Liquid Assets and Internal Control
GAP, $65/pair of jeans, selling for $125/pair of jeans - only 50 pairs sold at 125, sell the remaining pairs
What entry should be made?
150 pr @ $65
DR inventory 9750
CR Cash 9750
SOLD 50 pr @ 125
DR cash 6250
CR sale 6250
DR COGS 3250
CR inventory 3250 for the pairs sold (no longer in inventory)
GM = 3000
100 x (65-50)
= 100 x $15
DR COGS 1500
CR inventory 1500
GM = 1500 or 24%
You need two entries for sales – one for the actual sale… and one for COGS/Inventory
What is cash?
o Either physical cash or stuff we know is liquid
What makes cash liquid?
o There is no way of identifying it… unless you have all the serial numbers Do we care how much we have?
o Yes – to have a stash of it in the bank is not always good – you don’t get interest on that
and the bank may be charging you to keep it.
Do we need internal controls over cash?
o Why or why not?
Yes – so cash doesn’t get lost and to make sure it’s going to a legitimate
o How might we control cash?
22,300 in chequing account
Investment certificate – pay 10,000 + interest when cashed (at any time)
$11,000 GIC maturing July 15 2012
o No – there may be penalties for cashing it early
$250 in petty cash
$7,000 in cheques received mid-December but not cashed
o Yes – you should be making deposits right away so you don’t get “NSF” or “Not
$4,200 owed by senior executive. Amount due January 5, 2012
o No – a loan or accounts receivable
£3,000 in a British bank account
o Yes – you have to convert to report it but it does count. Big organizations usually have
this because they are working globally.
Example of “Cash”
o Cash and cash = represent operating cash on deposit and units in a money market fund
which are readily convertible to cash
Barrick Gold (2005)
o Cash and cash = include cash, term deposits and treasury bills with original maturity of
less than 90 days
What is a receivable
o Money someone owes us – Like how Katey owes me $5
Types of receivables
o Income tax receivable
Classification of receivables. Current or long-term. Why?
o You missed this, dummy What account entry do we make to record a receivable?