Docy Child


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Cash Definitions

Petty cash, currency, kept checks, certificates of deposit, traveler’s checks, money orders, letters of credit, bank drafts, cashier’s checks, and demand deposits are held without limitation by a business and immediately available on demand.

Cash Concepts

  1. As a rule, cash that has a short-term limit, like having to be kept in a sinking fund until a matching debt is paid in a year. This means that the cash should be classified as a current asset, but on a separate line item. A long-term asset must be reported if cash is limited by something long-term, like an agreement to pay off debt that won’t be paid off this year. To record it as an asset, you can separate it from a loan that is due to be paid off in the current period and record it as a compensating balance arrangement on its own.
  2. If a company issues checks for which it doesn’t have enough money on hand, it will show up on its balance sheet as having a negative cash balance. Instead of displaying a negative cash balance among assets, it is better to move the value of the extra checks to the accounts payable liabilities account, which will show a cash balance of zero or close to zero. As long as the cash account has a negative book balance, an overdraft condition exists for financial reporting. Whether or not the financial institution knows about it, an overdraft condition exists (due to timing of check clearances and deposits in transit, these generally will not correspond).
  3. There are two exceptions to this rule: cash in a foreign currency should be reported in the cash account on the statement of financial position. It first has to be converted into local currency units at the current exchange rate on the date of the financial statement, then it can be used in the financial statement itself. As a second requirement, the money must be easily exchangeable into local currency units. Otherwise, the cash can’t be counted as a current asset and must instead be counted as a long-term asset (possibly due to currency limitations imposed by the foreign government). This last point could be very important for businesses that want to say that they have the highest possible current ratio, but they have money in countries that have exchange restrictions.

Cash Policies

  1. It is against the law for anyone from accounts payable to sign checks or make money transfers. This policy is meant to keep the preparation and approval of accounts payable documents separate, so no one person can make a payable and sign off on a payment to himself.
  2. Any check or money transfer that costs more than $______ must be signed by someone in the job of (position) . This policy asks for a second look at very large payments to make sure they are appropriate and to cut down on the risk of fraud. Many banks don’t check to see if a check needs a second signature, which makes it less effective.
  3. There must be enough bonding for each check-signer to be safe. This policy says that a company must have enough bonding on its check signers to make sure that the company doesn’t lose money if a check signer is dishonest. Before bonding companies agree to provide bonds, they usually do background checks on check signers. This can help a company find out about previously unknown fraudulent employee activities, so it can remove check-signing authority from someone before they can do it again.

Cash Procedures

Apply cash to accounts that haven’t been paid yet (Account Receivables)

Use this method to apply cash from customers to open balances in accounts receivable.

  1. When you add up all of your daily cash receipts, make sure that you match each payment to the paper tape that shows how much you paid.
  2. Go to the accounting software and go to the screen where you can apply for cash. This is where you put in today’s date and how much you want to pay.
  3. For each customer payment, write down the customer number, the check amount, and the check number and date. Then, click on the “details” button on the screen. This will bring up the list of all open invoices for the customer on that screen. Then, click on each invoice that needs to be paid, and write down any discounts that were given to the customer. After paying all the bills for each customer, finish the transaction and move on to the next customer who sent you a check. You should keep going in this way until all of your receipts have been entered.
  4. Print a daily cash receipts report and check to see if the total on the report matches the total on the paper tape that was used to record the cash. Compare the remittance advices that come with each check to the daily cash receipts report to find the mistake and correct it.
  5. It’s time to post cash. You can do this by clicking the “post cash” button.
  6. Make copies of all checks you get, staple the cash receipts report to the copies, and put the set of documents in the cash filing cabinet.

Receive and Deposit of Cash

Use this technique to collect money from various sources and deposit it into the company’s bank account.

  1. On an adding machine tape, add up all of your cash.
  2. Fill out a deposit slip with all of the cheques and cash you’ve received. Check that the total on the deposit slip and the total on the adding machine tape are the same. If not, count the money and checks again.
  3. Hand the deposit slip, along with the cash and checks, to a second cash clerk, who compares the check total to the mailroom summary sheet. Make any discrepancies disappear.
  4. Photocopy all cheques and deposit slips, including any attached remittance advices. Check that the information in this packet corresponds to the total to be sent to the bank in the deposit. The photocopies should then be sent to the accounts receivable department, who will apply the funds to outstanding accounts receivable.
  5. Use a courier to deliver the completed deposit to the bank.