Transcript Reporting and Analyzing Cash and Internal Controls

Chapter
ACCT 201
ACCT 201
6
Reporting and Analyzing
Cash and Internal
Controls
ACCT 201
UAA – ACCT 201
Principles of Financial Accounting
Dr. Fred Barbee
ACCT 201
Day #2
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ACCT 201
Chapter 6 - Day 2 - Agenda
Topic
Banking Activities as
Controls
Decision Analysis
LO
Read
HW
C4, P5
262269
E6, E7,
E8
A1
269270
QS7, E9
No Homework Due Today!
Chapter
ACCT 201
ACCT 201
6
Reporting and Analyzing
Cash and Internal
Controls
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Banking Activities
as Controls
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Bank Reconciliations
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ACCT 201
Bank Reconciliation
A bank reconciliation is prepared to explain
the difference between cash reported on
the bank statement and the cash balance on
company’s books.
*
Why are the
balances different?
Account: Cash
GENERAL LEDGER
Acct. No.
Date
Item
May 31 Balance
PR
Debit
Credit
102
Balance
DR (CR)
2,481.18
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Reconciling Bank Statement
Balance
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Deduct: Outstanding checks.
Add: Deposits in transit.
Add or Deduct: Bank errors.
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Reconciling Book Balance
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Deduct: NSF checks (NSF).
Deduct: Bank service charge.
Add: Interest earned
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Add: Collections made by the bank.
Add or Deduct Book errors.
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Bank Reconciliation
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Two sections:
Reconcile bank statement balance to the
adjusted bank balance.
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Reconcile book balance to the adjusted
book balance.
The adjusted balances should be
equal.
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Bank Reconciliation Example
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Let’s prepare a July 31 bank
reconciliation for the Simmons
Company.
The July 31 bank statement indicated a
balance of $9,610,
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while the cash general ledger account on
that date shows a balance of $7,430.
Bank Reconciliation Example
Outstanding checks totaled $2,417.
A $500 check mailed to the bank for deposit had not
reached the bank at the statement date.
The bank returned a customer’s NSF check for $225
received as payment on account receivable.
The bank statement showed $30 interest earned
during July.
Check No. 781 for supplies expense cleared the bank
for $268 but was erroneously recorded in our books as
$240.
A $486 deposit by Acme Company was erroneously
credited to our account by the bank.
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Simmons Company
Bank Reconciliation
July 31, 2002
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Bank Balance, July 31
Add: Deposit in Transit
Less: Bank Error
Outstanding Checks
Adjusted Balance, July 31
$ 9,610
 500
$  486
 2,417
(2,903)
$ 7,207
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Simmons Company
Bank Reconciliation
July 31, 2002
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Bank Balance, July 31
Add: Deposit in Transit
Less: Bank Error
Outstanding Checks
Adjusted Balance, July 31
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Book Balance, July 31
Add: Interest
Less: Recording Error
NSF Check
Adjusted Balance, July 31
$ 9,610
 500
$  486
 2,417
$
 28
225
(2,903)
$ 7,207
$ 7,430
 30
(253)
$ 7,207
Recording Adjusting Entries from
Bank Reconciliation
Only amounts shown on the book portion
of the reconciliation require an
adjusting entry.

GENERAL JOURNAL
Date
Jul
Description
31 Cash
Page 8
PR Debit Credit
30
Interest Revenue
30
To record interest earned in July
May 19 Accounts Payable
980
Recording Adjusting Entries from
Bank Reconciliation
Only amounts shown on the book portion
of the reconciliation require an
adjusting entry.

GENERAL JOURNAL
Date
Jul
Description
31 Supplies Expense
Accounts Receivable
Page 8
PR Debit Credit
28
225
Cash
253
To adjust cash account
May 19 Accounts Payable
980
Recording Adjusting Entries from
Bank Reconciliation
After posting the reconciling entries
the cash account looks like this:
Account: Cash
GENERAL LEDGER
Acct. No.
Date
Item
Jul
31 Balance
31 Adjusting entry
31 Adjusting entry
PR
Debit
Credit
30
253
Adjusted balance on July 31.
101
Balance
DR (CR)
7,430
7,460
7,207
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Days’ Sales Uncollected
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How much time is likely to pass before
we receive cash receipts from credit sales.
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Days’
Sales
=
Uncollected
Accounts Receivable
Net Sales
× 365