c7 - 1 learning objectives power notes 1.cash and cash controls 2.internal control of cash receipts...
TRANSCRIPT
C7 - 1
Learning Objectives
Power Notes
1. Cash and Cash Controls2. Internal Control of Cash Receipts3. Internal Control of Cash Payments4. Bank Accounts: A Cash Control5. Bank Reconciliation6. Petty Cash7. Balance Sheet Cash Presentation8. Financial Analysis and Interpretation
Chapter 7
Cash Cash
C 7
C7 - 2
• Cash Accounts and Internal Controls• Cash Receipts and Controls• Cash Payments and Controls• Bank Reconciliation• Petty Cash Accounting• Ratio of Cash to Current Liabilities
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Power NotesChapter 7
Cash Cash
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Cash Accounts and Internal ControlsCash Accounts and Internal Controls
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)Cash in Bank – (Name of Bank)
Preventive controls protect cash from theft and misuse of cash.
Detective controls are designed to detect theft or misuse of cash and are also preventive in nature.
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1. Over the counter from cash customers.
Use of a cash register is an important control.
2. Received in the mail from credit customers.Cash is in the form of checks.
All cash is sent to the Cashier’s Department.
An employee prepares a bank deposit ticket and makes a bank deposit.
The bank deposit record is sent to the Accounting Department where it is recorded.
Internal Control of Cash ReceiptsInternal Control of Cash Receipts
Cash is normally received from two sources:
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DateDate DescriptionDescription DebitDebit CreditCredit
Cash Short and OverCash Short and Over
Cash 3,142.00Cash Short and Over 8.00
Sales 3,150.00
May 08
To record day’s cash sales. Actual cash received is less than cash register receipts.
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DateDate DescriptionDescription DebitDebit CreditCredit
Cash Short and OverCash Short and Over
Cash in Bank 3,142.00Cash Short and Over 8.00
Sales 3,150.00
May 08
To record day’s cash sales. Actual cash received is less than cash register receipts.
A debit in the Cash Short and Over account represents an expense.
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Cash Receipts From Credit CustomersCash Receipts From Credit Customers
Accts. ReceivableSales Cash
PURCHASEORDER
SALESORDER
1
1 A purchase order is received and a sales order is prepared.
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Cash Receipts From Credit CustomersCash Receipts From Credit Customers
Accts. ReceivableSales Cash in Bank
PURCHASEORDER
SALESORDER
SHIPPINGREPORT
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1 A purchase order is received and a sales order is prepared.
2 Merchandise is shipped and a shipping report is prepared.
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Cash Receipts From Credit CustomersCash Receipts From Credit Customers
SALESINVOICE
Accts. ReceivableSales Cash
Credit Debit
PURCHASEORDER
SALESORDER
SHIPPINGREPORT
12
3
1 A purchase order is received and a sales order is prepared.
2 Merchandise is shipped and a shipping report is prepared.
3 A sales invoice is prepared and sent to customer.
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DEPOSITRECORD
Cash Receipts From Credit CustomersCash Receipts From Credit Customers
SALESINVOICE
Accts. ReceivableSales Cash
Credit Debit Credit Debit
PURCHASEORDER
SALESORDER
SHIPPINGREPORT
12
34
1 A purchase order is received and a sales order is prepared.
2 Merchandise is shipped and a shipping report is prepared.
3 A sales invoice is prepared and sent to customer.
4 Cash is received from customer, deposited, and recorded.
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1. Cash controls must provide assurance that payments are made for only authorized transactions.
2. Cash controls should ensure that cash is used efficiently.
3. A voucher system provides assurance that what is being paid for was properly ordered, received, and billed by the supplier.
Internal Control of Cash PaymentsInternal Control of Cash Payments
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Cash Payments to SuppliersCash Payments to Suppliers
Accts. PayableCash Merchandise
PURCHASEORDER 1
1 A purchase order is sent to a supplier.
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Cash Payments to SuppliersCash Payments to Suppliers
Accts. PayableCash Merchandise
PURCHASEORDER
RECEIVINGREPORT
1
2
1 A purchase order is sent to a supplier.
2 Merchandise is received and a receiving report is prepared.
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VOUCHER
Cash Payments to SuppliersCash Payments to Suppliers
Accts. PayableCash Merchandise
Credit Debit
PURCHASEORDER
PURCHASEINVOICE RECEIVING
REPORT
1
2
3
1 A purchase order is sent to a supplier.
2 Merchandise is received and a receiving report is prepared.
3 A purchase invoice is received and a voucher is prepared.
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VOUCHER
Cash Payments to SuppliersCash Payments to Suppliers
CHECK
Accts. PayableCash Merchandise
Credit Debit Credit Debit
PURCHASEORDER
PURCHASEINVOICE RECEIVING
REPORT
1
2
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1 A purchase order is sent to a supplier.
2 Merchandise is received and a receiving report is prepared.
3 A purchase invoice is received and a voucher is prepared.
4 Cash is paid to the supplier and recorded.
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Cash Receipts and PaymentsCash Receipts and Payments
CHECK
Accts. PayableCash
Credit Debit
2
1 Cash received on account from customers.
DEPOSITRECORD
Accts. Receivable
Credit Debit
1
Selling Side of BusinessSelling Side of Business Buying Side of BusinessBuying Side of Business
2 Cash paid on account to suppliers.
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Power NetworkingBank Reconciliation
July 31, 2003
Balance per bank statement $3,359.78Add deposit of July 31, not recorded by bank 816.20
$4,175.98Deduct outstanding checks:
No. 812 $1,061.00No. 878 435.39No. 883 48.60 1,544.99
Adjusted balanceAdjusted balance $2,630.99$2,630.99
Balance per depositor’s records $2,549.99Add note and interest collected by bank 408.00
$2,957.99Deduct: Check NSF check returned $300.00
Bank service charges 18.00Error in recording Check No. 879 9.00
Adjusted balanceAdjusted balance $2,630.99$2,630.99
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Power NetworkingBank Reconciliation
July 31, 2003
Balance per bank statement $3,359.78Add deposit in transit 816.20
$4,175.98Deduct outstanding checks:
No. 812 $1,061.00No. 878 435.39No. 883 48.60 1,544.99
Adjusted balance $2,630.99
Balance per depositor’s records $2,549.99Add note and interest collected by bank 408.00
$2,957.99Deduct: Customer NSF check $ 300.00
Bank service charges 18.00Error in recording Check No. 879 9.00 327.00
Adjusted balance $2,630.99
AA
BB
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DateDate DescriptionDescription DebitDebit CreditCredit
Bank Reconciliation Journal EntriesBank Reconciliation Journal Entries
AA
BB
Cash 408Notes Receivable 400Interest Revenue 8
Accounts Receivable - T. Ivey 300Miscellaneous Expense 18Accounts Payable - Taylor Co. 9
Cash 327
Jul. 31
To record note collected by bank.
To record customer’s NSF check, bank service charges, and error in recording Check No. 879.
Jul. 31
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Date Description P.R. Debit Credit
BalanceDate Item P.R. Debit Credit Debit Credit
Account: Cash Account No. 11
General Journal
General Ledger
Page 1
AA
BB
7/31 Balance 2,549.99
Bank Reconciliation - Journal and LedgerBank Reconciliation - Journal and Ledger
7/31 Cash 11 408.00408.00Notes Receivable 400.00Interest Revenue 8.00
7/31 Accts. Receivable - T. Ivey 300.00Miscellaneous Expense 18.00Accts. Payable - Taylor Co. 9.00
Cash 11 327.00327.00
7/31 Balance 2,549.997/31 J1 408.00408.00 2,957.997/31 J1 327.00327.00 2,630.99
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DateDate DescriptionDescription DebitDebit CreditCredit
Petty Cash AccountingPetty Cash Accounting
Petty Cash 100.00Cash 100.00
Office Supplies 50.00Store Supplies 35.00Misc. Admin. Expense 3.00
Cash 88.00
Note: No entry in Petty Cash account when the fund is replenished.
Aug. 1
To establish a petty cash fund.
To replenish the petty cash fund.
Aug. 31
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Solvency AnalysisSolvency Analysis
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 current and noncurrent liabilities.
This ability is normally assessed by examining balance sheet relationships.
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Solvency Measures — The Short-Term CreditorSolvency Measures — The Short-Term Creditor
A. Cash and equivalents $100,000 $ 120,000
B. Current liabilities 400,000 1,500,000
Doomsday ratio A / B 0.25 0.08
Doomsday RatioDoomsday RatioDoomsday RatioDoomsday RatioLaettner Co. Oakley Co.
How are these ratios used?How are these ratios used?
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Solvency Measures — The Short-Term CreditorSolvency Measures — The Short-Term Creditor
A. Cash and equivalents $100,000 $ 120,000
B. Current liabilities 400,000 1,500,000
Doomsday ratio A / B 0.25 0.08
Doomsday RatioDoomsday RatioDoomsday RatioDoomsday RatioLaettner Co. Oakley Co.
Use: To indicate the worst case assumption that should the business cease to exist, only the cash on hand is available to meet creditor obligations.
Use: To indicate the worst case assumption that should the business cease to exist, only the cash on hand is available to meet creditor obligations.
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This is the last slide in Chapter 7. This is the last slide in Chapter 7.
Power Notes Cash Cash
Chapter 7