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ACCOUNTING FOR ASSET

ACCOUNTING FOR ASSET. CURRENT ASSET - CASH. 1.0 CASH & CASH EQUIVALENT. Cash = cash on hand + demand deposits (MASB 5/ FRS 7 – Cash Flow Statement)

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ACCOUNTING FOR ASSET

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  1. ACCOUNTING FOR ASSET CURRENT ASSET - CASH

  2. 1.0 CASH & CASH EQUIVALENT • Cash = cash on hand + demand deposits (MASB 5/ FRS 7 – Cash Flow Statement) • Cash equivalents = short term, highly liquid investment that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value (MASB 5/ FRS 7 – Cash Flow Statement) Cash = Coins, currency, money order, checks, money on deposits Cash equivalent = Short-term investment

  3. 2.0 Control of Cash • Vulnerable to loss, misuse, stolen, and target by theft • A need to safeguard the asset – control procedures, internal control to monitor and protect cash • Internal control: THREATS –Cash: Loss. Misuse. Stolen Control procedures 1. Custody of cash be separated from recording of cash 2. All cash receipts be deposited daily in bank 3. All cash expenditures (except petty cash) be made with pre-numbered checks 4. Cash is wisely managed – budget, min. the no-interest/low interest accounts, keep in high-yielding investments i.e. fixed deposits

  4. 3.0 RECONCILIATION: BANK ACCOUNT vs. BANK STATEMENT • Most cash is kept in various bank accounts – checks!!! • Petty cash fund is used for miscellaneous items – cash be kept in the business for minor expenditure • Few employees are authorized to sign checks (Internal Control) • Each month business will receive bank statement that shows cash balance at the beginning of the period, deposits, checks processed, and cash balance at the end of the period. • Balance as given by bank (bank statement) most of the time does not agree with the balance in the cash account, as prepared by company • Example 6.1 (page 231), or refer to handout

  5. 3.1. REASONS FOR DIFFERENCES • Time period differences • Deposit in transit / Uncredited cheque • Outstanding checks / Unpresented cheque • Bank debits/Direct debits • Bank credits/Direct credits • Accounting errors – made by bank or by company itself • Because of the above, company normally prepare – Bank Reconciliation Statement • Bank Reconciliation = process of (i) comparing the cash balance as reported by the bank and cash balance on the company’s books and (ii) explaining any differences • Act as part of the internal control for cash in bank – independent check in ensuring that cash is being counted/recorded correctly within the company & bank. • Adjusting the bank statement & cash account of company

  6. 3.2 Steps and format • Compare the two statements – bank statement and cash account • To the bank, the business is like creditor. When money comes in into the bank, the bank would have ‘credited’ the account. When money drawn out, the bank would have ‘debited’ the account. An opposite way to cash account recorded by business • Compare the debit entries (cash account) with the credit entries (bank statement), placing a tick on each of the entries appear in both records • Do the same thing for credit entries (cash account) and debit entries (bank statement) • Entries remain unticked – require reconciliation • Prepare adjusted cash account • Prepare bank reconciliation statement

  7. 3.2 Adjusted cash account Adjusted Cash Account 2005 2005 Jan 31 Balance (unadjusted) RMxx Standing order/Direct debit RMxx Dividend received x Loan repayment x Credit transfer/Deposit x Bank charges x Commission received x Direct debit x Interest received x Dishonoured cheque x xxx xxx Adjusted Balance xx

  8. 3.2 Bank reconciliation statement Ali Baba Sdn Bhd Bank Reconciliation Statement, 31 January 2005 Balance as per adjusted cash book (or per ledger) RMxx Add: Unpresented cheques / Outstanding cheques: Check no 10103 xx Check no 10106 xxxxx xxx Less: Uncredited cheque / Deposit in transit: Sales xx Tekali Enterprise xx xxx Balance as per bank statement xxx

  9. LET’S PREPARE BANK RECONCILIATION STATEMENT!!!! • Example on Word – refer to handout/steps • Example from book

  10. Example: Tanjung Jaya Sdn Bhd • Bank statement balance: RM14 422 vs. cash account RM13 937 • Differences: • A deposit of RM3 100 on July 31 was not shown on the bank statement (in transit) – Bank rec. / Deposit in transit = uncredited cheque • Check no. 625 for RM326, No. 631 for RM426, and No. 634 for RM185 are outstanding. Check no. 627 was voided at the time it was written – Bank rec. / Unpresented cheque = outstanding cheque • The bank’s service charge for the month is RM7 – adjusted cash a/c • A direct deposit of RM3 200 was made by Joy Company, a regular customer – adjusted cash a/c • A transfer of RM425 was made out of Tanjung Jaya’s account into the account Pantai Transportation Service for payment owed – cash • The bank paid interest of RM60 on Tanjong Jaya’s average balance – cash a/c • Check No. 630 for Mr Ravi wages was recorded in the accounting records as RM240 instead of the correct amount, RM420. – error by business, thus cash a/c

  11. Adjustments: Cash account • Cash 3 260 Accounts receivable 3 200 Interest revenue 60 To record the additions due to the July bank reconciliation (a RM3 200 deposit made by Joy Company and RM60 interest) • Custodial expense 425 Miscellaneous expense 7 Wages expense 180 Cash 612 To record the deductions due to the July bank reconciliation (service charge, RM7; a RM180 recording error, check no. 630;bank transfer of RM425 to Pantai Transportation is this supposed to Pantai Transportation Service)

  12. Tanjung Jaya Sdn BhdBank Reconciliation July 31, 3002 RM RM Balance per bank statement 14 422 Balance per books 13 937 Additions to bank balance: Additions to book balance: Deposit in transit 3 100 Direct deposit 3 200 Total 17 522 Interest 603 260 Total 17 197 Deductions from bank balance: Deductions from book balance: Outstanding checks: Service charge 7 625 326 Bank transfer 425 631 426 Error in recording No. 630 634 185 937 (for Ravi’s wages) 180(612) Adjusted bank balance RM16,585 Adjusted book balance RM16,585 - Since the bank and book balances now agree, the RM16 585 adjusted cash balance is the amount that will be reported on the financial statements - Errors has to be searched and corrected i.e. bank errors – notify bank for corrections

  13. 4.0 PETTY CASH FUND • Most cash is kept in banks • Small amount of cash will be kept in the business for minor expenditure • Example: Postage, client’s entertainment cost, taxi fares, small purchase of office supplies, mileage costs etc. • To issue check – impractical/inconvenient • Petty cash system – satisfy a relatively small amount of expenditure

  14. 4.1 Steps in creating petty cash fund • 1. Establishing the fund • 2. Making payment from the fund • 3. Replenishing/re-imbursement the fund

  15. 4.1.1 Establishing the fund • Cheque is issued to petty cash i.e. every 2 – 3 weeks • Cash is kept in petty cash box • Example: Jan 1, company decides to establish a RM500 petty cash General Journal Jan 1 Petty cash fund 500 Cash 500 Establish petty cash fund 4.1.2 Making payment from the fund • One staff/custodian – responsible/authority for making payment, & record the details from petty cash voucher • Supporting documents should be attached with the voucher • These records/documents will be used when requesting for cash replenishment/re-imbursement

  16. 4.1.3 Replenishing the fund • The fund will be replenished when it reaches the minimum level i.e. RM100 • Custodian – submit the voucher + document • Example: On Jan 15, custodian requests a cheque of RM400 together by documents. The entry for the fund replenished and expenses will be recorded as follows: General Journal Jan 15 Taxi fares 120 Courier & postages 80 Office supplies 100 Daily newspaper 100 Cash 400 • The petty cash box restores to its original amount of RM500 after replenishment/re-imbursement

  17. PENGURUSAN & KAWALAN TUNAI • PENYEDIAAN PENYATA PENYESUAIAN BANK • LANGKAH-LANGKAH SELEPAS PENYEDIAAN PENYATA PENYESUAIN BANK • KEGUNAAN DANA TUNAI RUNCIT

  18. For this Thursday: 1. Attempt these questions: • Exercise 6-3 • Exercise 6-4 We will check the answer thursday. • Exercise 6-5 Someone may have to write the answer on board • Exercise 6-7 (extra exercise – up to you) 2. Test this Friday covers up to trial balance, Step 4. 3. Class to cover Asset for Non-current liability/Fixed Assets (Harta, Loji & Peralatan): 1 Oktober 2005: 9.00 am – 12.00 am or,

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