chapter 11 and 18 Flashcards
1
Q
cash
A
- money and any negotiable instrument eg. cheque
- cash at hand is an unproductive asset because it produces no income
2
Q
control of cash
A
- asset most subject to theft
- need good internal control systems for handling cash and recording cash transactions
- three important principles
- > separation of responsibility for handling and custodianship
- > banking intact each day’s cash receipts - prevents cashier from borrowing funds for some time before depositing
- > making all payments by e.transfer - requires authorisation by personnel
3
Q
control of cash receipts
A
- cash rec. through mail
- > control relies heavily on separation of record keeping and custodianship
- cash receipts from cash sales
- > use of cash registers
- cash short and over
- > cash shortage is recorded when daily sales are recorded
4
Q
internal control and cash receipts
A
- clear lines of responsibility
- > only designated ppl act as cashiers
- separation of record keeping & custodianship
- > ppl who handle cash do not bank cash or record receipts
- division of responsibility for related transactions
- > mail clerk records receipts whilst another person supervises
- internal control
- > one staff member records cash, another compares receipts w/ deposits
- physical control
- > use of safe on premises for cash storage
5
Q
bank accounts and reconciliation
A
- cheque accounts
- > essential element of internal control
- use of electronic funds transfer
- > gradually replacing cheques
6
Q
bank reconciliation statement
A
- statement prepared to reconcile the balance reported on the bank statement
7
Q
bank reconciliation
A
- CAB balance =/= balance on bank statements, due to timing.
- to ensure it matches, bank reconciliation statement is prepped.
- > deals with identifying the transactions and entries that cause the balance to differ
8
Q
petty cash fund
A
- specified amt of cash placed under the control of an employee for use in small cash payments
- avoid the expense and inconvenience of writing many cheques to cover minor expenses
- to make payments, use a cash voucher or receipt
9
Q
Cash budgeting
A
- projection of future cash receipts and cash payments over a period of time
- cash budget are usually prepared on a monthly basis but can arise depending on need of the entity
- period of time covered by cash budget varies from 3-6months
- preparation ensures that
- > entity can meet commitments and maintain credit standing
- > reputation and credit standing is maintained
- > borrowings are minimised
10
Q
Cash flows
A
- provides useful information to internal users in their planning and controlling operations
11
Q
cash flows: operating activities
A
activities associated with the provision of an entity’s goods or services, and other activities
- sale of goods or services
- cash advances and loans made by financial institutions relating to the entity’s main revenue-producing activities
- major business operations
- to suppliers for goods
- employees for services
- lends for interest and other borrowing costs
- government for income tax, GST, other charges
- other person’s for material and contracts
12
Q
cash flows; investing activities
A
activities associated with the acquisition and sale of an entity’s non-current assets, and with the purchasing and selling of investments
- sale of property, plant and equipment
- sale of shares and debentures of other entities
- repayment of advances and loans to other entities
- interest received
- dividends received
- to purchase property, plant and equipment
- to purchase shares and debentures of other entities
- to lend money to other entities
13
Q
cash flows; financial activities
A
activities relating to the raising of funds for an entity to carry out its operating and investing activities
- issue of shares
- issuing debentures, notes
- borrowing
- grants
- to shareholders for share buy-backs and redemption of preference shares
- to owners for dividends paid
- to debenture holders for redemption of debts
- to lenders to repay borrowings
