Workshop week 10

Accounting for cash

Bank Reconciliations
Petty Cash

Accounting for Cash
What is Cash?
Money (ie notes and coins)
Duplicates of credit card & EFTPOS sales
Negotiable instruments accepted by financial
institutions
cheques
postal notes / money orders

CONTROL OF CASH
Cash is the asset most subject to theft
Need a good internal control system for
handling cash and recording cash
transactions
3 important principles
Separation of responsibility for handling and
custodianship of cash from maintaining records
for cash
Banking intact each days cash receipts
Making all payments by electronic transfer or by
cheque
3
BANK ACCOUNTS AND
RECONCILIATION
Cheque accounts
Essential element of internal control
Source documents
Use of Electronic Funds Transfer
Reduces processing costs
The Bank Statement
Record of transactions from the bank

4
Shown in the
Banks records
(ie on the bank statement)
Shown in the
Business records
(ie GL Cash at Bank a/c )
Reconciliation of the cash account
A report known as a Bank Reconciliation is used to compare (or
reconcile) the balances of cash:





This is necessary because they rarely agree, due to:
Timing differences
Outstanding deposits, unpresented cheques
Direct deposits eg interest, direct charges eg bank
fees
Errors (made by either the business or the bank)
to
Reconciliation Procedure
To prepare a bank reconciliation you require:
1. Last bank reconciliation
2. Cash receipts and cash payments journals
3. Cash at bank ledger accounting
4. Bank statement for the period since last
reconciliation
6
Reconciliation Procedure
Step 1: Check all items and errors from last
reconciliation have cleared
Any items still not cleared include in current
reconciliation
Step2: Compare
Cash receipts journal with credits in bank statement
Cash payments journal with debits in bank statement
Marking entries that appear in both and identifying
differences
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Reconciliation Procedure
Step 3: Update cash journals for items
captured by bank statement.
Step 4: Deal with errors
Adjust cash journals for any errors in them
Notify bank of any errors in statement
Note these errors on reconciliation until corrected.
Step 5: Total cash journals and post to ledgers
Step 6: Prepare bank reconciliation
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Bank rec format

Balance as per bank statement Cr (or Dr) $ 000
Add outstanding deposits 000
000
Deduct unpresented cheques 00
00
00 000
Balance as per Cash at Bank account Dr or (Cr) $ 000

Cathys Consulting
Bank Reconciliation Statement
as at 30/6/ 2013
EXAMPLE OF
A BANK RECONCILIATION
R.ROBSON AND SON
Bank Reconciliation Statement
As at 31 July 2013
Balance as per bank statement 399.10 Cr
Add: Outstanding Deposit 219.40
618.50
Less: Unpresented cheques
1922 $10.00
1923 77.40
1924 22.05
1925 82.56 192.01
Balance as per Cash at Bank account 426.49 Dr
10
EXAMPLE OF
A BANK RECONCILIATION with bank
error
R.ROBSON AND SON
Bank Reconciliation Statement
As at 31 July 2013
Balance as per bank statement 5,923.55 Cr
Add: Outstanding Deposit 642.90
6,566.45
Less: Unpresented cheques
248 $406.50
257 174.00 (781.90)
Less: Bank error Chq 251, $77
shown as $7
(70.00)
Balance as per Cash at Bank account $5714.55 Dr
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Any
error by
the
bank
appears
here
EXAMPLE OF
A BANK RECONCILIATION with Debit
opening balance
R.ROBSON AND SON
Bank Reconciliation Statement
As at 31 July 2013
Balance as per bank statement (5923.55) Dr
Add: Outstanding Deposit 642.90
(5280.65)
Less: Unpresented cheques
248 $406.50
257 174.00 (781.90)
Balance as per Cash at Bank
account
($6062.55) Cr
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Now try Exercise 11.9

Balance as per bank statement Cr (or Dr) $ 000
Add outstanding deposits 000
000
Deduct unpresented cheques 00
00
00 000
Balance as per Cash at Bank account Dr or (Cr) $ 000

Cathys Consulting
Bank Reconciliation Statement
as at 30/6/ 2013
Second part of Reconciliation process
- Postings to CRJ and CPJ
CRJ
Debit
Credit
Dat
e
Account Post Bank Disc
all
GST
Coll
Sales Acc Rec Other GST Coll
31/
7
Bill Rec 125 3,000

3,000
31/
7
Interest Rev 415 50.00

50.00
31/
7
Dish Chq-
R.Song
120 (456.00)

(456.00)

2,594 (456.00) 3,050
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CPJ
Debit Credit
Date Account Chq
No
Post Purch Acc Pay Other GST
Out
Bank Disc
Rec
GST
Out
31/7 Bank Fees 520 40.00 40.00
31/7 Our Error
adj
9.00 9.00
9.00 40.00 49.00
THE PETTY CASH FUND
To avoid the expense and inconvenience of
writing many cheques to cover minor
expenses many entities have a petty cash
fund
Establishing the fund
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CPJ Debit Credit
Date Account Chq
No
Post Purch Acc
Pay
Other GST
Out
Bank Disc
Rec
GST Out
2/1 Petty
Cash
123 111 100.00 100.00


THE PETTY CASH FUND
Making payments from the fund
Use a petty cash voucher or receipt
Reimbursing the fund
Cash Payments Journal
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Date Chq No Post Purch Acc
Pay
Other GST
Out
Bank Disc
Rec
GST
Out
2/1 Petty Cash 123 111 100.00 100.00
31/1 Stationery
Exp
516 15.22 1.52

Office
Supplies Exp
517 12.30 1.23

Postage Exp 521 56.47 5.65

Petty Cash 145 111 92.39
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Account Cheque
No.
Post
Ref.
Accts
Pay
GST
Outlays
Other Disc
Rec
Cash at
Bank
A. Petty Cash 432 300.00 300.00

B. Stationery Exp.
5.00

50.00

Office Supplies Exp. 9.00 90.00

Advertising Exp.

4.00

40.00

Sundry Exp. 5.00 50.00
883 23.00 230.00 253.00

C. Petty Cash 894 100.00 100.00

Solution
Cash Payments Journal

CASH MANAGEMENT
Principles of cash management
Revenue collection time for accounts receivable
Postpone payments to accounts payable
Keep inventory levels to a minimum
Invest surplus cash
Plan for capital expenditures
Analysing adequacy of cash flows
Short-term cash flow adequacy ratio
Cash flow adequacy ratio
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