Chapter 6 Flashcards
Cash
includes those items that are acceptable to a bank for deposit and are free from restrictions (i.e., available for use in satisfying current debts).
coins, currency, funds on deposit with a bank, checks, and money orders.
NOT postdated checks, certificates of deposit, IOUs, stamps, and travel advances
compensating balances
An amount that must be left on deposit and cannot be withdrawn
should be disclosed
reported separately from cash
Sinking funds
Monies that must be set aside to satisfy debts
restricted foreign currency holdings that can be easily converted/transferred
Sinking funds
Monies that must be set aside to satisfy debts
restricted foreign currency holdings that can be easily converted/transferred
reported in long term investments
cash and cash equivalents
Short-term interest-earning financial instruments that are deemed to be highly secure and will convert back into cash within 90 days
cash budget
major component of the cash planning system
represents the overall plan that depicts cash informs and outflows for stated period of time
External strategies to improve cash flow
Issue additional shares of stock
Borrow additional funds
Internal strategies to improve cash flow
Accelerate cash collections
postponement of cash outflows
cash control:
control features - authorized people, separate duties
control of receipts- compare to register at end of day.
control of receipts by mail - list what comes in then pass on to person for deposit
Internal strategies to improve cash flow
Accelerate cash collections
postponement of cash outflows
cash control:
control features - authorized people, separate duties
control of receipts- compare to register at end of day.
control of receipts by mail - list what comes in then pass on to person for deposit
bank reconciliation
bank reconciliation
cash control procedure
every bank statement should be promptly reconciled by a person not otherwise involved in the cash receipts and disbursements functions
helps identify errors and adjustments for cash account
bank reconciliation
cash control procedure
every bank statement should be promptly reconciled by a person not otherwise involved in the cash receipts and disbursements functions
helps identify errors and adjustments for cash account
compares the amount of cash shown on the monthly bank statement with amount of cash in general ledger
These will differ often
bank statement
the document received from a bank which summarizes deposits and other credits, and checks and other debits
Outstanding checks
Checks written that have not cleared the bank
Reasons that bank statement does not reconcile
outstanding checks
deposits in transit
NSF Checks
bank service charges
notes receivable
Reasons that bank statement does not reconcile
outstanding checks
deposits in transit
NSF Checks
bank service charges
notes receivable
interest earnings
notes receivable
more formal accounts receivable
Steps to reconcile bank statement
reconcile bank statement to correct cash balance
Reconcile ledger to correct cash balance- adjustments
Add adjustment to ledger
Proof of cash
total checks per bank statement and
total disbursements per company record
total receipts on company accounts
problem will show when total on bank statement
exceed totals per company records for receipts/disbursements
Proof of cash
total checks per bank statement and
total disbursements per company record
total receipts on company accounts
problem will show when total on bank statement
exceed totals per company records for receipts/disbursements
recommended for high volume and money
kiting
one opens numerous bank accounts at various locations and then proceeds to write checks on one account and deposit them to another. In turn, checks are written on that account, and deposited to yet another bank
Petty cash
imprest cash
fund for making small payments that are impractical to pay by check
postage due, reimburse for small office purchases
Petty Cash System
establish fund by making check to petty cash, cashing it, place it in petty cash box
designated petty cash custodian
policies for appropriate expenditures
disbursements require receipt to show amount/ nature
receipts + remaining cash = balance of fund ( cash originally placed)
Replenish Petty Cash
check for cash to bring up to original level
receipts are moved and formally recorded as expense
as a debit to the type of expense
credit to cash
Petty cash short and over
Income statement type account
debit: shortages
Credit : overage
trading securities
current asset on balance sheet
investment acquired with intent of generating profits by reselling in the near future
trading securities
current asset on balance sheet
investment acquired with intent of generating profits by reselling in the near future
recorded at cost -incl. brokerage fees
reported at fair value- price that would be paid for sale
Unrealized loss on investments
if you are still holding onto investment and don’t know for sure if it will end in loss
Unrealized loss/gain on investments
if you are still holding onto investment and don’t know for sure if it will end in loss/gain
Valuation Adjustment account
an alternative to directly adjusting the Trading Securities account
maintain a separate Valuation Adjustment account that is added to or subtracted from the Trading Securities account
same results
reason for using the alternative approach is to provide additional information that may be needed for more complex accounting and tax purposes
derivatives
Investments accounted for a fair value that generally derive their value from some other item; examples include commodity futures, options, and so forth
futures, interest rate swap agreements, options related agreements
