Accounting Unit 8 Introduction Introduction The goal of every merchandising business is to know the profit and the financial position of the business. To determine this, an accountant has to prepare financial statements such as the Income Statement and the balance sheet. However, to prepare the statements, the accountant has to answer the following questions. What is the present value of the assets? The assets of a business depreciate due to usage and time lapse. How will the accountant determine the present value of the assets? What is the amount due to suppliers by the business? If a business buys inventory and other assets on credit, it will have to pay the suppliers according to the terms of the supplier. But, what happens if a business is not in a position to pay the suppliers on time? What is the amount due from customers? A business may sell merchandise and other assets on credit to its customers. But, what happens if the business is not able to collect the money from its customers on time? How will the business meet the petty expenses? Every business incurs small value (petty) expenses such as the purchase of stationery, refreshment expenses, purchase of postage, or courier charges. Can the accountant maintain separate accounts for each of these expenses? What is the balance of inventory at the end of an accounting period? Inventory plays a major role in a merchandising business. How will the accountant maintain an account of inventory and conduct physical verification to assess the inventory on hand at the end of an accounting period?
Cash Funds Cash Funds: Introduction A merchandising business can have two types of sales: cash sales and credit sales. At times, when a cash sale is made, the customer may not have exact change, and need change returned to them. This would require the cashier to maintain a cash fund with change in it. In this section, you will learn how a change fund is maintained and how change fund-related transactions are recorded in the accounting books. You will also learn how to make payments for small expenses and how a business maintains a record for small value transactions. The final part of this section defines the key terms used. Short questions, fill in the blanks, and multiple choice questions are given to test your reading and understanding. Cash Funds: Key Concepts The key terms in the section are: Change Fund Cash Proof Petty Cash Voucher Petty Cash Fund Petty Cash Disbursement Petty Cashier Replenishing of Petty Cash Fund Reconciling Petty Cash Fund Petty Cash Requisition Form Petty Cash Register Petty Cash Envelope Cash Short
Cash Overage Funds Funds mean cash. A Change fund is the amount that cashiers need to maintain to pay small value balances when customers pay with bills and subsequently need change.
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