pptchapter7 - Learning Objectives Cash and Receivables...

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Slide 7-1 UCSB, Anderson Cash and Receivables Chapter 7 Slide 7-2 UCSB, Anderson No substantial departures from the text, Chapter 7. Learning Objectives Slide 7-3 UCSB, Anderson Nature and Composition of Cash Cash is classified as a . ...... To be reported as CASH: x Must be readily available for the payment of current obligations, and . ...… x it must be free from any contractual restriction that limits its use in satisfying debts. Current Asset Slide 7-4 UCSB, Anderson Additional Cash Issues z Bank Overdrafts (means negative cash) Happens when outstanding checks exceeds cash at bank plus deposits in transit (or when the Company has overdraft protection) Is this an asset? NO!!- current liability called “bank overdraft” z Restricted Cash- such as cash held as collateral for bank. Requires disclosure z Cash Equivalents Some companies include investments which are readily converted to cash within 90 days as a “cash equivalent”- requires disclosure. Hence their financial statement presentation for the cash line reads: “cash and cash equivalents”. Slide 7-5 UCSB, Anderson Account Classification Cash Temporary investments Temporary investments Accounts receivable Receivable Long-term investments (bond sinking fund) Cash Investments (ST or LT?) a. Coins and currency b. U.S. Treasury bonds c. Certificate of deposit d. NSF check (customer) e. Postdated checks f. Cash to be used for bond retirement g. Deposits in transit h. Shares of AOL stock Items Account Slide 7-6 UCSB, Anderson Account Classification Cash Cash Postage expense Prepaid i. Savings account j. Petty cash k. Stamps l. Travel advances Items Account
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Slide 7-7 UCSB, Anderson Cash Controls Why are cash controls important? z Cash is most susceptible asset to theft. z Because ultimately everything culminates in cash, consequently other problems frequently manifest themselves as unknown “reconciling items” when the bank reconciliation is performed. What do you think are the two most important cash controls to have? z Segregation of duties (forces collusion) z Check signing authority (have to get the cash out of the bank in order to steal it! Slide 7-8 UCSB, Anderson Bank Reconciliation Reconciling Items: z unrecorded by bank, but recorded by entity z recorded by bank, but not by entity z errors by the bank or the entity CRUTCH TOOL Reconciling From A to B (A at top of reconciliation): z Recorded by A but NOT B: Opposite direction in reconciliation z Recorded by B but NOT A: Same direction in reconciliation. Slide 7-9 UCSB, Anderson BANK RECONCILIATION CRUTCH RECONCILING FROM BOTH X & Y X BUT NOT Y Y BUT NOT X X No opposite direction same direction adjustment Increase= negative Increase= positive Decrease=positive Decrease= negative Y RECORDED BY Slide 7-10 UCSB, Anderson Bank Reconciliation Example For example: XYZ Company. The following relevant information exists: z The bank balance is $250,000 as of December 31, 200X while your general ledger shows cash at $200,000. Careful examination of activity reveals the following:
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pptchapter7 - Learning Objectives Cash and Receivables...

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