Cash and Receivables help

Cash and Receivables help - Cash and Receivables CASH AND...

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Cash and Receivables CASH AND CASH EQUIVALENTS Cash on hand, demand deposits and other bank accounts are considered cash. Cash equivalents are short-term investments (90 days or less) that can be converted into cash without any significant cost. There cannot be any contractual limitations or restrictions on the use of cash (for example, cash restricted to pay debts is not considered cash). INTERNAL CONTROL OF CASH Cash is the asset most easily misappropriated by management and/or employees. It is extremely important that proper internal control be established to protect this asset. Internal controls should be established to prevent unauthorized cash transactions and to provide information necessary for the proper management of cash. There are two types of internal controls that enhance the reliability of the financial statements. (1) Preventive Controls Policies and procedures that are designed to prevent errors and fraud (2) Detective Controls Policies and procedures that provide an after the fact double-check to identify errors and fraud. A routine accounting activity that provides a detective control is the monthly reconciliation of cash. There are three steps in the reconciliation of cash at the end of each month. (1) Reconciliation per bank Using the bank statement the accountant reconciles the amount per bank to the actual amount that should be reflected in the accounting records at the end of the period. (2) Reconciliation per book Using the general ledger balance the accountant reconciles the amount per books to the actual amount that should be reflected in the accounting records at the end of the period. (3) Preparation of adjusting journal entries Using the information developed in the reconciliation per book the accountant prepares the necessary month end adjusting journal entry to bring the cash per the general ledger into balance with the actual balance per the bank and book reconciliations. Example:
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Cash and Receivables help - Cash and Receivables CASH AND...

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