money in the form of bills or coins; "there is a desperate shortage of hard
cash" prompt payment for goods or services in currency or by check exchange for cash; "I cashed the check as soon as it arrived in the mail OR All those things which are acceptable to a bank as deposit are know as cash Marketable Security An investment for which there is usually a ready market. OR Securities which can be sold quickly usually listed security or securities which are traded in secondary markets. That marketable security which maturity period is ! days or less than ! days is included in cash T. "ills:
A short-term obligation of the U.S. Treasury having a maturity period of one year or less and sold at a discount from face value. "ank:
epository financial institution! a financial institution that accepts deposits and channels the money into lending activities; "he cashed a check at the bank"; "that bank holds the mortgage on my home" OR "ank is an institution which accepts deposits #rom people at a lower rate o# interest. And lend this money at a higher rate o# interest to the general people. $i##erence between these two rates is the pro#it o# bank Restricted Cash: %unds deposited in separate account& o#ten as a cushion against a possible loss or debit ser'icing& or some emergency. (ine o# Credit: A line of credit is any credit facility extended to a business by a bank or financial institution. A line of credit may take several forms such as cash credit" overdraft" demand loan" export packing credit" term loan" discounting or purchase of commercial bills etc. . OR A financial agreement under which a bank or other lender agrees to provide a client with loans of money up to an approved limit during a predefined period. ... "ank Reconciliation #ank reconciliation is the process of comparing and matching figures from the accounting records against those shown on a bank statement. .. OR a comparison between the bank$s record of transactions and the record of the firm$s cash book. After taking into account such items as .. "ank Statement "alance Reconciling )tems: $educt: Outstanding checks. Add: $eposits in transit. Add or $educt: "ank accounting errors. "ook "alance Reconciling )tems: $educt: "ank ser'ice charge. $educt: *on su##icient #unds check +*S%,. Add: )nterest earned on checking accounts. Add: Collections made by the bank. Add or $educt: Accounting "ook errors ________________________________- -.ercise./ Shown below is the in#ormation needed to prepare a bank reconciliation #or $ata %low )nc0. at $ecember 1/ At $ecember 1/& cash per bank statement was /23/:cash per the company Records were /4552. 1. two debit memoranda accompanied the bank statement: ser'ice charges #or decemer o# 657 and a 8!!7 check drawn by 9ane 9ones marked :*S%; 2. cash receipt o# 2121 on $ecember 1/ were not deposited until 9anuary 1. 3. the #ollowing checks had been issued in $ecember but were not included among the The paid checks returned by the bank: no 86! #or 437 and no: 81! #or 6!267& and no 85/ #or 5317. A. <repare a bank reconcialtion at $ecember 1/. $ata %low )*C "ank reconciliation statement At $ecember 1/0.. "alance as per bank statement Add deposits Sub total (ess outstanding checks Check number 86! = 43 81! = 6!26 85/ = 531 12/1 Ad>usted cash balance "alance as per company record (ess two debit memorandum Ser'ice charges 65 *S% checks 8!! Ad>usted cash balance /23/7 5121 6!15 12/1 /836/ /4552 865 /836/ -.ercise 6. The cash transaction and cash and cash balance o# *ort#leet %arm #or >uly were as 1. the ledger account #or cash showed a balance at >ly 1/ o# /8488.2. 2. the >uly bank statement showed a closing balance o# /363./6. 3. the cash recei'ed on 9uly 1/ amounted to 5!/4./2. it was le#t at the bank in the night depository recored a#ter banking hours on 9uly 1/ and there#ore was not recorded by the bank on the >uly statement. 4. also included with the 9uly bank statement was a debit memorandum #rom the bank #or 4.82 representing ser'ice charges #or 9uly. 5. a credit memorandum enclosed with the 9uly bank statement indicated the a non?interest bearing note recei'able #or 5252 #arm rene Manes. (e#t with the bank #or collection& had been collected and the proceeds credited to the amount o# *ort#leet #ram. 6. comparison o# the paid checks returned bye the bank with the entries in the accounting records re'ealed tht checks no 36/ #or 312.!6 issued >uly /2 in payment #or o##ice equipment& had been erroneously entered in *ort#leet@s record as 321.!6 7. e.amination o# the paid checks also re'ealed tht three checks& all issued in >uly & hadn not ye been paid by the bank: no 3// #o 38/./6: no 3/5 #or 85!.3!: no 361 #or 1!/.!2. 8. )ncluded with the >uly bank statement was marked as *S% check drawn by Aoward Billiam& a customer o# nor #leet #arm. This check was marked *S% it had been included in the deposit o# 9uly 64 but had been charged back against the company@s account on >uly 1/. Ad>usted cash ba *orth %leet %arm "ank reconciliation statement As on >uly 1/0.
"alance as per bank statement Add: deposit in transit Sub? total (ess: outstanding checks Check: 3// = 38/./6 3/5= 85!.3! 361= 1!/.!2 /3!6.4 Ad>usted cash balance "alance as per company record Add: credit memorandum Subtotal Add: wrongly added check by company Subtotal (ess: debit memorandum = 4.82 *S% = /3! Ad>usted cash balance
/363./6 5!/4./2 6652.64 /3!6.4 6//56.1 /8448.2 5252 6/1//.2 /3 6/16.2 /34.82 6//56.1 )n'entory Systems Inventory is a list for goods and materials" or those goods and materials themselves" held available in stock by a business. .. +OR, the value of all the stock of physical items that a business uses in its production process or has for sale in the ordinary course of doing business -ach o# the three cost #low assumptions listed abo'e can be used in either o# two systems +or methods, o# in'entory: A. <eriodic ". <erpetual A. <eriodic in'entory system. Cnder this system the amount appearing in the )n'entory account is not updated when purchases o# merchandise are made #rom suppliers. Rather& the )n'entory account is commonly updated or ad>usted only once Dat the end o# the year. $uring the year the )n'entory account will likely show only the cost o# in'entory at the end o# the pre'ious year. Cnder the periodic in'entory system& purchases o# merchandise are recorded in one or more <urchases accounts. At the end o# the year the <urchases account+s, are closed and the )n'entory account is ad>usted to equal the cost o# the merchandise actually on hand at the end o# the year. Cnder the periodic system there is no Cost o# Eoods Sold account to be updated when a sale o# merchandise occurs. )n short& under the periodic in'entory system there is no way to tell #rom the general ledger accounts the amount o# in'entory or the cost o# goods sold. ". <erpetual in'entory system. Cnder this system the )n'entory account is continuously updated. The )n'entory account is increased with the cost o# merchandise purchased #rom suppliers and it is reduced by the cost o# merchandise that has been sold to customers. +The <urchases account+s, do not e.ist., Cnder the perpetual system there is a Cost o# Eoods Sold account that is debited at the time o# each sale #or the cost o# the merchandise that was sold. Cnder the perpetual system a sale o# merchandise will result in two >ournal entries: one to record the sale and the cash or accounts recei'able& and one to reduce in'entory and to increase cost o# goods sold %&A'()% *!. A perpetual in'entory system is used by "lackhawk inc0 . and separte in'entory record are maintained #or each type o# prduct in stock. The #ollowing transaction shows beginning in'entory purchased& and sale o# CT?1!!& a cellular telephone & #or the month o# Sep. Sep /. balance on hand&6!units& cost 75! each 73!! Sep 2. sale 3 units sale price 78! each 753! Sep 8. purchased 6!units cost 752 each 7!! Sep 6/ sale /!units sale price 78! each 78!! Sep 1/. sale /2units sale price 782 each 742 )nstrucition : A. record the beginning in'entory the purchased the cost o# the goods sold and the running balance on an in'entory subsidiary record on %)%O method. B. prepare >ournal entries to record the purchase and sale o# Sep assume tht all transaction were on account. "lack Aawk incorporation )n'entory subsidiary record CT?1!! %)%O costing method date purchased sold "alance Sep / unit s Unit costs Total costs units Units costs Total costs Units Units costs Total costs 20 40 800 Sep 2 8 40 320 12 14 480 Sep 8 20 45 900 12 20 40 45 480 900 Sep 6/ 10 40 400 2 20 40 45 80 900 Sep 1/ 2 13 40 45 80 585 7 45 315
9ournal entries Sep 2. a cost o# goods sold 16! )n'entory 16! " account payable 53! Sale 53! Sep 8 in'entory !! Account payable !! Sep 6/ a. Cost o# goods sold 5!! )n'entory 5!! b. account payable 8!! Sale 8!! Sep 1/ a. Cost o# goods sold 882 )n'entory 882 b. account payable 42 Sale 42 -.ecuti'e suits inc0 use a perpetual in'entory system. This system includes a perpetual record #or each o# the 8! types o# products. the company keeps in stock the #ollowing transaction show the purchases and sales o# a particular desk chair +product code dc?4, during September. September /. "alance on hand 2!units& cost 8! each 1!!! Sep 5. <urchase 6!units& cost 82 each /1!! Sep 3. Sale 12 units& sale price /!! each 12!! Sep . <urchase 5!units& cost 82 each 68!! Sep 6! sale 8!units sale price /!! each 8!!! Sep 62 purchase 5! units cost 4! each 63!! Sep 1! sale 2 units sale price //! each 22! )nstruction : A. record the beginning in'entory the purchased the cost o# the goods sold and the running balance on an in'entory subsidiary record on ()%O Method. C. prepare >ournal entries to record the purchase and sale o# Sep assume that all transaction were on account. -.ecuti'e Suites inc0 )n'entory subsidiary record +dc ?4, ()%O costing method date purchased sold "alance Sep 1 units Unit costs Total costs units Units costs Total costs Units Units costs Total costs 50 60 3000 Sep 4 20 65 1300 50 20 60 65 3000 1300 Sep 8 20 15 65 60 1300 900 35 60 2100 Sep 9 40 65 2600 35 40 60 65 2100 2600 Sep 20 40 20 65 60 2600 1200 15 60 900 Sep 25 40 70 2800 15 40 60 70 900 2800 Sep 30 5 70 350 15 35 60 70 900 2450 9ournal entries: Sep 5 in'entory /1!! Account payable /1!! Sep 3 a cost o# goods sold 66!! )n'entory 66!! " account payable 12!! Sale 12!! Sep in'entory 68!! Account payable 68!!
Sep 6! a. Cost o# goods sold 13!! )n'entory 13!! b. account payable 8!!! Sale 8!!! Sep 62 in'entory 63!! Account payable 63!! Sep 1! a. Cost o# goods sold 12! )n'entory 12! b. account payable 22! Sale 22! -FAM<(-6.. -.ecuti'e suits inc0 use a perpetual in'entory system. This system includes a perpetual record #or each o# the 8! types o# products. the company keeps in stock the #ollowing transaction show the purchases and sales o# a particular desk chair +product code dc?4, during September. September /. "alance on hand 2!units& cost 8! each 1!!! Sep 5. <urchase 6!units& cost 82 each /1!! Sep 3. Sale 12 units& sale price /!! each 12!! Sep . <urchase 5!units& cost 82 each 68!! Sep 6! sale 8!units sale price /!! each 8!!! Sep 62 purchase 5! units cost 4! each 63!! Sep 1! sale 2 units sale price //! each 22! )nstruction : A. record the beginning in'entory the purchased the cost o# the goods sold and the running balance on an in'entory subsidiary record on A'erage cost Method. D. prepare >ournal entries to record the purchase and sale o# Sep assume that all transaction were on account. -.ecuti'e Suites inc0 )n'entory subsidiary record +dc ?4, A'erage costing method date purchased sold "alance Sep / units Unit costs Total costs units Units costs Total costs Units Units costs Total costs 50 60 3000 Sep 5 20 65 1300 70 61.43 4300 Sep 3 35 61.43 2150 35 61.43 2150 Sep
40 65 2600 75 63.33 4750
Sep 6! 60 63.33 3800 15 63.33 950 Sep 62 40 70 2800 55 68.18 3750 Sep 1! 5 68.18 341 50 68.18 3409 9ournal entries: Sep 5 in'entory /1!! Account payable /1!! Sep 3 a cost o# goods sold 6/2! )n'entory 6/2! " account payable 12!! Sale 12!! Sep in'entory 68!! 68!! Account payable Sep 6! a. Cost o# goods sold 13!! )n'entory 13!! b. account payable 8!!! Sale 8!!! Sep 62 in'entory 63!! Account payable 63!! Sep 1! a. Cost o# goods sold 15/ )n'entory 15/ b. account payable 22! Sale 22! /. Account Recei'able: Amount recorded as being owed by a customer for sales on credit or on account OR Accounts receivable +A,R- is one of a series of accounting transactions dealing with the billing of customers who owe money to a person" company or organi.ation for goods and services that have been provided to the customer. 6. Cn?Collectable Account -.panse +"ad G $ebts,: account receivable" note receivable"or other type of receivable that is unlikely to be paid. An example is a customer who is bankrupt or on the verge of default OR customer account that cannot be collected because of the customer/s unwillingness or inability to pay. A business normally writes off such a receivable as worthless after several attempts at collecting the funds. -.ample /: Allowance #or doubt#ul account at $ec 1/& 6!!1 is Rs. /!!!! Account recei'able balance $ecember 1/& 6!!5 Rs.1!!& !!! $ecember 1/& 6!!2 Rs.5!!& !!! -stimated uncollectible #or each accounts periods are 2H #or account recei'able. Cncollectible that should be written o## are as #ollows %eb 2&6!!5 Rs.8&!!! 9an /!&6!!2 Rs.3&!!! Required: To prepare allowance #or doubt#ul debts accounts at the end o# each accounting period and their >ournal ledger to write o## account recei'able allowance #or doubt#ul debt account #rom 6!!5 to 6!!2 and also prepare all required >ournal entries. Solution Allowance #or $oubt#ul Account $ate $escription Amount $ate $escription Amount !e"5#2 004 Account $ecei%a"le 6000 &an 1#2004 Balance "'( 10000 Balance c'( 15000 Dec 31#2004 Uncollecti"le account e)pense 11000 21000 21000 &an 10#200 5 Account $ecei%a"le 8000 &an 1#2005 Balance "'( 15000 Balance c'( 20#000 Dec 31#2005 Uncollecti"le account e)pense 13000 28#000 28#000 &ou$nal *nt$ies $ate $escription $ebit Credit !e" 5#2004 Allo+ance ,o$ (ou"t,ul accounts Accounts -ecei%a"le 6000 6000 Dec31 #2004 Uncollecti"le account *)pense Allo+ance ,o$ (ou"t,ul accounts 11000 11000 &an10# 2005 Allo+ance ,o$ (ou"t,ul accounts Accounts -ecei%a"le 8000 8000 Dec 31#200 5 Uncollecti"le account *)pense Allo+ance ,o$ (ou"t,ul accounts 13000 1300 $epreciation epreciation is a term used in accounting" economics and finance to spread the cost of an asset over the span of several years. OR a decrease in price or value; "depreciation of the dollar against the yen" decrease in value of an asset due to obsolescence or use disparagement! a communication that belittles somebody or something The straight?(ine Method: 0traight line is a simple and widely used method for computing depreciation. According to the method" an e1ual portion of the initial cost of an asset is allocated to each period of use. 2his method is most appropriate when usage of the asset is fairly uniform year to year. .. Csing the data in our e.ample the annual straight line depreciation is computed as #allows cost I residual 'alue = /4!!?6!!! = 1!!! per year -stimated use#ul li#e 2 years $epreciation #or %ractional <eriod: Bhen an asset is acquired in the middle o# an accounting period it is not necessary to compute depreciation e.pense to the day or week. )n #act such a computation is based on an estimated use#ul li#e o# many years. An e'en widly used approach called the hal#?year con'ention. Bhen the hal# year con'ention is in use we ignore the date on which the asset was actually purchased. Be simply recogniJe one?hal# year@s depreciation in both the #irst year and last year o# the depreciation schedule. The $eclining?"alance Method: )n this method is used primarily in income ta. returns rather than the parental statement. "y the most widely used accelerated depreciation method is called #i.ed percentage o# declining balance depreciation. 6!!H $.".Rate = 6!!G/!!K6!H=5!H $ouble $eclining?"alance Method: )# we ha'e an asset and we ha'e to compent it depreciation we will compute its depreciation. /2!H $.".Rate=/2!G/!!K6!=1!H MACRS +Stand #or Accelerated cost Reco'ery, Cnder MACRS all plant assets are assigned one o# nine reco'ery period 1&2&4&/!&/2&6!&64 L&1/ L or 1 years. MACRS depreciation is based on the #i.ed percentage o# declining balance method <roblem *o / On 9anuary 6& 6!!/. 9ansing Corporation required a new machine with an estimated use#ul li#e o# 2 year. The cost o# the requirement was 73!&!!! with a residual 'alue o# 7/!&!!! prepare a complete depreciation table under the #our depreciation methods. (isted below in each case& assume that a #ull year o# depreciation was taken in 6!!/. 1. Straight (ine Method 2. 6!!H $eclining "alance 3. /2!H $eclining "alance 4. MACRS Cost o# Asset = 3!&!!! Residual Malue = /!&!!! -stimated Cse#ul (i#e = 2 Nears $epreciation Schedule +Straight (ine Method, Near Computation $epreciation -.panse Accumulated $epreciation "ook Malue 0 ........ ????????? ????????? 73!&!!! 1 80#000 / 10000'5 14000 14000 66#000 2 80#000 / 10000'5 14000 28000 52#000 3 80#000 / 10000'5 14000 42000 38#000 4 80#000 / 10000'5 14000 56000 24#000 5 80#000 / 10000'5 14000 70000 10000