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THIS IS DAMAT HOTEL & BUSINESS COLLEGE ONLINE VEDIO TRAINING PRESENTATION COMPILED BY MERKEB.T 5/12/2020 Compiled by Merkeb.T 1 Occupational Standard: Accounts and Budget Support Level-------------------- III Unit Title Balance Cash Holdings Unit Code BUF ACB3 1 0 0 8 1 2 Unit Descriptor This unit describes the performance outcomes, skills and knowledge required to clear registers, count money, calculate non-cash transactions and reconcile takings and balance cash holdings. COMPILE BY MERKEB TEKETELEW 2 cash is the asset most likely to be used improperly by employees, exposed for embezzlement and many business transactions either directly or indirectly affect it, it is therefore necessary to have effective control of cash. Cash includes money on deposit in banks and other items that a bank will accept for immediate deposit. Money on deposit in banks includes checking and saving accounts. Other items suchas ordinary checks received from customers, money orders, coins and currency and petty cash also are included as cash. Banks do not accept postage stamps, travel advances to employees, notes receivable or post-dated checksas cash. CHARACTERISTICS OF CASH The following are some of the characteristics of cash: Cash is usedas medium of exchange Cash is the most liquid asset Cash is mostly affected by business transactions Cash is used to measure the value of other assets Cash is mostly exposed to embezzlements COMPILE BY MERKEB TEKETELEW 3 MANAGEMENT OF CASH Cash management refers to planning, controlling and accounting for cash transactions and cash balances. Efficient management of cash is essential to the survival and success of every business organization. Managing cash requires planning wisely so that there will not be excess cash held on hand at any point in time; or there is no shortage of cash at any point in time to meet the business’s needs. Internal control for cash should include the following procedures: The individuals who receive cash should not also disburse (pay) cash The individuals who handle cash should not access accounting records Cash receipts are immediately recorded and deposited and are not used directly to make payments. Disbursements are made by serially numbered checks, only upon proper authorization by someone other than the person writing the check Bank accounts are reconciled monthly. The following are the most common elements of cash control and managements: • bank account system • petty cash fund • voucher system • change fund • cash short and over. COMPILE BY MERKEB TEKETELEW 4 Control of Cash through Bank Accounts Bank accounts are one of the most important means of controlling cash that provide several advantages such as: Cash is physically protected by the bank, A separate record of cash is maintained by the bank, And customers may remit payments directly to the bank. If a company uses a bank account, monthly statements are received from the bank showing beginning and ending balances and transactions occurring during the month including checks paid, deposits received, and service charges. These monthly statements (reports) received from the bank are called bank statements. Bank statements generally are accompanied by checks paid and charged to the accounts during the month, debit and credited memos, which inform the company about changes in the cash accounts. For a bank, the depositor’s cash balance is a liability, the amount the bank owes to the firm. Therefore, a debit memo describes the amount and nature of decrease is the company’s cash accounts.A credits memo indicates an increase in the cash balance of the depositor that it has with the bank. COMPILE BY MERKEB TEKETELEW 5 Reconciliation of Bank and Book Cash Balances Monthly reconciling of the bank balance with the depositor’s cash accounts balance is essential cash control procedure. To reconcile a bank statement means to verify that the bank balance and the accounting records of the depositor are consistent. The balance shown in a monthly bank statement seldom equals the balance appearing in the depositor’s accounting records. Certain transactions recorded by the depositor may not have been recorded by the bank and vice versa. The most common examples that cause disparity between the two balances are: Outstanding checks: Checks issued and recorded by the company, but not yet presented to the bank for payment. Deposits in transit: Cash receipts recorded by the depositor, but not reached the bank to be included in the bank statement for the current month. COMPILE BY MERKEB TEKETELEW 6 Service charges: Banks often charge a fee for handling checking accounts. The amount of this charge is deducted by the bank form bank balance and debit memo is issued for the depositor. Charges for depositing NSF- checks: NSF stands for “Not Sufficient Funds.” When checks are deposited in an account, the bank generally gives the depositor immediate credit. On occasion, one of these checks may prove to be uncollectible because the maker of the check does not have sufficient funds in his or her account. In such a case, the bank will reduce the depositor’s account by the amount of this uncollectible item and return the check to the depositor marked “NSF”. Notes collected by bank: If the bank collects a note receivable on behalf of the depositor, it credits the depositor’s account and issues a credit memorandum for the depositor. When the depositor prepares bank reconciliation, the balances shown in the bank statement and in the accounting records both are adjusted for any unrecorded transactions. Additional adjustments may be required to correct any errors discovered in the bank statements or in the accounting records. COMPILE BY MERKEB TEKETELEW 7 Steps in Preparing Bank Reconciliation Bank reconciliation is a schedule prepared by the depositor to bring the balance shown in the bank statement and the balance shown in the depositor’s accounting into agreement. The steps to prepare bank reconciliation are: The deposits listed on the bank statement are compared with the deposits shown in the accounting records. Any deposits not yet recorded by the bank are d ep o s it s I nt r ans it and should be ad d ed to the balance shown in the bank statements. The paid and received checks from the bank are compared with the check stubs. Any checks issued but not yet paid by the bank are o ut s t and ing c hec k s and should be d ed uc t ed from the balance reported in the bank statements. Any c r ed it m em o r and um s issued by the bank that have not been recorded bythe depositor, are ad d ed to the balance per depositor’s record. Any d eb it m em o r and um s issued by the bank that have not been recorded by depositor are d ed uc t ed from the balance per depositor’s record. the Any errors in the bank statement or depositor’s accounting records are adjusted. The equality of adjusted balance of statement and adjusted balance of the depositor’s record is compared. Journal entries are prepared to record any items delayed by the depositor. COMPILE BY MERKEB TEKETELEW 8 The name of the company Bank reconcilliation Period of time Balance per bank -------------------------------------------------------------------------xx Add deposit intransit------------------------xx error made--------------------------------------------------------------------by bank ------------------ x x - ---------------------------------sub total -------- x x --------xx Less out standing check ---------------------xx errorbank madebalance by bank---------------------------------------------------------------------------------x x ---------------------------------Adjusted --------xx ---- XX Balance per depositor -------------------------------------------------------------------xx Add note receivable ---------------------xx sub totalincome -----------------------------------------------------------------------interest ---------------------xx ------xx error made by depositor---------- x x ---------------------------------------Less service charge -----------------------xx ----- x x note sufficient fund ----------------xx error madebalance by depositor --------- x x ---------------------------------------Adusted deposit --------------------------------------------------------------- XX-----x x COMPILE BY MERKEB TEKETELEW 9 Illustration of Bank Reconciliation 1 The January bank statement sent by Awash Bank to RAM Company shows Br. 4,262.83. Assume also that on January 31, 2000, the Cash account of RAM Co. shows a balance of Br. 5,000.17. The accountant of RAM Company has identified the following items: A deposit of Br. 410.90 made after banking hours on Jan. 31 does not appear on the bank statement. Two checks issued in January have not yet been paid by the bank: Check No. 301 Br. 110.25 Check No. 342 607.50 A credit memorandum was included in the bank statement, which was for proceeds from collection of a non-interest bearing note receivable from MAN company Br. 524.74. Three debit memorandums accompanied the bank statement: Fee charged by bank for handling collection of notes receivable Br.5; a check of Br. 50.25 received from A customer, RON company, and deposited by RAM company was charged back as NSF; and service charge by bank for the month of January amounts to Br. 12.00 Check No. 305 was issued by RAM Company for payment of telephone expense in the amount of Br. 85 but was erroneously recorded in the cash payments journal as Br. 58. COMPILE BY MERKEB TEKETELEW 10 RAM Company Bank Reconciliation January 31, 2000 Balance per bank statement, Jan. 31,2000------------------------------------------Br. 5,000.17 Add: Deposit of Jan. 31 not recorded by bank------------------------------------------ 410. 90 Subtotal---------------------------------------------------------------------------------Br. 5,411.07 Deduct: outstanding checks: No. 301-------------------------------------------Br. 110.25 07. 50----------------------- 4, AdjustedNo. bank342-----------------------------------------------6 balance balance------------------------------------------------------------Br. ---1 17. 75 693. 32 per Balance depositor’s record, Jan. 31,2000-------------------------------------------Br. 4,262.83 Add: Note Receivable collected by bank----------------------------------------------------- 524. 74 Subtotal-----------------------------------------------------------------------------------Br. 4,787.57 Deduct: collection fee-----------------------------------Br. 5.00 NSF check of Ron Co. ----------------------------50.25 Service charge--------------------------------------12.00 check stub No. 305 ------------------- 2 7. 00--------------------------------4 , AdjustedError cashon balance-------------------------------------------------------------------------Br. 693. 32 94. 25 COMPILE BY MERKEB TEKETELEW 11 The following are journal entries related to the bank reconciliation. 2000 To record collection of Note Receivable collected by bank cash………………………….524.74 Notes Receivable ……………………524.74 To record bank service charges Miscellaneous Expense…………17.00 cash ........................................17.00 NSF check Accounts Receivable-RON Co………50.25 cash ...............................................50.25 error in recording Check No. 305 Utilities Expense…………………..27.00 Cash…………………………… ……..27 COMPILE BY MERKEB TEKETELEW 12 Illustration of Bank Reconciliation 1 On may1 2002selam company showed balance in its cash account of br37820 on june2 selam receivedbank statement for the month ended may31 which showed an ending balance 65040 A marching of debits to the cash account to the book with deposit on the bank statement which showed that br9040 receipts of may31 are includes in cash but not includes as deposits on the bank statement An examination of checks issued check cleared showed three check out standing No 9544----------------------------br6440 9545--------------------------------3360 9546--------------------------------14460 Total ---------------------------------------------24260 Include within the bank statement a credit memorandum where br24500includes of interest br500for collect of note owed to selam by ship company Includes within the bank statement is br20400 debit memorandum an NSF check written by Kamel & deposited by selam Charge made to selam account includes br240 for safe deposit box rent &br160for service charge Check no 9550for 10,160.00 tayew company for the settlement of account payable recorded for cash payment journal 18,460.00 Require 1. Prepare bank reconciliation 2. Pass the necessary journal entry COMPILE BY MERKEB TEKETELEW 13 Selam Company Bank reconciliation June 31 2002 Balance per bank------------------------------------------------------------65,040.00 Add deposit in transit -------------------------------------------------------9,040.00 Subtotal -----------------------------------------------------------------74,080.00 Balance per depositor-------------------------------------------------------Less outstanding check-----------------------------------------------------37820 24,260.00 Add note receivable-----------------------------24000 Adjusted bank balance------------------------------------------------ 49, Interest income------------------------------500 820.00 Bank error------------------------------------8300-----------------------32800 Subtotal---------------------------------------------------------------------70600 Less service charge----------------------------400 820.00 Not sufficient fund----------------------20400-----------------------24800 Adjusted deposit balance---------------------------------------------------- 49, COMPILE BY MERKEB TEKETELEW 14 Collection of cash cash ---------------------------24,500 note receivable --------------24,000 interest income ------------------500 Error made by error cash ------------------------------8,300 account payable ------------------8,300 Service Charge Mis expense --------------------400 cash -----------------------------400 Note sufficient fund (NSF) account receivable --------------20,400 cash ---------------------------20,400 COMPILE BY MERKEB TEKETELEW 15 Illustration of Bank Reconciliation 1 ADA research and development P.L.C Company engaged in the development of strategic product with business health industry and defense the following data pertain to ADA research and development P.L.C • Balance per bank statement dated march 31,2015birr 4204 • Balance of cash account on the company books as of march 31, 2015birr22,855 Birr 500recipt of march 31,didn’tin the bank (deposit in transits) in the bank statement • The following checks issued by ADA research and developed P.L.C didn’t appear in the march ‘s bank statement Check no 20 birr 300 Check no 21 birr 250 Check no 22 birr 238 • A noted of birr 1200and interest of birr 25 were collected by the bank for ADA B=research and developed P.L.C and included with the bank statementas credit memo Included the bank statement is birr 150 debit memo for NFS check Service and collection charges for the month were birr 50 • Cash payment on account of birr 148 was erroneously recorded be depositor • COMPILE BY MERKEB 16 birr184 TEKETELEW Req uir ed Task 3.1. prepare bank reconciliation of march 31, 2015 Task 3.2. prepare the necessary journal entry ADA research development plc Bank reconciliation For the month ended March 31 2015 Balance per bank ----------------------------------------------------------4204 Add deposit in transit ----------------------------------------------------Subtotal ---------------------------------------------------------------------500 4704 Less outstanding check Ck no 20----------------300 Ck no 21-----------------250 Ck no 22----------------238 -------------------------788---------------------------------------------------Balance per depositor Adjusted bank balance ---------------------------------------------------- 3 2855 9 1 6 note receivable --------------------1200 Add Interest income --------------------25 Error ----------------------------------36-----------------------------Subtotal ---------------------------------------------------------------------- 1 2 sufficient 61 - 4116 Less note fund -----------150 Service charge --------------------------50--------------------------------- 2 0 0 deposit balance ------------------------------------------------ 3 Adjusted 916 COMPILE BY MERKEB TEKETELEW 17 Journal entry Note collected by bank Cash ---------------------------------1225 Note receivable ---------------------1200 Interest income -------------------------25 Error by depositor Cash ---------------------------------36 Account payable ----------------------36 Note sufficient fund Account receivable ----------------150 Cash----------------------------150 Service charge MIS expense ---------------------50 Cash--------------------------------50 COMPILE BY MERKEB TEKETELEW 18 Petty Cash Fund Petty cash fund, which is part of the total cash balance, is used to handle many types of small payments suchas employee transportation costs, purchase of office supplies, purchase of postage stamps, and delivery charges. Many businesses find it convenient to make minor expenditures instead of writing checks. The petty cash amount various from Br. 50 or less to more than Br. 1,000, which will cover small expenditures for a period of two or three weeks. Establishment of Petty Cash To establish a petty cash fund a check is issued to a bank. This check is cashed and the money is kept on hand in a petty cash box. One employee is designated as custodian of the fund. The issuance of the check for establishment is recoded by debiting petty cash account and crediting cash. Replenishment of Petty Cash Duriing the periiod,, the custodiian makes smalll payments form the petty cash fund and obtaiins a receiipt or prepares a petty cash voucher.. Thiis petty cash voucher expllaiins the nature and amount of every expendiiture and is kept wiith the fund.. When the fund runs low or at the end of the company’’s fiscall periiod,, a check is issued to reiimburse the fund for the expendiitures made duriing the periiod.. The issuance of thiis check is recorded by debiitiing the appropriiate expense accounts and crediitiing cash or vouchers payablle.. COMPILE BY MERKEB TEKETELEW 19 Voucher System One method to control cash disbursements is a voucher system. A voucher is a special form, which contains relevant data about a liability and its payment. In a voucher system, a voucher is prepared for each expenditure and approved by the designated officials. Each approved voucher represents liability and recorded in a voucher register, which is similar to purchases journal. Those registered vouchers are filed according to their payment date in an unpaid vouchers file. The vouchers and supporting documents then are sent to the treasure or other official is the finance department before issuing checks. When the checks are signed, the paid vouchers are recorded in a check register which is similar to cash payments journal. Those paid vouchers are filed in paid vouchers file according to their serial number for future reference Change Fund Some businesses that receive cash directly from customers should maintain a fund of currency and coins in order to make change (Amharic=>”zirzir”). This fund, which is part of the total cash balance, is called change fund. A change fund is established by issuing a check to the bank and transferring the cash to the custodian. The issuance of a check to establish a change fund is recorded by debiting cash on hand and crediting cash or voucher payable. COMPILE BY MERKEB TEKETELEW 20 Once a change fund is established, there will be no change in its balance unless there is a decision by management to increase or decrease the fund balance. Cash Short and Over In handling cash receipts from daily sales, a few errors i n ma ki n g ch a n g es will occur. These errors may cause a cash shortage or overage at the end of the day. The account cash short and over is debited if there is shortage and credited if there is overage. At the end of the period if the account had a debit balance, it appears in the Income statement as miscellaneous expense; if it has a credit balance, it is shown as miscellaneous revenue. example, assume that the total cash sales recorded during the day amounts to Br. 12,420. However, the cash receipts in the cash register drawer (actual cash count) total Br. 12, 415. The following entry would be made to adjust the accounting records for the shortage in the cash receipts: Cash Short and Over 5.00 Cash 5.00 To record a Br. 5.00 (Br. 12,420 – 12,415) Shortage in cash receipts for the day Journal entry Cash ---------------------------12,415.00 Cash shortage --------------------- 5.00 Sales ----------------------------------12,420.00 COMPILE BY MERKEB TEKETELEW 21 example, assume that the total cash sales recorded during the day amounts to Br. 12,420. However, the cash receipts in the cash register drawer (actual cash count) total Br. 12,425. The following entry would be made to adjust the accounting records for the shortage in the cash receipts: Cash 5.00 Cash Short and Over 5.00 To record a Br. 5.00 (Br. 12,420 – 12,425) overagerage in cash receipts for the day Journal entry Cash ---------------------12,425.00 Sales --------------------------------12,420.00 Cash overage ---------------------------5.00 Illustration 1 assume that the total cash sales recorded during the day amounts to Br. 10,010. However, the cash receipts in the cash register drawer (actual cash count) total Br. 10,100. record the cash shortage and overage of this cash collection. COMPILE BY MERKEB TEKETELEW 22