Chap006wildtextbook

Also includes items such as customer checks cashier

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Also includes items such as customer checks, cashier checks, certified checks, and money orders. Cash Equivalents Short-term, highly liquid investments that are: 1. Readily convertible to a known cash amount. 3. Close to maturity date and not sensitive to interest rate changes. 6-8
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Cash, Cash Equivalents, and Liquidity Liquidity How easily an asset can be converted into cash to be used to pay for services or obligations. Inventory Cash 6-9
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Cash Management Principles When companies fail, one of the most common causes is their inability to manage cash. The goals of cash management are twofold: n Plan cash receipts to meet cash payments when due. n Keep the minimum level of cash necessary to operate. 6-10
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Control of Cash Receipts Over-the- Counter Cash Receipts n Cash register with locked-in record of transactions. n Compare cash register record with cash reported. Cash Receipts By Mail n Two people open the mail. ü Money to cashier’s office. ü List to accounting dept. ü Copy of list filed. 6-11
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Control of Cash Disbursements n All expenditures should be made by check. The only exception is for small payments from petty cash. n Separate authorization for check signing and recordkeeping duties. n Use a voucher system. 6-12
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Banking Activities as Controls Bank Accounts Signature Cards Deposit Tickets Checks Electronic Funds Transfer Bank Statements 6-13
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Bank Reconciliation A bank reconciliation is prepared periodically to explain the difference between cash reported on the bank statement and the cash balance on company’s books.
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