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Western University
Business Administration
Business Administration 2257
Jason Dean

CHAPTER 7 (PART II) – REPORTING AND INTERPRETING SALES REVENUE, RECEIVABLES, AND CASH GILDAN ACTIVEWEAR INC. Control Over Accounts Receivable To guard against extending credit to non-worthy customers, the following practices can help minimize bad debts… 1. Require approval of customers’ credit history by a person independent of the sales and collection funds. 2. Monitor the age of accounts receivable periodically and contact customers with overdue payments. 3. Reward both sales and collection personnel for speedy collections so that they work as a team. Cash: Money or any instrument that banks will accept for deposit and immediate credit to the company’s account, such as a cheque, money order, or bank draft. Cash equivalents: Short-term, highly liquid, investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Cash and cash equivalents are usually combined as one amount for financial reports. Account called: Cash and Cash Equivalents. Cash Management Responsibilities 1. Accurate accounting so that reports of cash flows and balances may be prepared. 2. Controls to ensure that enough cash is on hand to meet (a) current operating needs, (b) maturing liabilities, and (c) unexpected emergencies. 3. Prevention of the accumulation of excess amounts of idle cash. Idle cash earns no revenue; therefore, it is often invested in securities to earn revenue (return) until it is needed for operations. Effective internal control of cash should include: 1. Separation of duties related to cash handling and record keeping a. Complete separation of the tasks of receiving cash and distributing cash ensures that the individual responsible for depositing cash has no authority to sign cheques. b. Complete separation of the procedures of accounting for cash receipts and disbursements ensures, for example, that those handling sales returns do not create fictitious returns to conceal cash shortages. c. Complete separation of the physical handling of cash and all phases of the accounting function ensures that those either receiving or paying cash have no authority to make accounting entries. 2. Prescribed policies and procedures a. Specific policies and procedures should be established so that the work done by one individual is compared to the results reported by other individuals. Bank statement: A monthly report from a bank that shows deposits recorded, cheques cleared, other debits and credits, and a running bank balance. Lists… 1. Each deposit recorded by the bank during the period 2. Each cheque cleared by the bank during the period 3. The balance in the company’s account NSF cheque = Not Sufficient Funds. SC = Bank Service Charge INT = Interest earned Bank reconciliation: The process of verifying the accuracy of both the bank statement and the cash accounts of a business. Most common differences between ending bank balance and ending book balance of cash 1. Outstanding cheques 2. Deposits in transit 3. Bank service charges 4. NSF cheques 5. Interest 6. Errors Format for bank reconciliation: Ending cash balance per books $xxx Ending cash balance per bank statement $xxx + Collections by bank xx + Deposits in transit xx - NSF cheques/Services charges xx - Outstanding cheques xx + Company errors xx + Bank errors xx Ending correct cash balance $xxx Ending correct cash balance $xxx Steps to preparing the bank reconciliation: 1. Identify outstanding cheques 2. Identify deposits in transit 3. Record bank charges and credits 4. Determine the impact of errors QUESTIONS Page 378 12. Summarize the primary characteristics of an effe
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