Chapter 7
The Control of Cash Transactions
What is Cash?
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Reporting Cash in the Balance Sheet
Cash Equivalents
Evaluating Solvency
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The Statement of Changes in Financial Position
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Management Responsibilities Relating to Cash
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Internal Control over Cash
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Cash Receipts
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Cash Disbursements
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The Voucher System
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Recording Approved Vouchers
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Chequing Accounts
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Bank Statements
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Reconciling the Bank Statement
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Petty Cash Funds
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The Cash Budget as a Control over Departmental Expenditures
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Key Terms
- Bank Reconciliation: an analysis that explains the difference between the balance of cash shown on the bank statement and the balance of cash shown in the depositor's records
- Cash: currency, coins, cheques, bank credit, charge slips, and any other media that a bank will accept or deposit.
- Cash equivalent: very short-term investments, so liquid that they're considered cash. Example: deposits in money market funds, treasury bills, certificates of deposit, and commercial paper
- Cash Management: Planning, controlling, and accounting for cash transactions and cash balances.
- Deposits in transit: Cash receipts that have been entered in the depositor's accounting records and mailed to the bank or left in the bank's night depository but reached the bank too late to be included in the current monthly bank statement
- Electronic funds transfer: the process of transferring money in or out of a bank account electronically, without the need for the depositor to physically bring in a deposit or write a cheque
- Line of credit: a prearranged loan agreement in which a bank stands ready to lend the borrower any amount up to the specified credit limit without delay. The unused portion of a line of credit represents the ability to borrow cash immediately.
- NSF cheque: a customer's cheque that was deposited but returned because of a lack of funds (Not Sufficient Funds) in the account on which the cheque was drawn
- Outstanding Cheques: cheques issued by a business to suppliers, employees or other payee but not yet presented to the bank for payment
- Petty Cash Fund: a small amount of cash set aside for making minor cash payments for which writing of cheques is not practicable.
- Voucher: a written authorization used in approving a transaction for recording and payment
- Voucher register: a special journal used in a voucher system for the purpose of recording liabilities to pay approved vouchers, and the nature of expenditures
- Voucher system: an accounting system designed to provide strong internal control over cash disbursements. Require that every transaction that will result in a cash payment be verified, approved, and recorded before a cheque is prepared.