ACCT1101 Lecture 1: ACCT1101 Practical Lecture Notes
Practical Lecture Notes
Practical Lecture Week 8:
-Cash management and control
-> bank reconciliations
-Statement of cash flows
CASH MANAGEMENT AND CONTROL
•Cash: cash on hand and things which are readily convertible to cash
-incl. cheques, credit card duplicates, postal notes, EFT’s,etc
-not including accounts receivable, bills receivable
•Cant have restrictions, must be readily available
•Good control is essential
-essential control: deposits cash to bank each day and make all payments by authorised cheque or
by electronic fund transfer
•Remember: Bank statement is from Bank’s point of view - CR on bank statement means they hold your
money (liability to them) = DR (cash asset) in your records
BANK RECONCILIATION
•Reconciles cash at bank with the bank statement
•compare cash journals with bank statement to identify reconciling
items:
-not in bank statement yet
-unpresented cheques
-outstanding deposits
-items originating in bank statement
-interest and bank fees
-cheques dishonoured etc
-error by us or the bank
STATEMENT OF CASH FLOWS
•how much cash was generated and where did
it come from?
•how much cash was used and where did it go?
•how much cash does the entity have at the end
of the year?
•how much cash obtained to pay off non current
liabilities and acquire new non current assets
during the period?
•how were the cash proceeds from a new
issue of shares used?
•why has the cash position of the company
decreased when the company reported a
profit for the period?
•cash flow information enables users to
assess the liability of the entity to distribute
cash in the future:
-to meet financial commitments or
-perhaps to pay dividends
•Much of the information about cash is contained in the notes including:
•types of cash and cash equivalents
•types of non cash financing a
•the access to additional sources of cash
RECONCILIATION OF NET PROFIT TO OPERATING CASH FLOWS
•Net profit (from income statement)
•add back non cash expenses (e.g. depreciation)
•deduct increases in current assets (+ decreases)
•add increases in current liabilities (- decreases)
Practical Lecture Week 9:
Receivables
-bad debts
Inventories
-accounting for inventory costs when prices change
RECEIVABLES
•valuation is a key issue - how much will actually be received?
•allowance for doubtful debts is a contra account which reduces accounts receivable - its and estimate of
amounts not collectable
-percentage of net credit sales- what % of sales are not generally recovered? Not dependant on
what is already in allowance for doubt debts
-ageing- % collectable depending on days overdue. Calculate total amount for all receivables and
adjust allowance account balance. Don't include GST.
•To write off a particular account when bad, reduce A/R, GST Collections and Allowance for Doubtful
Debts (not bad debts exp)
INVENTORIES
Specific Identification
-particular inventory is identified and when sold its own cost is used to reduce inventory and record cost of
sales
FIFO
-cost of first inventory purchased is cost used when inventory sold
LIFO
-cost of last inventory purchased is cost used when inventory sold. **not allowed**
Average Cost
-take average of all purchases to record as cost of inventory sold and on hand
-Perpetual system = moving average
-Periodic system =weighted average
Problem 18.5
Exercise 12.4
E. The net credit sales method and the ageing of accounts receivable method both calculate a different
balance for the Allowance for Doubtful Debts. The net credit sales method calculates the adjusting entry for
Bad Debts Expense as a percentage of net credit sales. The calculation forms the basis of the adjusting
entry. The ageing of an accounts receivable calculates a required ending balance for the Allowance for
Doubtful Debts. The adjusting entry for Bad Debts Expense is calculated by taking into account any
opening balance in the allowance account to achieve the desired ending balance. Since the two methods
involve calculations based on different amounts the resulting balances on Allowance for Doubtful Debts
accounts will be different, and hence the net accounts receivable disclosed in the balance sheet will also be
different.
