Chapter 7

Cash
Accounting, 21
st
Edition
Warren Reeve Fess

Facilitator: Se Tin, S.E., M.Si, Ak



IFRS Edition
Kieso, Weygandt, and Warfield
The accounting and reporting related
to cash is essentially the same under
both IFRS and U.S. GAAP.
Cash
on
The Statement of
Financial Position
Assets
Current assets:
Cash $119,500
Notes receivable 250,000
Accounts receivable $445,000
Less allowance for
doubtful accounts 15,000 430,000
Interest receivable 14,500
Merchandise inventory 714,000
Crabtree Co.
Statement of Financial Position
December 31, 2006
What is cash
Reporting cash
Control of Cash
Summary of cash-related items

Cash
Objectives
Most liquid asset.
Standard medium of exchange.
Basis for measuring and accounting for all other items.
Current asset.
What is Cash?
Examples: coin, currency, available funds on deposit at the
bank, money orders, certified checks, cashiers checks, personal
checks, bank drafts and savings accounts.
A financial assetalso a financial instrument.
Financial Instrument - Any contract that gives rise to a
financial asset of one entity and a financial liability or
equity interest of another entity.
What is Cash?
Illustration 7-1
Types of Assets
Short-term, highly liquid investments that are both
Reporting Cash
(a) readily convertible to cash, and
(b) so near their maturity that they present insignificant risk
of changes in interest rates.
Examples: Treasury bills, commercial paper, and money market
funds.
Cash Equivalents
When material in amount:
Segregate restricted cash from regular cash.
Current assets or non-current assets
Cash
Restricted Cash
Examples, restricted for: (1) plant expansion, (2) retirement of
long-term debt, and (3) compensating balances.
When a company writes a check for more than the
amount in its cash account.
Cash
Bank Overdrafts
Generally reported as a current liability.
Offset against cash account only when available cash is
present in another account in the same bank on which
the overdraft occurred.
What is internal control?
It is the organizational plan & all the
related measures that an entity adopts
to
safeguard assets,
encourage adherence to company
policies,
promote operational efficiency, and...
ensure accurate and reliable accounting
records.
Establishing an Effective
System of Internal Control

1 Competent, reliable, and ethical
personnel
2 Assignment of responsibilities
3 Proper authorization
4 Separation of duties
Retailers Sources of Cash
Cash
Receipts
CASHIERS
DEPARTMENT
ACCOUNTING
DEPARTMENT
Register
records
Mail Receipts
Remittance
advices
1
ACCOUNTING
DEPARTMENT
Deposit ticket
Bank
CASHIERS
DEPARTMENT
Deposit receipt
Retailers Sources of Cash
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
Payments
Bank reconciliation &
The related journal entries
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.
Most companies have multiple bank accounts. The title
for each bank account should be: Cash in Bank(Name
of Bank)
Reasons for Differences Between Depositors
Records and the Bank Statement
Outstanding checks
Deposits in transit
Service charges
Collections
Not-sufficient-funds (NSF)
checks
Errors
BANK
Banks
books
Beginning balance $3,359.78
Depositors
records
Beginning balance $2,549.99
Power Network prepares to reconcile the
monthly bank statement as of July 31, 2006
A deposit of $816.20 did not
appear on the bank statement.
BANK
Banks
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
$4,175.98
Depositors
records
Beginning balance $2,549.99
BANK
Banks
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
$4,175.98
Depositors
records
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
A deposit of $637.02 did not appear
on the bank statement.
Three checks that were written during the
period did not appear on the bank statement:
#812, $1,061; #878, $435.39, #883, $48.60.
BANK
Banks
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99

$4,175.98
Depositors
records
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
$2,957.99
BANK
Banks
books
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99

Depositors
records
Deduct check returned
because of insufficient
funds $300.00
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
$4,175.98
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
$2,957.99
The bank returned an NSF check from one of the
firms customers, Thomas Ivey, in the amount of
$300. This was a payment on account.
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
BANK
Banks
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
$4,175.98
Depositors
records
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
$2,957.99
The bank service charges totaled $18.00.
BANK
Banks
books
Depositors
records
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99

$4,175.98
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
Deduct check return
because of insufficient
funds $300.00
Bank service
charges 18.00
$2,957.99
Error recording
Check No. 879 9.00
Check No. 879 for $732.26 to Taylor Co. on account,
erroneously recorded in journal as $723.26.
327.00
BANK
Banks
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99

$4,175.98
Adjusted balance $2,630.99
Depositors
records
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
Deduct check return
because of insufficient
funds $300.00
Bank service
charges 18.00
$2,957.99
Adjusted balance $2,630.99
Error recording
Check No. 879 9.00 327
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 depositors 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
Power Networking
Bank Reconciliation
July 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 depositors 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
Power Networking
Bank Reconciliation
July 31, 2006
July 31 Cash 408 00
Notes Receivable 400 00
Interest Receivable 8 00
Entries Related to a Bank Reconciliation
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 depositors 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
Power Networking
Bank Reconciliation
July 31, 2006
Entries Related to a Bank Reconciliation
July 31 Cash 408 00
Notes Receivable 400 00
Interest Receivable 8 00
30 Accounts ReceivableThomas Ivey 300 00
Miscellaneous Administrative Exp. 18 00
Accounts PayableTaylor Co. 9 00
Cash 327 00
Petty
Cash
Aug. 1 Petty Cash 100 00
Cash 100 00
On August 1, issued Check No. 511 for $100
to established a petty cash fund.
Aug. 31 Office Supplies 50 00
Cash 88 00
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.
Store Supplies 35 00
Miscellaneous Administrative Exp. 3 00
LO 2
Illustration 7-3
Summary of Cash-Related Items
The End
Chapter 7


Problem 7-13

+ poin
tugas


Exercise 7-1
Problem 7-12