Week 7 Acct.docx - Accounting Financial Management Week 7 Cash and Accounts Receivable Bank Reconciliation Major internal control for cash Monthly

Week 7 Acct.docx - Accounting Financial Management Week 7...

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Accounting & Financial Management - Week 7: Cash and Accounts Receivable Bank Reconciliation: - Major internal control for cash - Monthly process - Compares the cash balance in the bank statement with the cash account in the general ledger (or your cheque book) - Reconciliation means explain the difference between two sources of information about cash. - Why the balances aren’t the same. Three reasons for differences: 1. Recorded in ledger before recorded by bank Deposit in transit: cash received by companies but not appeared on account yet. E.g. cash received from customers not yet ‘banked’. Outstanding (unpresented) cheque: cheque has been written by companies, but not deducted from the bank account yet. E.g. cheques written to suppliers. 2. Recorded by bank before recorded by ledger Deposits not recorded in the company’s ledger but recorded by the bank. E.g. bank interest, direct deposits (eftpos from customers)
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Payments not recorded in the accounting records but by the bank. E.g. NSF, EFT out, direct withdrawals, bank charges, etc. 3. General errors: Made by company in the general ledger . E.g. Transposition error ‘198’ recorded as ‘918’ Made by the bank in the bank statement . E.g. Bank fees overcharged. Cash balance from the bank has a credit balance as they are holding the cash for the company (liability – holding it for the company – company has positive cash balance). Cash balance for the company records has a debit balance as it is theirs (asset – cash). Example Bank Reconciliation Statement: Bank Reconciliation Process: 1. Check our records (cash balances, last bank reconciliation) against current bank statement. Tick items that are the same on both records 2. Items in our records that have not been ticked – timing differences. 3. Items in the bank statement that have not been ticked – need to be adjusted.
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