Cash:

money in the form of bills or coins; "there is a desperate shortage of hard

cash"
prompt payment for goods or services in currency or by check
exchange for cash; "I cashed the check as soon as it arrived in the mail
OR
All those things which are acceptable to a bank as deposit are know as cash
Marketable Security
An investment for which there is usually a ready market.
OR
Securities which can be sold quickly usually listed security or securities which are traded in
secondary markets. That marketable security which maturity period is ! days or less than
! days is included in cash
T. "ills:

A short-term obligation of the U.S. Treasury having a maturity period of one year or
less and sold at a discount from face value.
"ank:

epository financial institution! a financial institution that accepts deposits and
channels the money into lending activities; "he cashed a check at the bank"; "that bank
holds the mortgage on my home"
OR
"ank is an institution which accepts deposits #rom people at a lower rate o# interest. And
lend this money at a higher rate o# interest to the general people.
$i##erence between these two rates is the pro#it o# bank
Restricted Cash:
%unds deposited in separate account& o#ten as a cushion against a possible loss or
debit ser'icing& or some emergency.
(ine o# Credit:
A line of credit is any credit facility extended to a business by a bank or financial
institution. A line of credit may take several forms such as cash credit" overdraft" demand
loan" export packing credit" term loan" discounting or purchase of commercial bills etc. .
OR
A financial agreement under which a bank or other lender agrees to provide a client with
loans of money up to an approved limit during a predefined period. ...
"ank Reconciliation
#ank reconciliation is the process of comparing and matching figures from the
accounting records against those shown on a bank statement. ..
OR
a comparison between the bank$s record of transactions and the record of the
firm$s cash book. After taking into account such items as ..
"ank Statement "alance Reconciling )tems:
$educt: Outstanding checks.
Add: $eposits in transit.
Add or $educt: "ank accounting errors.
"ook "alance Reconciling )tems:
$educt: "ank ser'ice charge.
$educt: *on su##icient #unds check +*S%,.
Add: )nterest earned on checking accounts.
Add: Collections made by the bank.
Add or $educt: Accounting "ook errors
________________________________-
-.ercise./
Shown below is the in#ormation needed to prepare a bank reconciliation #or
$ata %low )nc0. at $ecember 1/
At $ecember 1/& cash per bank statement was /23/:cash per the company
Records were /4552.
1. two debit memoranda accompanied the bank statement: ser'ice charges #or
decemer
o# 657 and a 8!!7 check drawn by 9ane 9ones marked :*S%;
2. cash receipt o# 2121 on $ecember 1/ were not deposited until 9anuary 1.
3. the #ollowing checks had been issued in $ecember but were not included among
the
The paid checks returned by the bank: no 86! #or 437 and no: 81! #or 6!267& and
no 85/ #or 5317.
A. <repare a bank reconcialtion at $ecember 1/.
$ata %low )*C
"ank reconciliation statement
At $ecember 1/0..
"alance as per bank statement
Add deposits
Sub total
(ess outstanding checks
Check number 86! = 43
81! = 6!26
85/ = 531
12/1
Ad>usted cash balance
"alance as per company record
(ess two debit memorandum
Ser'ice charges 65
*S% checks 8!!
Ad>usted cash balance
/23/7
5121
6!15
12/1
/836/
/4552
865
/836/
-.ercise 6.
The cash transaction and cash and cash balance o# *ort#leet %arm #or >uly were as
1. the ledger account #or cash showed a balance at >ly 1/ o# /8488.2.
2. the >uly bank statement showed a closing balance o# /363./6.
3. the cash recei'ed on 9uly 1/ amounted to 5!/4./2. it was le#t at the bank in
the night depository recored a#ter banking hours on 9uly 1/ and there#ore
was not recorded by the bank on the >uly statement.
4. also included with the 9uly bank statement was a debit memorandum #rom
the bank #or 4.82 representing ser'ice charges #or 9uly.
5. a credit memorandum enclosed with the 9uly bank statement indicated the a
non?interest bearing note recei'able #or 5252 #arm rene Manes. (e#t with the
bank #or collection& had been collected and the proceeds credited to the
amount o# *ort#leet #ram.
6. comparison o# the paid checks returned bye the bank with the entries in the
accounting records re'ealed tht checks no 36/ #or 312.!6 issued >uly /2 in
payment #or o##ice equipment& had been erroneously entered in *ort#leet@s
record as 321.!6
7. e.amination o# the paid checks also re'ealed tht three checks& all issued in
>uly & hadn not ye been paid by the bank: no 3// #o 38/./6: no 3/5 #or
85!.3!: no 361 #or 1!/.!2.
8. )ncluded with the >uly bank statement was marked as *S% check drawn by
Aoward Billiam& a customer o# nor #leet #arm. This check was marked *S%
it had been included in the deposit o# 9uly 64 but had been charged back
against the company@s account on >uly 1/.
Ad>usted cash ba *orth %leet %arm
"ank reconciliation statement
As on >uly 1/0.

"alance as per bank statement
Add: deposit in transit
Sub? total
(ess: outstanding checks
Check: 3// = 38/./6
3/5= 85!.3!
361= 1!/.!2
/3!6.4
Ad>usted cash balance
"alance as per company record
Add: credit memorandum
Subtotal
Add: wrongly added check by company
Subtotal
(ess: debit memorandum
= 4.82
*S% = /3!
Ad>usted cash balance

/363./6
5!/4./2
6652.64
/3!6.4
6//56.1
/8448.2
5252
6/1//.2
/3
6/16.2
/34.82
6//56.1
)n'entory Systems
Inventory is a list for goods and materials" or those goods and materials
themselves" held available in stock by a business. ..
+OR,
the value of all the stock of physical items that a business uses in its
production process or has for sale in the ordinary course of doing
business
-ach o# the three cost #low assumptions listed abo'e can be used in either o# two
systems +or methods, o# in'entory:
A. <eriodic
". <erpetual
A. <eriodic in'entory system. Cnder this system the amount appearing in the
)n'entory account is not updated when purchases o# merchandise are made #rom
suppliers. Rather& the )n'entory account is commonly updated or ad>usted only once
Dat the end o# the year. $uring the year the )n'entory account will likely show only
the cost o# in'entory at the end o# the pre'ious year.
Cnder the periodic in'entory system& purchases o# merchandise are recorded in one
or more <urchases accounts. At the end o# the year the <urchases account+s, are
closed and the )n'entory account is ad>usted to equal the cost o# the merchandise
actually on hand at the end o# the year. Cnder the periodic system there is no Cost o#
Eoods Sold account to be updated when a sale o# merchandise occurs.
)n short& under the periodic in'entory system there is no way to tell #rom the general
ledger accounts the amount o# in'entory or the cost o# goods sold.
". <erpetual in'entory system. Cnder this system the )n'entory account is
continuously updated. The )n'entory account is increased with the cost o#
merchandise purchased #rom suppliers and it is reduced by the cost o# merchandise
that has been sold to customers. +The <urchases account+s, do not e.ist.,
Cnder the perpetual system there is a Cost o# Eoods Sold account that is debited at
the time o# each sale #or the cost o# the merchandise that was sold. Cnder the
perpetual system a sale o# merchandise will result in two >ournal entries: one to
record the sale and the cash or accounts recei'able& and one to reduce in'entory and
to increase cost o# goods sold
%&A'()% *!.
A perpetual in'entory system is used by "lackhawk inc0 . and separte in'entory
record are maintained #or each type o# prduct in stock. The #ollowing transaction
shows beginning in'entory purchased& and sale o# CT?1!!& a cellular telephone & #or
the month o# Sep.
Sep /. balance on hand&6!units& cost 75! each 73!!
Sep 2. sale 3 units sale price 78! each 753!
Sep 8. purchased 6!units cost 752 each 7!!
Sep 6/ sale /!units sale price 78! each 78!!
Sep 1/. sale /2units sale price 782 each 742
)nstrucition : A. record the beginning in'entory the purchased the cost o# the goods
sold and the running balance on an in'entory subsidiary record on %)%O method.
B. prepare >ournal entries to record the purchase and sale o# Sep assume tht all
transaction were on account.
"lack Aawk incorporation
)n'entory subsidiary record CT?1!!
%)%O costing method
date purchased sold "alance
Sep
/
unit
s
Unit
costs
Total
costs
units Units
costs
Total
costs
Units Units
costs
Total
costs
20 40 800
Sep
2
8 40 320 12 14 480
Sep
8
20 45 900 12
20
40
45
480
900
Sep
6/
10 40 400 2
20
40
45
80
900
Sep
1/
2
13
40
45
80
585
7 45 315

9ournal entries
Sep 2. a cost o# goods sold 16!
)n'entory 16!
" account payable 53!
Sale 53!
Sep 8 in'entory !!
Account payable !!
Sep 6/ a. Cost o# goods sold 5!!
)n'entory 5!!
b. account payable 8!!
Sale 8!!
Sep 1/ a. Cost o# goods sold 882
)n'entory 882
b. account payable 42
Sale 42
-.ecuti'e suits inc0 use a perpetual in'entory system. This system includes a
perpetual record #or each o# the 8! types o# products. the company keeps in stock
the #ollowing transaction show the purchases and sales o# a particular desk chair
+product code dc?4, during September.
September /. "alance on hand 2!units& cost 8! each 1!!!
Sep 5. <urchase 6!units& cost 82 each /1!!
Sep 3. Sale 12 units& sale price /!! each 12!!
Sep . <urchase 5!units& cost 82 each 68!!
Sep 6! sale 8!units sale price /!! each 8!!!
Sep 62 purchase 5! units cost 4! each 63!!
Sep 1! sale 2 units sale price //! each 22!
)nstruction : A. record the beginning in'entory the purchased the cost o# the goods
sold and the running balance on an in'entory subsidiary record on ()%O
Method.
C. prepare >ournal entries to record the purchase and sale o# Sep assume that all
transaction were on account.
-.ecuti'e Suites inc0
)n'entory subsidiary record +dc ?4,
()%O costing method
date purchased sold "alance
Sep
1
units Unit
costs
Total
costs
units Units
costs
Total
costs
Units Units
costs
Total
costs
50 60 3000
Sep
4
20 65 1300 50
20
60
65
3000
1300
Sep
8
20
15
65
60
1300
900
35 60 2100
Sep
9
40 65 2600 35
40
60
65
2100
2600
Sep
20
40
20
65
60
2600
1200
15 60 900
Sep
25
40 70 2800 15
40
60
70
900
2800
Sep
30
5 70 350 15
35
60
70
900
2450
9ournal entries:
Sep 5 in'entory /1!!
Account payable /1!!
Sep 3 a cost o# goods sold 66!!
)n'entory 66!!
" account payable 12!!
Sale 12!!
Sep in'entory 68!!
Account payable 68!!

Sep 6! a. Cost o# goods sold 13!!
)n'entory 13!!
b. account payable 8!!!
Sale 8!!!
Sep 62 in'entory 63!!
Account payable 63!!
Sep 1! a. Cost o# goods sold 12!
)n'entory 12!
b. account payable 22!
Sale 22!
-FAM<(-6..
-.ecuti'e suits inc0 use a perpetual in'entory system. This system includes a
perpetual record #or each o# the 8! types o# products. the company keeps in stock
the #ollowing transaction show the purchases and sales o# a particular desk chair
+product code dc?4, during September.
September /. "alance on hand 2!units& cost 8! each 1!!!
Sep 5. <urchase 6!units& cost 82 each /1!!
Sep 3. Sale 12 units& sale price /!! each 12!!
Sep . <urchase 5!units& cost 82 each 68!!
Sep 6! sale 8!units sale price /!! each 8!!!
Sep 62 purchase 5! units cost 4! each 63!!
Sep 1! sale 2 units sale price //! each 22!
)nstruction : A. record the beginning in'entory the purchased the cost o# the goods
sold and the running balance on an in'entory subsidiary record on A'erage cost
Method.
D. prepare >ournal entries to record the purchase and sale o# Sep assume that all
transaction were on account.
-.ecuti'e Suites inc0
)n'entory subsidiary record +dc ?4,
A'erage costing method
date purchased sold "alance
Sep
/
units Unit
costs
Total
costs
units Units
costs
Total
costs
Units Units
costs
Total
costs
50 60 3000
Sep
5
20 65 1300 70 61.43 4300
Sep
3
35 61.43 2150 35 61.43 2150
Sep

40 65 2600 75 63.33 4750

Sep
6!
60 63.33 3800 15 63.33 950
Sep
62
40 70 2800 55 68.18 3750
Sep
1!
5 68.18 341 50 68.18 3409
9ournal entries:
Sep 5 in'entory /1!!
Account payable /1!!
Sep 3 a cost o# goods sold 6/2!
)n'entory 6/2!
" account payable 12!!
Sale 12!!
Sep in'entory 68!!
68!! Account payable
Sep 6! a. Cost o# goods sold 13!!
)n'entory 13!!
b. account payable 8!!!
Sale 8!!!
Sep 62 in'entory 63!!
Account payable 63!!
Sep 1! a. Cost o# goods sold 15/
)n'entory 15/
b. account payable 22!
Sale 22!
/. Account Recei'able:
Amount recorded as being owed by a customer for sales on credit or on
account
OR
Accounts receivable +A,R- is one of a series of accounting transactions
dealing with the billing of customers who owe money to a person" company
or organi.ation for goods and services that have been provided to the
customer.
6. Cn?Collectable Account -.panse +"ad G $ebts,:
account receivable" note receivable"or other type of receivable that is unlikely to be paid.
An example is a customer who is bankrupt or on the verge of default
OR
customer account that cannot be collected because of the customer/s unwillingness or
inability to pay. A business normally writes off such a receivable as worthless after several
attempts at collecting the funds.
-.ample /:
Allowance #or doubt#ul account at $ec 1/& 6!!1 is Rs. /!!!!
Account recei'able balance
$ecember 1/& 6!!5 Rs.1!!& !!!
$ecember 1/& 6!!2 Rs.5!!& !!!
-stimated uncollectible #or each accounts periods are 2H #or account recei'able.
Cncollectible that should be written o## are as #ollows
%eb 2&6!!5 Rs.8&!!!
9an /!&6!!2 Rs.3&!!!
Required:
To prepare allowance #or doubt#ul debts accounts at the end o# each accounting
period and their >ournal ledger to write o## account recei'able allowance #or
doubt#ul debt account #rom 6!!5 to 6!!2 and also prepare all required >ournal
entries.
Solution
Allowance #or $oubt#ul Account
$ate $escription Amount $ate $escription Amount
!e"5#2
004
Account $ecei%a"le 6000 &an 1#2004 Balance "'( 10000
Balance c'( 15000 Dec 31#2004 Uncollecti"le
account e)pense
11000
21000 21000
&an
10#200
5
Account $ecei%a"le 8000 &an 1#2005 Balance "'( 15000
Balance c'( 20#000 Dec 31#2005 Uncollecti"le
account e)pense
13000
28#000 28#000
&ou$nal *nt$ies
$ate $escription $ebit Credit
!e"
5#2004
Allo+ance ,o$ (ou"t,ul accounts
Accounts -ecei%a"le
6000
6000
Dec31
#2004
Uncollecti"le account *)pense
Allo+ance ,o$ (ou"t,ul accounts
11000
11000
&an10#
2005
Allo+ance ,o$ (ou"t,ul accounts
Accounts -ecei%a"le
8000
8000
Dec
31#200
5
Uncollecti"le account *)pense
Allo+ance ,o$ (ou"t,ul accounts
13000
1300
$epreciation
epreciation is a term used in accounting" economics and finance to
spread the cost of an asset over the span of several years.
OR
a decrease in price or value; "depreciation of the dollar against the
yen"
decrease in value of an asset due to obsolescence or use
disparagement! a communication that belittles somebody or
something
The straight?(ine Method:
0traight line is a simple and widely used method for computing
depreciation. According to the method" an e1ual portion of the initial cost
of an asset is allocated to each period of use. 2his method is most
appropriate when usage of the asset is fairly uniform year to year. ..
Csing the data in our e.ample the annual straight line depreciation is computed as
#allows
cost I residual 'alue = /4!!?6!!! = 1!!! per year
-stimated use#ul li#e 2 years
$epreciation #or %ractional <eriod:
Bhen an asset is acquired in the middle o# an accounting period it is not necessary
to compute depreciation e.pense to the day or week. )n #act such a computation is
based on an estimated use#ul li#e o# many years.
An e'en widly used approach called the hal#?year con'ention.
Bhen the hal# year con'ention is in use we ignore the date on which the asset was
actually purchased. Be simply recogniJe one?hal# year@s depreciation in both the
#irst year and last year o# the depreciation schedule.
The $eclining?"alance Method:
)n this method is used primarily in income ta. returns rather than the parental
statement.
"y the most widely used accelerated depreciation method is called #i.ed percentage
o# declining balance depreciation.
6!!H $.".Rate = 6!!G/!!K6!H=5!H
$ouble $eclining?"alance Method:
)# we ha'e an asset and we ha'e to compent it depreciation we will compute its
depreciation.
/2!H $.".Rate=/2!G/!!K6!=1!H
MACRS
+Stand #or Accelerated cost Reco'ery,
Cnder MACRS all plant assets are assigned one o# nine reco'ery period
1&2&4&/!&/2&6!&64 L&1/ L or 1 years.
MACRS depreciation is based on the #i.ed percentage o# declining balance method
<roblem *o /
On 9anuary 6& 6!!/. 9ansing Corporation required a new machine with an
estimated use#ul li#e o# 2 year. The cost o# the requirement was 73!&!!! with a
residual 'alue o# 7/!&!!! prepare a complete depreciation table under the #our
depreciation methods. (isted below in each case& assume that a #ull year o#
depreciation was taken in 6!!/.
1. Straight (ine Method
2. 6!!H $eclining "alance
3. /2!H $eclining "alance
4. MACRS
Cost o# Asset = 3!&!!!
Residual Malue = /!&!!!
-stimated Cse#ul (i#e = 2 Nears
$epreciation Schedule
+Straight (ine Method,
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
0 ........ ????????? ????????? 73!&!!!
1 80#000 / 10000'5 14000 14000 66#000
2 80#000 / 10000'5 14000 28000 52#000
3 80#000 / 10000'5 14000 42000 38#000
4 80#000 / 10000'5 14000 56000 24#000
5 80#000 / 10000'5 14000 70000 10000

$epreciation Schedule.
Straight (ine Method +Aal# year con'ention,.
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
0 ........ ????????? ????????? 73!&!!!
1 80#000 / 10000'501'2 7000 7000 73000
2 80#000 / 10000'5 14000 21000 59000
3 80#000 / 10000'5 14000 35000 45000
4 80#000 / 10000'5 14000 49000 31000
5 80#000 / 10000'5 14000 63000 17000
6 80#000 / 10000'501'2 7000 70000 10000
Cost o# Asset = 3!&!!!
Residual Malue = /!&!!!
-stimated Cse#ul (i#e = 2 Nears
6!!H = /G2 K/!!K 6!!G/!! = 5!H
$epreciation Schedule
%or+6!!H $eclining Method,
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
! ........ ????????? ????????? 73!&!!!
/ 80#000 040 1 32000 32#000 48000
6 48#000040 1 19200 51200 28800
1 28800 040 1 11520 62720 17280
5 17280 040 1 6912 69632 10368
2 10368.10000 ' 1 368 70000 10#000
Cost o# Asset = 3!&!!!
Residual Malue = /!&!!!
-stimated Cse#ul (i#e = 2 Nears
150121'501000150'100
$epreciation Schedule
%or+/2!H $eclining Method,
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
! ........ ????????? ????????? 73!&!!!
/ 80#000 030 1 24000 24000 56000
6 56#000030 1 16800 40800 39200
1 39200 030 1 11760 52560 27440
5 27440 030 1 8232 60792 19208
2 19208.10#000' 1 9208 70000 10#000
Cost o# Asset = 3!&!!!
Residual Malue = /!&!!!
-stimated Cse#ul (i#e = 2 Nears
$epreciation Schedule
%or MACRC )ncome Ta. Method
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
! ........ ????????? ????????? 73!&!!!
/ 80#000 0 20.001 16000 16000 64#000
6 80#000 0 32.001 25600 41600 38400
1 80#000 0 19.201 15360 56960 23040
5 80#000 0 11.521 9216 66176 13824
2 80#000 0 11.521 9216 75392 4608
8 80#000 0 5.761 4608 80#000 0
-.ample 6
On April& 1!& 6!!5 a company has purchased a building #or o##ice use. The original
cost o# the building is 7/3!&!!!.and use#ul li#e o# the building is 2 years and residual
'alue o# the building is& 7/3!!!.
Required:?
1. Straight (ine Method
2. 6!!H $eclining "alance
3. /2!H $eclining "alance
4. MACRS
Cost o# Asset = /3!&!!!
Residual Malue = /3!!!
-stimated Cse#ul (i#e = 2 Nears
$epreciation Schedule
+Straight (ine Method,
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
0 ........ ????????? ????????? 7/3!&!!!
1 180#000.18#000'5 32400 32400 147600
2 180#000.18#000'5 32400 64800 115200
3 180#000.18#000'5 32400 97200 82800
4 180#000.18#000'5 32400 129600 50400
5 180#000.18#000'5 32400 162000 18000
Cost o# Asset = /3!&!!!
Residual Malue = /3&!!!
-stimated Cse#ul (i#e = 2 Nears
$epreciation Schedule.
Straight (ine Method +Aal# year con'ention,
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
0 ........ ????????? ????????? 78!&!!!
1 180#000.18000'501'2 16200 16200 54600
2 180#000.18000'5 32400 48600 43800
3 180#000.18000'5 32400 81000 33000
4 180#000.18000'5 32400 113#400 22200
5 180#000.18000'5 32400 145#800 11400
6 180#000.18000'501'2 16200 162#000 18000

$epreciation Schedule
Straight (ine Method +%ractional year con'ention,
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
0 ........ ????????? ????????? 7/3!&!!!
1 180#000.18#000'5'1204 10800 10800 169#200
2 180#000.6000'5 32400 43200 136#800
3 180#000.6000'5 32400 75600 104#400
4 180#000.18#000'5 32400 108000 72#000
5 180#000.18#000'5 32400 140#400 39#600
6 180#000.18#000'5'1208 21600 162#000 18000
Cost o# Asset = /3!&!!!
Residual Malue = /3!!!
-stimated Cse#ul (i#e = 2 Nears
6!!H = /G2 K/!!K 6!!G/!! = 5!H

$epreciation Schedule
%or +6!!H $eclining Method,
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
! ........ ????????? ????????? 7/3!&!!!
/ 180#000040 1 72#000 72#000 108#000
6 108#000040 1 43#200 115#200 64#800
1 64#800040 1 25#920 141#120 38#880
5 38#880 040 1 15#552 156#672 23#328
2 23#328 040 1 5#328 162#000 18000
Cost o# Asset = /3!&!!!
Residual Malue = /3&!!!
-stimated Cse#ul (i#e = 2 Nears
150121'501000150'100
$epreciation Schedule
%or+/2!H $eclining Method,
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
! ........ ????????? ????????? 7/3!&!!!
/ 180#000030 1 54000 54000 126#000
6 126#000030 1 37#800 30600 88#200
1 88#200 030 1 26#460 39420 61#740
5 61#740.18000'2 21#870 46710 39#870
2 61#740.18000'2 21#870 54000 18000
Cost o# Asset = /3!&!!!
Residual Malue = /3&!!!
-stimated Cse#ul (i#e = 2 Nears
$epreciation Schedule
%or MACRC )ncome Ta. Method
Near Computation $epreciation
-.panse
Accumulated
$epreciation
"ook Malue
! ........ ????????? ????????? 7/3!&!!!
/ 180#000 0 20.001 36#000 36000 144#000
6 180#000 0 32.001 57#600 93#600 86#400
1 180#000 0 19.201 34#560 128#160 51#840
5 180#000 0 11.521 20#736 148#896 31#104
2 180#000 0 11.521 20#736 163#632 10#368
8 180#000 0 5.761 10#368 180#000 .0.