounting Department where a clerk prepares the records of the transactions and posts them to the customer account.

5.The stamped duplicate copy of the deposit ticket is returned to the Accounting Department where a clerk compares the receipt with the total amount that should have been deposited.

slide12

Internal Control of Cash Payments

1. Cash controls must provide assurance that payments are made for only authorized transactions.

2. Cash controls should ensure that cash is usedefficiently.

3. A voucher system provides assurance that what is being paid for was properly ordered, received, and billed by the supplier.

slide13

13

A voucher system is a set of procedures for authorizing and recording liabilities and cash payments.

Basic Features of the Voucher System

basic features of the voucher system
Basic Features of the Voucher System
  • A voucher system normally uses vouchers.
  • The system normally has a file for unpaid vouchers and a file for paid vouchers.
  • Usually prepared by the Accounting Department after all necessary supporting documents are received (purchase order, supplier’s invoice, and a receiving report).
  • In preparing the voucher, the accounts payable clerk verifies the quantity, price, and mathematical accuracy of the supporting documents and files the paid voucher.
slide16

A bank reconciliation is a listing of the items and amounts that cause the cash balance reported in the bank statement to differ from the balance of the cash account in the ledger.

slide17

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

  • Outstanding checks
  • Deposits in transit
  • Service charges
  • Collections
  • Not-sufficient-funds (NSF) checks
  • Errors
slide18

Steps in a Bank Reconciliation

1. Compare each deposit listed on the bank statement with unrecorded deposits appearing on the preceding period’s reconciliation and with deposit receipts.

Add deposits not recorded by the bank to the balance according to the bank statement.

2. Compare paid checks with outstanding checks appearing on the preceding period’s reconciliation and with recorded checks.

Deduct checks outstanding that have been paid by the bank from the balance according to the bank statement.

3. Compare bank credit memorandums to entries in the journal.

Add credit memorandums that have not been recorded to the balance according to the depositor’s records.

slide19

Steps in a Bank Reconciliation

4. Compare bank debit memorandums to entries recording cash payments.

Deduct debit memorandums that have not been recorded from the balance according to the depositor’s records.

5. List any errors discovered during the preceding steps.

slide20

BANK

Depositor’s records

Bank’s books

Beginning balance $2,549.99

Beginning balance $3,359.78

Power Network prepares to reconcile the monthly bank statement as of July 31, 2006

slide21

BANK

Depositor’s records

Bank’s books

Beginning balance $2,549.99

Beginning balance $3,359.78

Add deposit not

recorded by bank 816.20

$4,175.98

A deposit of $816.20 did not appear on the bank statement.

slide22

BANK

Beginning balance $3,359.78

Add deposit not

recorded by bank 816.20

$4,175.98

Depositor’s records

Bank’s books

Beginning balance $2,549.99

Add note and interest

collected by bank 408.00

$2,957.99

The bank collected a note in the amount of $400 and the related interest of $8 for Power Networking

slide23

BANK

Depositor’s records

Bank’s books

Beginning balance $2,549.99

Beginning balance $3,359.78

Add deposit not

recorded by bank 816.20

Add note and interest

collected by bank 408.00

$4,175.98

$2,957.99

Deduct outstanding

checks:

No. 812 $1,061.00

No. 878 435.39

No. 883 48.60 1,544.99

Three checks that were written during the period did not appear on the bank statement: #812, $1,061; #878, $435.39, #883, $48.60.

A deposit of $637.02 did not appear on the bank statement.

slide24

BANK

Beginning balance $2,549.99

Beginning balance $3,359.78

Add deposit not

recorded by bank 816.20

Add note and interest

collected by bank 408.00

$4,175.98

$2,957.99

Depositor’s records

Bank’s books

Deduct outstanding

checks:

No. 812 $1,061.00

No. 878 435.39

No. 883 48.60 1,544.99

Deduct check returned

because of insufficient

funds $300.00

The bank returned an NSF check from one of the firm’s customers, Thomas Ivey, in the amount of $300. This was a payment on account.

slide25

BANK

Depositor’s records

Bank’s books

Beginning balance $2,549.99

Beginning balance $3,359.78

Add deposit not

recorded by bank 816.20

Add note and interest

collected by bank 408.00

$4,175.98

$2,957.99

Deduct outstanding

checks:

No. 812 $1,061.00

No. 878 435.39

No. 883 48.60 1,544.99

Deduct check return

because of insufficient

funds $300.00

Bank service

charges 18.00

The bank service charges totaled $18.00.

slide26

BANK

Beginning balance $2,549.99

Beginning balance $3,359.78

Add deposit not

recorded by bank 816.20

Add note and interest

collected by bank 408.00

$4,175.98

$2,957.99

Deduct outstanding

checks:

No. 812 $1,061.00

No. 878 435.39

No. 883 48.60 1,544.99

Deduct check return

because of insufficient

funds $300.00

Bank service

charges 18.00

Depositor’s records

Bank’s books

Error recording

Check No. 879 9.00

327.00

Check No. 879 for $732.26 to Taylor Co. on account, erroneously recorded in journal as $723.26.

slide27

BANK

Depositor’s records

Bank’s books

Beginning balance $2,549.99

Beginning balance $3,359.78

Add deposit not

recorded by bank 816.20

Add note and interest

collected by bank 408.00

$4,175.98

$2,957.99

Deduct outstanding

checks:

No. 812 $1,061.00

No. 878 435.39

No. 883 48.60 1,544.99

Deduct check return

because of insufficient

funds $300.00

Bank service

charges 18.00

Error recording

Check No. 879 9.00 327

Adjusted balance $2,630.99

Adjusted balance $2,630.99

power networking bank reconciliation july 31 2006
Power NetworkingBank ReconciliationJuly 31, 2006

Balance per bank statement $3,359.78

Add: Deposit not recorded by bank 816.20 $4,175.98

Deduct: Outstanding checks

No. 812 $1,061.00

No. 878 435.39

No. 883 48.60 1,544.99

Adjusted balance $2,630.99

Balance per depositor’s records $2,549.99

Add: Note and interest collected by bank 408.00

$2,957.99

Deduct: NSF check (Thomas Ivey) returned $300.00

Bank service charges 18.00

Error in recording Check No. 879 9.00 327.00

Adjusted balance $2,630.99

slide30

Journal entries must be prepared for those items that affected the depositor’s side of the reconciliation.

slide31

Power NetworkingBank ReconciliationJuly 31, 2006

Balance per bank statement $3,359.78

Add: Deposit not recorded by bank 816.20 $4,175.98

Deduct: Outstanding checks

No. 812 $1,061.00

No. 878 435.39

No. 883 48.60 1,544.99

Adjusted balance $2,630.99

Balance per depositor’s records $2,549.99

Add: Note and interest collected by bank 408.00 $2,957.99

Deduct: NSF check (Thomas Ivey) returned $300.00

Bank service charges 18.00

Error in recording Check No. 879 9.00 327.00

Adjusted balance $2,630.99

slide32

Entries Related to a Bank Reconciliation

July 31 Cash 408 00

Notes Receivable 400 00

Interest Receivable8 00

Note collected by bank.

slide33

Power NetworkingBank ReconciliationJuly 31, 2006

Balance per bank statement $3,359.78

Add: Deposit not recorded by bank 816.20 $4,175.98

Deduct: Outstanding checks

No. 812 $1,061.00

No. 878 435.39

No. 883 48.60 1,544.99

Adjusted balance $2,630.99

Balance per depositor’s records $2,549.99

Add: Note and interest collected by bank 408.00 $2,957.99

Deduct: NSF check (Thomas Ivey) returned $300.00

Bank service charges 18.00

Error in recording Check No. 879 9.00 327.00

Adjusted balance $2,630.99

slide34

July 31 Cash 408 00

Notes Receivable 400 00

Interest Receivable8 00

Note collected by bank.

Entries Related to a Bank Reconciliation

30 Accounts Receivable—Thomas Ivey 300 00

Miscellaneous Administrative Exp. 18 00

Accounts Payable—Taylor Co. 9 00

Cash 327 00

NSF check, bank service charges, and error in recording Check no. 879.

slide36

On August 1, issued Check No. 511 for $100 to established a petty cash fund.

Aug. 1 Petty Cash 100 00

Cash 100 00

Established petty cash fund.

slide37

At the end of August, the petty cash receipts indicated expenditures for the following items: office supplies, $28, postage (office supplies), $22; store supplies, $35, and miscellaneous administrative items, $3.

Aug. 31 Office Supplies 50 00

Store Supplies 35 00

Miscellaneous Administrative Exp. 3 00

Cash 88 00

Replenished petty cash fund.

slide38

Financial Analysis and Interpretation

Solvency is the ability of a business to meet its financial obligations (debts) as they are due.

Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its currentandnoncurrent liabilities.

This ability is normally assessed by examining balance sheetrelationships.

slide39

Financial Analysis and Interpretation

Doomsday Ratio

Laettner Co. Oakley Co.

A. Cash and equivalents $100,000 $ 120,000

B. Current liabilities 400,000 1,500,000

Doomsday ratio A / B 0.25 0.08

Use: To indicate the company’s ability to meet creditors obligations in the worst case assumption that should the business cease to exist.

How are these ratios used?

slide40

Chapter 7

The End

ad