Accounting Chapter 2: Reporting & Analyzing Cash

cash equivalents

short-term, highly liquid investment assets that are readily convertible to a known cash amount (ex: treasury bills)

effective internal cash flow system

1. handling cash is seperate from recordkeeping of cash

2. cash reciepts are promptly deposited in bank

3. cash payments are made by check or electronic funds transfer (eft)

Bank reconciliation

• reconciles the balances on the bank statement and the cash t-account

• determines the correct ending balance of cash

• records any necessary journal entries to update the t-account

Bank

Cash Balance Per (Bank/Book)?

• Deposits in Transit

Bank

Cash Balance Per (Bank/Book)?

• Outstanding checks

Bank

Cash Balance Per (Bank/Book)?

• Bank errors

Book

Cash Balance Per (Bank/Book)?

• Collections in interest + unrecorded cash receipts

Book

Cash Balance Per (Bank/Book)?

• Bank fees and NSF checks

Book

Cash Balance Per (Bank/Book)?

• Book errors

deposits in transit

when a company has deposited a check and recorded it, but the bank has not received it yet

outstanding check

checks that the company wrote to another entity that have not been cleared yet (deposited by another entity)

bank errors

1. compare deposits on the bank statement with deposits in the accounting records

2. compare canceled checks on the bank statement with checks recorded in the accounting records

cash reciepts

EFT’s into a company’s account, collect notes for the company

nsf check

customer paid with check but has insufficient funds in bank account

debit cash; credit interest revenue

journal entry for interest earned

Book balance adjustments

After the bank reconciliation process, does the company record journal entries for the book balance adjustments, bank balance adjustments, or both?

debit cash; credit notes recievable

journal entry for the collection of a note

debit misc. expense; credit cash

journal entry for a bank fee

debit accounts receivable; credit cash

journal entry for a nsf check