BSB110 Lecture Notes - Lecture 8: Critical Thinking, Internal Control, Bank Reconciliation
Accounting – Cash
Safeguarding and Managing Cash
- Cash is the most desirable asset – readily convertible into any other asset
- Cash on hand
- Cash at bank
- Cheque accounts
- Cash equivalents (bank overdraft, deposits on money market)
Bank accounts to safeguard cash
- Minimises amount of cash kept on hand
- Provides a double record of all bank transactions
Bank reconciliation
- ‘bring to agreement’
- Things are recorded in business’s books and the bank’s records
- Reconciliation explains why they don’t agree (why there’s a difference)
- Most differences are due to timing differences
- Allows people to uncover errors, fraudulent activities etc.
- Mostly done one a month
- Internal control process – segregation of duties is essential (bank rec should be done by
someone who doesn’t have a recording responsibility)
- Reasons for differences
oDeposits in transit – some items have been recorded by the business but not by the
bank (e.g. depositing cash after the bank’s recording period for the day is over) – can
cause bank statement balance to be different from the business’s
oWriting cheques – on the day it is written, the business records it, but the bank
doesn’t record it until the cheque is presented
oBank charges – automatically deducted from the bank account, but not the
business’s records
- Items needed
oPrepared every month
oLook at what was outstanding the previous month
oCompare opening and closing balance
oLook at cash receipts, payments, and the bank statement
- Process
oCompare bank statement to previous month’s bank rec and current month’s CRJ and
CPJ
oIdentify unticked items on bank statement
oIdentify unticked items in CPJ and CRJ
oIdentify unticked items from opening/previous bank reconciliation
oTotal cash journals and post to the cash at bank account in ledger
oComplete bank rec
oIMPORTANT: Adjusted bank balance should equal cash at bank account balance
The Bank Statement
- From the bank’s perspective
- If balance is Cr – business is in Dr (is owed money)
- If balance is Dr – business is in Cr (owes money)
Managing and Monitoring Cash
- Principles
oIncrease speed of collection of receivables
Have as small a collection period as possible
Cannot be too small otherwise there is a risk of losing customers
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Document Summary
Cash is the most desirable asset readily convertible into any other asset. Cash equivalents (bank overdraft, deposits on money market) Minimises amount of cash kept on hand. Provides a double record of all bank transactions. Things are recorded in business"s books and the bank"s records. Reconciliation explains why they don"t agree (why there"s a difference) Most differences are due to timing differences. Allows people to uncover errors, fraudulent activities etc. Internal control process segregation of duties is essential (bank rec should be done by someone who doesn"t have a recording responsibility) Items needed: prepared every month, look at what was outstanding the previous month, compare opening and closing balance, look at cash receipts, payments, and the bank statement. Process: compare bank statement to previous month"s bank rec and current month"s crj and. If balance is cr business is in dr (is owed money) If balance is dr business is in cr (owes money) Principles: increase speed of collection of receivables.
