module 7 accounting for cash. sap 2007 / sap university alliances introductory accounting learning...

Module 7

Accounting for Cash

SAP 2007 / SAP University Alliances Introductory Accounting

Learning Objectives


Internal Control System


Fundamental Principles of Internal Control


The costs of internal controls must not exceed their benefits.

Limitations of Internal Control

Human Error

Human Fraud


Cash


Liquidity


Internal Controls for Cash


Control of Cash Disbursements


Petty Cash System of Control

This is an example of the cost-benefit limitation.

GENERAL JOURNAL Page 4Date Description PR Debit Credit

May 1 Petty Cash 150

Cash 150

To establish a petty cash fund

Operating a Petty Cash Fund

The petty cashier makes payments from this fund for small disbursements

Entry to establish fund



Operating a Petty Cash Fund

GENERAL JOURNAL Page 4Date Description PR Debit Credit

May 15 Postage Expense 46

Courier Expense 80

Cash 126

… and ensures a petty cash receipt is signed by the person receiving the money to easily identify the expenses paid from petty cash.

And then makes an entry to record these expenses

We use a CashOver or Short

account if needed.


Banking Activities and Services


Bank Credit Card Transactions


Debit Card Transactions

Illustration-Bank Credit Card Transactions

Sample has $200 of credit card sales with a 3% fee and cash is received immediately (assume cost of sales is $100).

GENERAL JOURNAL Page 8Description PR Debit Credit

Sep 15 Cash 194.00

Credit Expense 6.00

Sales 200.00

To record credit card expense less 4% fee

15 Cost of Goods Sold 100.00 Merchandise Inventory 100.00

To record cost of sales

2005

Date



Bank Reconciliations

The bank statement provides

information about everything that has gone through the

bank account for a given period of time.

CM – Credit MemoDM – Debit MemoEC – Error CorrectionIN – Interest EarnedNSF – Non-sufficient FundsOD – OverdraftSC – Service Charge

31-Oct-05494 504 2

Previous Balance

Current Balance

2,109.58 2,550.00

DateNumber Amount Amount

Oct 1 2,109.58

3 119 55.00 240.00 2,294.58 9 123 25.00 180.00 2,449.58

15 127 50.00 100.00 2,499.58 16 23.00 DM 150.00 2,626.58

17 122 70.00 485.00 3,041.58 18 120 200.00 2,841.58 19 125 15.00 2,826.58 20 20.00 NSF

10.00 DM 2,796.58

26 121 120.00 2,676.58

29 128 135.00 2,541.58

31 IN 8.42 2,550.00

Daily Balance

Edmonton, AB

Sample Company

723.00 1,163.42

Deposits and Credits

Cheques and Debits

Account Number

Total Cheques and Debits

Total Deposits and Credits

Union BankEdmonton, AB

Bank Statement

Statement Date111 Main Street


Cheque # Amount119 55.00$

120 200.00 121 120.00

122 70.00 123 25.00 124 150.00 125 15.00

126 200.00

127 50.00

128 135.00

1,020.00$

(101)

Cash Disbursements Journal

Date Explanation PR Debit Credit Balance30-Sep Balance 2,109.58 31-Oct CR6 815.00 2,924.58

31-Oct CD4 1,020.00 1,904.58

General Ledger Cash Account

Cash Account # 101

The general ledger, cash receipts, and cash disbursements journals

provide information about everything that has gone through our

accounting records for a given period of time.

DateDeposit Amount

Oct 3 $ 240.00

9 180.00

15 100.00 16 150.00 31 145.00

$ 815.00

(101)

Cash Receipts Journal



Why are thebalances different?

*

Bank Reconciliation — Example

31-Oct-05494 504 2

Previous Balance

Current Balance

2,108.58 2,550.00


Oct 1 2,109.58

3 119 55.00 240.00 2,294.58 9 123 25.00 180.00 2,449.58

15 127 50.00 100.00 2,499.58

16 23.00 DM 150.00 2,626.58

17 122 70.00 485.00 3,041.58

18 120 200.00 2,841.58 19 125 15.00 2,826.58 20 20.00 NSF

10.00 DM 2,796.58

26 121 120.00 2,676.58 29 128 135.00 2,541.58

31 IN 8.42 2,550.00

Bank Statement

Statement Date

Daily Balance

Edmonton, AB

Sample Company

723.00 1,163.42


Cheques and Debits


Account Number



111 Main Street

Date Explanation PR Debit Credit Balance30-Sep Balance 2,109.58 31-Oct CR6 815.00 2,924.58 31-Oct CD4 1,020.00 1,904.58

General Ledger Cash Account

Cash Account # 101

Some items are reflectedon the bank statement but

not in the accounting records and vice versa.

Reconciling Items

Bank Statement Outstanding cheques. Deposits in transit. Bank errors.

General LedgerNon-sufficient funds cheque

(NSF).Bank service charges.Interest earned on bank

account.Collections made by the

bank.Book errors.



Let’s prepare the bank reconciliation for Sample Company at the end of October 31, 2005.

31-Oct-05494 504 2

Previous Balance

Current Balance

2,108.58 2,550.00


Oct 1 2,109.58

3 119 55.00 240.00 2,294.58 9 123 25.00 180.00 2,449.58

15 127 50.00 100.00 2,499.58

16 23.00 DM 150.00 2,626.58

17 122 70.00 CM 485.00 3,041.58

18 120 200.00 2,841.58 19 125 15.00 2,826.58 20 20.00 NSF

10.00 DM 2,796.58

26 121 120.00 2,676.58 29 128 135.00 2,541.58

31 IN 8.42 2,550.00

Edmonton, AB

Sample Company

723.00


Account Number


Bank Statement

Statement Date

Daily Balance

1,163.42


111 Main Street


Cheques and Debits

DateDeposit Amount

Oct 3 $ 240.00

9 180.00

15 100.00 16 150.00 31 145.00

$ 815.00

(101)


Cheque # Amount119 55.00$ 120 200.00

121 120.00

122 70.00

123 25.00 124 150.00 125 15.00 126 200.00

127 50.00 128 135.00

1,020.00$

(101)


On both the cash receipts journal AND the bank

statement; therefore, none of these items is

a reconciling item.


31-Oct-05494 504 2

Previous Balance

Current Balance

2,109.58 2,550.00


Oct 1 2,109.58

3 119 55.00 240.00 2,294.58 9 123 25.00 180.00 2,449.58

15 127 50.00 100.00 2,499.58

16 23.00 DM 150.00 2,626.58

17 122 70.00 CM 485.00 3,041.58

18 120 200.00 2,841.58 19 125 15.00 2,826.58 20 20.00 NSF

10.00 DM 2,796.58

26 121 120.00 2,676.58 29 128 135.00 2,541.58

31 IN 8.42 2,550.00


111 Main Street


Cheques and Debits


Account Number


Bank Statement

Statement Date

Daily Balance

1,163.42

Edmonton, AB

Sample Company

723.00

DateDeposit Amount

Oct 3 $ 240.00

9 180.00

15 100.00 16 150.00 31 145.00

$ 815.00

(101)


Cheque # Amount119 55.00$ 120 200.00

121 120.00

122 70.00

123 25.00 124 150.00 125 15.00 126 200.00

127 50.00 128 135.00

1,020.00$

(101)


On both the cash disbursements

journal AND the bank statement;

therefore, none of these items is a

reconciling item.


31-Oct-05494 504 2

Previous Balance

Current Balance

2,109.58 2,550.00


Oct 1 2,109.58

3 119 55.00 240.00 2,294.58 9 123 25.00 180.00 2,449.58

15 127 50.00 100.00 2,499.58

16 23.00 DM 150.00 2,626.58

17 122 70.00 CM 485.00 3,041.58

18 120 200.00 2,841.58 19 125 15.00 2,826.58 20 20.00 NSF

10.00 DM 2,796.58

26 121 120.00 2,676.58 29 128 135.00 2,541.58

31 IN 8.42 2,550.00

Edmonton, AB

Sample Company

723.00


Account Number


Bank Statement

Statement Date

Daily Balance

1,163.42


111 Main Street


Cheques and Debits

DateDeposit Amount

Oct 3 $ 240.00

9 180.00

15 100.00 16 150.00 31 145.00

$ 815.00

(101)


Cheque # Amount119 55.00$ 120 200.00

121 120.00

122 70.00

123 25.00 124 150.00 125 15.00 126 200.00

127 50.00 128 135.00

1,020.00$

(101)


Only in the cash receipts journal OR

the cash disbursements journal

OR the bank statement; therefore,

each of these items is a reconciling item.


31-Oct-05494 504 2

Previous Balance

Current Balance

2,109.58 2,550.00


Oct 1 2,109.58

3 119 55.00 240.00 2,294.58 9 123 25.00 180.00 2,449.58

15 127 50.00 100.00 2,499.58

16 23.00 DM 150.00 2,626.58

17 122 70.00 CM 485.00 3,041.58

18 120 200.00 2,841.58 19 125 15.00 2,826.58 20 20.00 NSF

10.00 DM 2,796.58

26 121 120.00 2,676.58 29 128 135.00 2,541.58

31 IN 8.42 2,550.00

Edmonton, AB

Sample Company

723.00


Account Number


Bank Statement

Statement Date

Daily Balance

1,163.42


111 Main Street


Cheques and Debits

The items that show up only on

the bank statement are reconciling

items on the book side of the bank reconciliation.


31-Oct-05494 504 2

Previous Balance

Current Balance

2,109.58 2,550.00


Oct 1 2,109.58

3 119 55.00 240.00 2,294.58 9 123 25.00 180.00 2,449.58

15 127 50.00 100.00 2,499.58

16 23.00 DM 150.00 2,626.58

17 122 70.00 CM 485.00 3,041.58

18 120 200.00 2,841.58 19 125 15.00 2,826.58 20 20.00 NSF

10.00 DM 2,796.58

26 121 120.00 2,676.58 29 128 135.00 2,541.58

31 IN 8.42 2,550.00

Edmonton, AB

Sample Company

723.00


Account Number


Bank Statement

Statement Date

Daily Balance

1,163.42


111 Main Street


Cheques and Debits Book Balance 1,904.58

Add:

Collection of $500 note less $15 collection fee 485.00 Interest earned 8.42 493.42

2,398.00 Less:

NSF cheque plus s/c 30.00 Cheque printing charge 23.00 53.00

2,345.00

Bank ReconciliationOctober 31, 2005

SAMPLE COMPANY


DateDeposit Amount

Oct 3 $ 240.00

9 180.00

15 100.00 16 150.00 31 145.00

$ 815.00

(101)


Cheque # Amount119 55.00$ 120 200.00

121 120.00

122 70.00

123 25.00 124 150.00 125 15.00 126 200.00

127 50.00 128 135.00

1,020.00$

(101)


The items that show up only on the cash

receipts or cash disbursements journal are reconciling items

on the bank side of the bank reconciliation.


DateDeposit Amount

Oct 3 $ 240.00

9 180.00

15 100.00 16 150.00 31 145.00

$ 815.00

(101)


Cheque # Amount119 55.00$ 120 200.00

121 120.00

122 70.00

123 25.00 124 150.00 125 15.00 126 200.00

127 50.00 128 135.00

1,020.00$

(101)


Bank Balance 2,550.00$

Add:

Deposit in transit 145.00 2,695.00

Less: Outstanding cheques

No. 124 150.00$ No. 126 200.00 350.00

2,345.00$

SAMPLE COMPANY



The Final Product

Bank Balance 2,550.00$ Book Balance 1,904.58$

Add: Add: Collection of $500 note

Deposit in transit 145.00 less $15 collection fee $ 485.00 2,695.00 Interest earned 8.42 493.42

2,398.00 Less: Outstanding cheques Less:

No. 124 150.00$ NSF cheque plus s/c 30.00 No. 126 200.00 350.00 Cheque printing charge 23.00 53.00

Adjusted bank balance 2,345.00$ Adjusted book balance 2,345.00$

SAMPLE COMPANY




Recording Adjusting Entries from the Bank Reconciliation

We journalize the items not previously recorded in the accounting records.


Oct. 31 Cash 485.00 Collection expense 15.00

Notes Receivable 500.00

To record collection by bank

Oct. 31 Cash 8.42 Interest earned 8.42

To record collection by bank

Date2005



Oct. 31 Accounts Receivable - Heflin 30.00

Cash 30.00

To record NSF cheque plus s/c

Oct. 31 Office supplies expense 23.00 Cash 23.00

To record cheque printing charge

2005

Date

Recording Adjusting Entries from Bank Reconciliation


Recording Adjusting Entries from Bank Reconciliation

After posting the reconciling entries the cash account looks like this . . .

GENERAL LEDGER

Account: Cash Acct. No. 101 Balance

Date Item PR Debit Credit DR (CR)

2005

Oct. 31 Balance 1,904.58

31 Adjusting entry G8 485.00 2,389.58

31 Adjusting entry G8 8.42 2,398.00 31 Adjusting entry G8 30.00 2,368.00 31 Adjusting entry G8 23.00 2,345.00

Adjusted balance on October 31.


Acid Test Ratio


Acid Test Ratio

Acid Test Ratio =

Quick assets*

Current liabilities

* cash, short-term investments, and receivables


Cash Flow Statement


Cash Equivalents


Classifications of Cash Flows

Outflows include: Salaries and wages. Payments to suppliers. Taxes and fines. Interest paid to lenders. Other.

Outflows include: Salaries and wages. Payments to suppliers. Taxes and fines. Interest paid to lenders. Other.

Inflows include: Receipts from customers. Cash dividends received. Interest from borrowers. Other.

Inflows include: Receipts from customers. Cash dividends received. Interest from borrowers. Other.

Operating Activities

Cash Flows from


Cash Flows from




Outflows to:• Purchase long-term productive

assets.• Purchase equity investments.• Purchase debt investments.• Make loans.

Outflows to:• Purchase long-term productive

assets.• Purchase equity investments.• Purchase debt investments.• Make loans.

Cash Flows from

Investing Activities

Cash Flows from



Inflows from:

•Selling long-term productive assets.

•Selling equity investments.

•Collecting of principal on loans.

•Other.

Inflows from:

•Selling long-term productive assets.

•Selling equity investments.

•Collecting of principal on loans.

•Other.

Financing Activities

Inflows from:

Issuing its own equity securities.

Issuing bonds and notes.

Issuing temporary and long-term liabilities.

Inflows from:

Issuing its own equity securities.

Issuing bonds and notes.

Issuing temporary and long-term liabilities.

Outflows to: Pay dividends to shareholders. Purchase treasury shares. Repay cash loans. Cover withdrawals by owners.

Outflows to: Pay dividends to shareholders. Purchase treasury shares. Repay cash loans. Cover withdrawals by owners.

Cash Flows from


Cash Flows from




Non-Cash Investing and Financing Activities

Cash flows from operating activities:[List of individual inflows and outflows]Net cash provided (used) by operating activities $ ###

Cash flows from investing activities:[List of individual inflows and outflows]Net cash provided (used) by investing activities ###

Cash flows from financing activities:[List of individual inflows and outflows]Net cash provided (used) by financing activities ###

Net increase (decrease) in cash $ ###Cash (and equivalents) balance at beginning of period ###Cash (and equivalents) balance at end of period $ ###

COMPANY NAMEStatement of Cash Flows

Period Covered

Format of Statement of Cash Flows



Preparing the Cash Flow Statement


Direct Method of Reporting Operating Cash Flows

Revenueor

Expense

Adjustments for

Changes in Related

Balance Sheet Accounts

Cash Receipts

or

Cash Payments


Revenueor

Expense

Adjustments for

Changes in Related

Balance Sheet Accounts

Cash Receipts

or

Cash Payments

Cash received from customers

= Sales { - Increase in A/R + Decrease in A/R


Cash Received from Customers

Question:

The balance in A/R was $50,000 on 1/1/05 and the balance was $65,000 on 12/31/05. If total sales revenue for 2005 was $900,000, then how much cash was received from customers?

a. $800,000

b. $760,000

c. $812,000

d. $885,000



Question:

The balance in A/R was $50,000 on 1/1/05 and the balance was $65,000 on 12/31/05. If total sales revenue for 2005 was $900,000, then how much cash was received from customers?

a. $800,000

b. $760,000

c. $812,000

d. $885,000

A/R increased $15,000 during 2005.

Subtract increases in A/R during 2005 from total revenues to arrive at cash collected from customers.

$900,000 - $15,000 = $885,000


This would appear in the operating section as follows:

Cash flows from operating activities:

Cash received from customers……………$885,000



Purchases = COGS { + Increase in inventory - Decrease in inventory

Cash paid for merchandise

= Purchases { + Decrease in A/P - Increase in A/P

Cash Paid for Merchandise

Step 1

Step 2



Question:

How much did the company pay for inventory in 2005?

a. $900,000 b. $923,000

c. $883,000 d. $877,000

Inventory, 1/1/05 $140,000 A/P, 1/1/05 $33,000Inventory, 12/31/05 $175,000 A/P, 12/31/05 $50,000COGS, 12/31/05 $850,000



Cash Paid for MerchandiseQuestion:

How much did the company pay for inventory in 2005?

a. $900,000

b. $923,000

c. $883,000

d. $877,000



Purchases for 2005 were $900,000.

Purchases = $850,000 + $50,000

Cash Paid for Merchandise in 2005 was $883,000.

Cash Paid = $900,000 - $17,000


This would appear in the operating section as follows:


Cash paid for merchandise..……………$883,000



The cash paid for wages and other operating expenses is affected by

(1) whether the expense was prepaid, and

(2) whether the expense was accrued.

The cash paid for wages and other operating expenses is affected by

(1) whether the expense was prepaid, and

(2) whether the expense was accrued.

{ {Cash paid for

wages and

other operating

expenses

=

Wages

and other

operating

expenses

+ Increase in

prepaid expenses

- Decrease in

prepaid expenses

+ Decrease in

accrued liabilities - Increase in accrued liabilities

Wages and Operating Expenses


Cash Paid for Interest and Taxes

Interest

Taxes

Cash Paid =

InterestExpense{ + Decrease in interest payable

- Increase in inventory

Cash Paid =

Income TaxExpense { + Decrease in taxes payable

- Increase in taxes payable


Direct Method Amortization Expense


Cash Flows from Investing Activities


Illustration: Cash flows from investing activities

A company sells equipment costing $85,000 with accumulated amortization of $55,000 at a loss of $10,000. What is the cash receipt from the sale and how would this be reported on the statement of cash flows?

Loss on Disposal

Net Book Value Proceeds= -

$10,000 = ($85,000 - $55,000) - Proceeds

Proceeds = $20,000


This would appear in the investing section as follows:

Cash flows from investing activities:

Cash received from sale of equipment……$20,000


Cash Flows from Financing Activities


Illustration: Cash flows from financing activities

An analysis of the retained earnings account reveals that the company declared $27,000 in share dividends and paid $28,000 in cash dividends.

Share dividends do not involve cash and are recorded as a transfer from retained earnings to contributed capital.

The cash dividends do involve cash and appear on the statement of cash flows as follows:

Cash flows from financing activities:

Cash paid for dividends………………………$28,000


Cash Flows from Operating Activities — Indirect Method


Indirect Method

This method begins with net income and makes adjustments for:


Adjustments


A review of a company’s year-end financial statements revealed that Accounts Receivable was $148,000 in 2004 and $113,000 in 2005. Inventory was $305,000 in 2004 and $320,000 in 2005. Net income for 2005 was $275,000.

Illustration: Changes in non-cash current assets

This would be reported as:


Net income……………..………………………$275,000

Adjustments to reconcile net income to

net cash provided by operating activities:

Decrease in accounts receivable…………….35,000

Increase in inventory………………………….(15,000)


Adjustments


A review of a company’s year-end financial statements revealed that Accounts Payable was $165,000 in 2004 and $126,000 in 2005. Interest payable was $28,000 in 2004 and $39,000 in 2005. Net income for 2005 was $265,000.

Illustration: Changes in Non-cash Current Liabilities



Net income……………..………………………$265,000



Decrease in accounts payable…………..….(39,000)

Increase in interest payable…………………. 11,000


Adjustments


Amortization expense is an non-cash expense that is used in the computation of net income. In order to compute cash from operating activities we must add it to net income. Assume a company has a net income of $122,000 and amortization expense of $26,000.

Illustration: Operating items not providing or using cash



Net income……………..………………………$122,000



Amortization expense………..…………..…. .26,000


Adjustments


Net income may include gains or losses that are not operating activities. These items are removed from the operating section. Assume a company reported net income of $105,000 which included a $26,000 loss on the sale of a piece of equipment.

Illustration: Non-operating items



Net income……………..……………………….$105,000



Loss on the sale of equipment…………..… .26,000

module 7 accounting for cash. sap 2007 / sap university alliances introductory accounting learning...

Documents

petty cash receipt

petty cash fundapage

cash disbursements journaloct

credit card sales

collection fee485

collection expense15

bank balance2

bank reconciliationoct