TOPIC 6 : ACCOUNTING FOR ASSET

1. CURRENT i CASH ii DEBTOR iii STOCK / IVENTORY FIXED INTANGIBLE ASSET TOPIC 6 :ACCOUNTING FOR ASSET

2. Current Asset : Cash -Bank -Petty Cash Cash and cash equivalent is one of the assets : • that s readily convertible into any other type of asset • It is easily concealed and transported • It is highly desired • Error might occur while executing and recording cash transaction

3. Managing and Control Cash iEstablishment of responsibility : Only designated personnel authorized to handle cash receipt ii.Segregation of duties: Different individual receive cash records cash receipt and hold the cash iii.Documentation procedures : Use remittance advice (mail receipts), cash register tapes and deposits slips

4. Managing and Control Cash iv. Physical, Mechanical and Electronic control : Store cash in sales and bank vault, limit access to storage areas, use cash register v.Independent Internal Verification: Supervisors count cash receipt daily, treasurer compares total receipts to bank deposits daily vi. Other control : Bond Personnel who handle cash, all cash must be deposited in the bank daily

5. Bank Reconciliation What is the bank reconciliation Is the statement prepared by the business to reconcile the balance between the bank balance and the cash balance in the cashbook.

6. Bank Reconciliation Why we have to reconciling the bank account ? The lack of agreement between the two balance due to: i. Time lag – the time of recording the transaction by both parties are different (not in the same period) ii. Errors– errors made by both parties while recording the transaction

7. Cash Balances • Per bank statement Per cash book • Adjustment to bank balances Adjustment to book balance • Outstanding cheque 1. Bounced cheque • 2. Deposit in transit 2. Services charge • 3. Bank Errors 3. Check collected by bank • Correct Cash Amount

8. Meaning of the term below: • i. Deposit in transit • deposits recorded by the business that have not been recorded by the bank • ii. Outstanding cheque •  issued cheque recorded by the business • that has not been paid by the bank

9. Preparation of Bank Reconciliation Statement • Example : • Below is the summary of bank column in the cashbook of Nisa Enterprise for the period ended 31 July 2001. • RM • Opening Balance 1,954 • Add: Receipt 361,537 • 363,491 • Less: Payment 343,287 • Closing balance 20,204 • Balance as per bank statement shows as credit balance of RM18,025 on 31 July 2001

10. Other data: • Issues check for payment of supplies amounted RM4,135 not yet presented to bank. Deposit in transit amounted RM5,350 not yet recorded in the bank statement • Nisa enterprise make a direct payment through bank to ABC Ltd. for a payment of motor van not yet recorded in the cash book amounted RM150 • Check issues by Nisa Enterprise amounted RM119, had been recorded in the cashbook as RM191 • Bank charges of RM54 not yet recorded • Bank has wrongly charge an amount of RM832 in the bank statement

11. Bal b/f 20,204 Bank charge 54 Errors 72 Motor van 150 20,276 Bal c/f 20,072 20,276 RM Balance as per bank statement 18,025 Add: Deposit I n Transit 5,350 Bank Error 832 6,182 24,207 Less: Outstanding 4,135 Balance as per cashbook 20,072 • Method of presentation: Bank Reconciliation Statement as at 31 July 2001 Cash at bank account

12. Bank Reconciliation Statement as at 31 July 2001 RM Adjusted Cash Book Balance 20,072 Add: Outstanding cheque 4,135 24,207 Less: Deposit in transit 5350 Bank error 832 6,182 Balance as per bank statement 18,025 Method of presentation:

13. Step After Preparation The Bank Reconciliation Dt Cr Cash 72 Creditors 72 (Correcting the error of entry) Bank Charges 54 Cash 54 (Being the bank charge for the period) Creditors 150 Cash 150 (Being a payment for motor van) • Journal entry in the cashbook:

14. Petty Cash Fund What is petty cash fund ? A cash fund used to pay relatively small amount of expenses. The operation of petty cash fund are called “ imprest system”, in which it involved 3 steps: i. Establishing a fund ii. Making payment from the fund iii.Replenishing the fund

15. Dr Petty Cash 150 Cr Cash 150 (to establish a petty cash fund) Establishing A Fund • Determine a size of fund: if the company decide to establish RM150 as their petty cash fund on 1 January, the journal entry are :

16. Dt Postage 44 Travelling 38 Miscellaneous 5 Cr Cash 87 (to replenisha petty cash fund) • If on the January 15, petty cash custodian request cheque for RM87. The fund contains RM63 cash and petty cash receipts for postage RM44, Travelling RM38 and Miscellaneous RM5 • Journal entry:

17. Dr Postage 44 Travelling 38 Miscellaneous 5 Cash Over and Short 1 Cr Cash 88 (to replenish a petty cash fund) • Assume that the cash fund in the petty cash had only RM62 plus the receipts as listed in previous slide: • The request of reimbursement would be

18. Dr Petty Cash 250 Cr Cash 250 • On 1stFebuary, if the company decide to increase their amount of petty cash fund to RM400, the journal entry:

19. Making Payment from the Fund • no accounting entry is made to record payment at the time it is made from petty cash. • Replenishing the Fund • when the money reaches the minimum level, the fund is replenishing.