Cash, Bank Reconciliations, & Cash Internal Controls | Robert Steele | Skillshare

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Cash, Bank Reconciliations, & Cash Internal Controls

teacher avatar Robert Steele

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Taught by industry leaders & working professionals
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Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

16 Lessons (2h 28m)
    • 1. Financial Accounting Cash, Bank Reconciliations, & Cash Internal Controls Overview

      7:41
    • 2. 20 Cash Internal Controls Overview

      8:01
    • 3. 30 Cash Receipts Internal Controls

      8:07
    • 4. 40 Cash Disbursements Internal Controls

      8:07
    • 5. 50 Bank Reconciliation Accounting%2C Financial

      19:38
    • 6. 60 Petty Cash

      20:05
    • 7. Discussion Question 1 Cash & Internal Controls

      7:38
    • 8. Discussion Question 2 Cash & Internal Controls

      3:48
    • 9. Discussion Question 3 Cash & Internal Controls

      5:56
    • 10. Discussion Question 4 Cash & Internal Controls

      4:12
    • 11. Multiple Choice Questions 1 Cash and Internal Controls

      7:56
    • 12. Multiple Choice Questions 2 Cash and Internal Controls

      9:25
    • 13. Multiple Choice Questions 3 Cash and Internal Controls

      8:11
    • 14. Multiple Choice Questions 4 Cash and Internal Controls

      8:27
    • 15. 800 CPA Exam Part 1 Bank Reconciliations and Cash CPA exam %26 other accounting test prep

      9:53
    • 16. 800 CPA Exam Part 2 Bank Reconciliations and Cash CPA exam %26 other accounting test prep

      10:25
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About This Class

We will discuss internal controls including what they are, why they are useful, and the objectives of internal controls. We will then move to internal controls specific to cash including bank reconciliations. 

Bank reconciliations are important controls for both large and small companies. After the double entry accounting system itself, the bank reconciliation is one of the most important internal controls. The bank reconciliation will compare the bank statement to the cash book balance as of a point in time and reconcile the difference between the two. The bank reconciliation process will provide more assurance of the cash account and will provide more assurance over many other accounting processes because most accounting processes include cash. For example, reconciling the bank account provides more assurance over the revenue cycle, purchases cycle, and payroll cycle. 

We will also discuss the setting up and recording of a petting cash account, a process that can be more complex then if first seems. 

In addition to instructional video, this course will include downloadable

•    Downloadable PDF Files

•    Excel Practice Files

•    Multiple Choice Practice Questions

•    Short Calculation Practice Questions

•    Discussion Questions

The PDF files allow us to download reference information we can use offline and as a guide to help us work through the material.

Excel practice files will be preformatted so that we can focus on the adjusting process and learning some of the basics of Excel, like addition, subtraction, and cell relationships.

Multiple choice example question helps us improve our test-taking skills by reducing the information into the size and format of multiple choice questions and discussing how to approach these questions.

Short calculation questions help us reduce problems that have some calculation down to a short format that could be used in multiple choice questions.

Discussion Question will provide an opportunity to discuss these topics with the instructor and other students, a process many students find very helpful because it allows us to see the topic from different viewpoints.

Who will we be learning from?

You will be learning from somebody who has technical experience in accounting concepts and in accounting software like QuickBooks, as well as experience teaching and putting together curriculum.

You will be learning from somebody who is a:

•    CPA – Certified Public Accountant

•    CGMA – Chartered Global Management Accountant

•    Master of Science in Taxation

•    CPS – Certifies Post-Secondary Instructor

•    Curriculum Development Export

As a practicing CPA the instructor has worked with many technical accounting issues and helped work through them and discuss them with clients of all levels.

As a CPS and professor, the instructor has taught many accounting classes and worked with many students in the fields of accounting, business, and business applications.

The instructor also has a lot of experience designing courses and learning how students learn best and how to help students achieve their objectives. Experience designing technical courses has also benefit in being able to design a course in a logical fashion and deal with problems related to technical topics and the use of software like QuickBooks Pro. 

Content Includes: 

  • Internal controls
  • Cash receipts internal controls
  • Cash disbursements internal controls
  • Bank reconciliations
  • Petty cash
  • Accounting cycle
  • Definitions and key terms

Meet Your Teacher

Related Skills

Business Accounting

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Transcripts

1. Financial Accounting Cash, Bank Reconciliations, & Cash Internal Controls Overview: if we are a business owner who would like to run our business better by better understanding controls over cash, safeguard in cash and learning the bank reconciliation process or a business professional would like to advance our career by better understanding the flow of cash and the internal controls related to them. Or an accounting student who would like to learn bank reconciliations, internal controls and Incan internal controls related to cash and be able to work accounting problems much faster. This course is a course for us. What will we learn? We're gonna focus in on cash and internal controls. We'll talk about why we would want to have internal controls over cash. What internal controls are the pros and cons of internal controls and those specific to cash one of the biggest ones being the bank reconciliation process. So will spend a good amount of time on the bank reconciliation process. Very important process, no matter what system. We are using it for a small company and we're sole proprietor. Even we still want to have the bank reconciliation. Apart from having accounting software and the double entry accounting system, one of the hugest and colonel controls is the bank reconciliation. Accounting software can help us to do the bank reconciliation. But we'll talk about the theory of it here and that'll help us know if we are using accounting self for why we're doing the bank. Really conciliation what it is, how to read it and what the benefits are, how it fits into the internal control system. We're also gonna be talking about pity cash, and that's gonna be the amount of cash will have on hand for small purchases. It seems like a fairly easy thing to set up. But we do want to be able to track that. We want to be able to know how much we would want to put into petty cash and how how to monitor the petty cash and record petty catch into the system. So we'll take a look at the petty cash will learn some excel as we go. This won't be an Excel class. We're not gonna excel presentation or in Excel document to fill out or Excel spreadsheet. With every presentation, however, we'll have a PdF file and a presentation file, and then we'll typically have an Excel file and a related video to walk through the Excel problem, having one tab with the answer to it so you can see the problem filled out. You can see how it be worked out in something practical, like an Excel sheet. Then we'll have a practice have pre formatted so that we can work the same problem along with instructional videos and learn some excel. What we learned in Excel are the basics, the fundamentals, how to enter. Date it into the sales, how to add and subtract within Excel, how to copy and Paste Within Excel. We will then take a step back and look at the accounting cycle. Note. What we're doing here is focusing in on cash and the bank reconciliation, in particular as one of the major internal controls. We also want to take a step back and see Zoom back out and see the big picture. How does this fit into the big picture? Therefore, we will have a comprehensive problem which will go into the accounting cycle that the normal journal entries, including cash journal entries posting to the General Ledger, creating the trial balance and then creating the adjusting journal entries and the financial statements and the closing process as we go through the accounting problem. This time, we want to see in a news perspective in a new light how we might be going through this process and the adding internal controls related to catch the cash process. Why choose this course? Although this course will have a lot of instructional video, we will have more than just instructional video, including PdF files, pdf files that can be downloaded, seen offline, worked with offline and can be used to guide through and help with the instructional videos as well as a reference file. We'll have Excel practice files so we'll actually go through the concepts and instructional video and then have MAWR instructional videos as well as Excel sheets to work the problems . In a practical fashion, we will typically have one tab on the Excel sheet giving the answer so you can go through it, see how everything is put together before attempting the problem. Then we'll have another tab that will have the information on it and an instructional video to walk through the problem so you can walk through it step by step. Along with the instructional video, it will be pre formatted, so we're not gonna be working on formatting, but we will learn and practice and hone in the important skills for Excel that being entering data into the cells, copying and pasting knowing cell relationships within Excel. We're gonna have the practice test questions thes They're gonna be test questions at the end of the sections, and that will be in multiple choice and short calculation questions. And it's important to know these because the test questions in multiple choice format, especially related to internal controls, can be a little bit tricky because of the word in of test question. So we're gonna practice going through those and how we would approach those test questions in a test situation. They will be, ah, presentation format, so we'll just discuss multiple choice questions and how we can go about answering them using test taking skills. Then we'll have a discussion questions. Those are gonna be designed to have open ended questions so that we can get information not only from the instructor put from other students and be ableto word this information in different formats, which often students find helpful. Who will we be learning from? We will be learning from a practicing certified public accountant, someone who has experience in both accounting fields, as well as teaching classes within business and accounting, someone who has experience putting together curriculum both in terms of individual courses . And Siris, of course, is in such a way that students can follow through them. Go forward and them go back to information in the past if they need to get from the course what they need. We're learning from someone who is a chartered global management accountant, someone who has a master's of science in taxation, someone who is a certified post secondary instructor and curriculum development experts. Someone who has experienced putting together courses, courses and serious, of course, is that could be in a linear fashion or need to beam or in a linear fashion in a systematic way so that people and students can get from those courses what they want. How will we be taught? Will be talked through viewing, and then doing we will have the instructional videos will go through those instructional videos as well as have a PDF file that you can download. If you would like you could print it, you can see it off line, take notes with the pdf file. We're gonna have the Excel practice files, those being the practical problems that we can go through to really apply our skills pre formatted worksheets. And we will have instructional videos to walk through those as well. We're gonna those practice test questions to practice the test taking skills that will be in video format. So ah, well, just practice those test taking skills within practice test questions, both multiple choice as well as some short calculation type questions. And then we'll have those discussion questions designed to facilitate discussion with not just the instructor put get some feedback from other students about these topics, how they think about them, how we can word this information in different formats. Please join us for financial accounting, cash, bank reconciliations and cash internal controls. It will be great. 2. 20 Cash Internal Controls Overview: in this presentation, we're gonna introduce the internal controls related specifically to cash cash. Internal control goals is gonna be the objectives of the internal control system over cash . We want to have the cash handling separate from the record keeping. So whoever is handling the cash, we would like to have them not to be the same person doing the record keeping. And therefore, we have that separation of duties. We have the person that is entering the data, not having as much of an incentive Teoh steal the cash because they're not the ones handling the cash. The people handling the cash know that if they do steal it, the record keeping should pick that up and they are a separate person. Cash receipts are deposited to the bank. We want to make sure that the cash receipts are going to the bank as soon as possible, hopefully on a daily basis so that we're not actually related cash. We don't want to cash to be piling up, because if it is, then we have a greater risk of theft to happen and greater loss. If that does happen and we want to put it into the bank as soon as possible. That will help us basically, to safeguard the cash. It will also help us to record the cash more accurately, the bank being someone who is gonna have a separate record of the cash recordings as we go for us cash payments made by check or electron ICS funds transfer, and it's gonna be we don't really want. The point here is that we don't really want to make our payments for purchasing for business with cash, and the reason is that there's no cash audit trail for it. I mean, if we use cash, we don't have a good audit trail. Now some people think of cash and they think, Well, if if I have cash payments, no one could track that and possibly might think of that as a good thing that, you know, people can't see what you're doing over there. You know, some the government can't see what you're doing or something like that, but notes that we want good record keeping, Of course, when it's our records, because we want to be able to go back and say, Hey, what did I spend the money on? We want to have an audit trail so that when we look at our purchases, we can see what happened. If we purchased everything with cash. We don't have a good auto trail. We can't go back to our bank statement and say, What did I write the check for? Well, who did? Who did we write the check for? We can easily find that when we write the checks, we also have control over someone who is going to sign the checks, as opposed to possibly someone requesting that the cash payment to be made. So if a cash payment is being requested by one point department and or for a small business and one of our employees has a cash payment request or is dealing with the payables, we could still take control over the cheque signing activity. And that could be a an effective internal control so that checks aren't written, of course, for illegitimate reasons, Elektronik fund transfers can have similar types of internal controls and be a quicker as well. So we could do that Elektronik Lee as well, and have a similar trail of tracking to see what is going on. And ah, and so the point here is to limit the cash dispersement so that we have that tracking cash and cash equivalents. Now, cash is going to be anything that's gonna be a really liquid something that we're gonna be afloat. Payoff are short term obligations with. We typically think of cash as being physical cash or something that's gonna be in our bank account or our checking account. Now for talking about something that's gonna be fairly equivalent to cash, cash, cash equivalents. We're talking about something that's gonna be do really soon. Something that we could we could also basically have access to and pay off our accounts with very quickly. If we have a long term constraint on, that's the type of investment that we have, then of course, we wouldn't be calling a cash or cash equivalents managing cat when talking about managing cash. We're talking about the plan receipt to be able to cover payments, and this seems kind of obvious. But it when we talk about accrual accounting note that were not accounted for our for our income statement, our revenue and expenses with cash flows. So we want to make sure that as we do, accrue accounting and what and we look to optimize our net income, that we also go back and manage your cash flows because it is important for us to make sure that we're managing cash in such a way that we have enough cash to be able to cover our payments. However, we wanna have a minimum steady cash level at the same time. In other words, it's not efficient, of course, to have a lot of cash for for a business, the objective of the business is to earn revenue, not to have a lot of cash at any given time. If we have a lot of cash at any given time, that means that we have purchasing power, that we're not putting and using effectively. We're just we're just holding on to it. So what we want to do is have that minimum level of cash that we need in order to go after opportunities that will happen. But at the same time, we want to have enough cash to be able to make payments. So if we have too much cash, then we're not being optimal with our purchasing power. And if we don't have enough cash, of course, then we're not able to pay our bills. If we don't have a minimum amount of cash, a level that is relevant, then we're not gonna be able to really go after those opportunities that may arise on and need a little bit more cast at any given time. Managing cat. So how are we going to achieve these goals of the cash management? Well, one we wanna have collection of receivables, meaning we want to do what we can in order for the cash to be collected sooner. We would like to have cash sooner rather than later. This, I mean, can seem like not a big deal when you're talking about a few days or a month. But businesses will spend a lot off time to try to get that money a little bit earlier. If you get the money a little bit earlier, it could be worth a lot one because of the time value of money and to just to make sure that you are keeping up with your cash flows, having the cash on hand, ready for opportunities, you want to be able to delay payments of liabilities again, it seems it could get the point of seeming trivial on on how you delay the payment for a couple of days or something like that. But any kind of delay of payment that you could have eyes gonna be beneficial to the business. You want to be able Teoh delay the payments, and that will increase the amount of cash on hand at any given time. Assets are steady stat assets at a steady, necessary level. Once again, you don't really. Our goal isn't to compile assets if we if we make a lot of money. If the business is doing really well and we don't want to put the money back into the business, there's no growth opportunity that we see at any given time. Then we probably would give that money to the owners of the business, whether they be stockholders or individuals. If it's a soul, private tour or company in order for the owners to then take that money and they don't want to hold on to it, either they want to invest in, you want to be making money on the money. If the if there's no business opportunity within the business to be making money to grow the business, then we should distribute that money to the owners so that they can make their own investments and make money with it plan and budget expenditures. So we want to make sure that we have the plan. We have a budget in place in order to know what those expenditures will be that will help us to know what what cash level. We need to have it any given time and have help us to have that steady level of assets that we will want to have over time. If we know what those expenditures are, have an idea of what they are in advance. Invest when there is excess cash. Now, when we have again, when we have excess cash, we don't want to just hold onto the cash cause we're not making any interest on it. We want to invest it and we could, you know, invest it back into the company if there's growth opportunities or we want to invest in something that we're making money on, like a CD or something, that we make financial investment and get a return on meaning we're trading the purchasing power at any given time. We can't use it in order for a greater return or we want to give it to the owner so that they can make their own personal investments, whether they be the stockholders or they be the owner of the company. 3. 30 Cash Receipts Internal Controls: in this presentation, we will talk about cash receipts, internal controls. Now we're gonna talk about a voucher system for the payment process. But before we get too into the voucher system, note that the systems will change depending on the type of organization and what industry were in and how large the organization is. So if we just have a small organization, then we probably just wanna have some internal controls for the owner of the company, the owner being a key component of the internal control system and having a lot more oversight over many of the things that happened. For example, for the payments that happen, we may have someone that requests something on an employee that wants to request the payment may even enter the payment into this system. However, we want to make sure that the owner still has some control over, such as the Czech signing. So remember that we would typically want to pay things by check so that we have that audit trail, and we would want the owner to sign the checks so that if we had a clerk or bookkeeper that was entering the information, they couldn't make you know basically purchases for themselves That may look like business purchases or something like that. That's gonna be a very typical type of fraud. So for a small company, we want to make make payments by check. Make sure that the owner has the access to the purchasing information of of the company, and the owner is able then to sign the checks, and that'll be a good control. Now the owner also may want to do the bank reconciliations. They may not be entering everything into in a system, but if they do the bank reconciliation at the end of the month, they have, ah, lot more. That's another control that can be done even by small companies and reconcile in the books itself. Records on the bank account is often a very good control over cash in and of itself. Now, when we talk about a large organization, then we're gonna have mawr components to have purchasing system and way. We're gonna have to set up a system of controls limiting different type of activities that can be involved within the purchasing process. Note that the purchasing process is a huge area where fraud can take place. Um, and it's gonna be ah, area where fraud can happen, where purchases happen that are not approved or that are going for personal use rather than business use. So broadly speaking, the components of the system will to be to verify what will be purchased. We want to verify the activity. We want to make sure there's an approving process. So if there's one person that's asking a one department asking for purchases, we want to make sure that we have an approval process in place for the purchases. We want to make sure that the recording takes place, and then we wanna have the issuing of the checks finally within. These components will typically have some separation of duties within those components and order Teoh safeguard our assets and not have purchases that will be apply for, for example, personal use or non needed information or or components for the system. So a voucher system example. They look something like this. For example, we might have some department requesting for a purchase. Something needs to be purchased. A department is making a request for a purchase. We then we're gonna have the form of ah purchase request, so we'll have the purchase request. It's going to go to the purchasing department and the accounting department. So they So we're gonna have that purchase the purchase request, go into the department of purchasing purchasing, and the purchasing typically will be its own department. The only one authorized Really, Teoh, you know, prove the purchasing process. And in the accounting department who will ultimately record the information into the system and in the purchasing department more than create the purchase order and the purchase order will then be going Teoh the vendor, as real as are requesting department to show that they have sent it out to the vendor receiving and accounting. So the purchase order eyes going to go now, remember, if they purchase order is just gonna be a request from the vendor to to send it over. Payment has not yet been made. There's actually no transaction happening here. We're going to send the purchase order to the vendor. Of course to in order. Teoh, give us the item that were requesting. We got the requesting the department being the purchasing, being the requesting department up here, the return of the department that requested whatever item we are purchasing and we've got receiving, which could be somebody like if it was being shipped to us, we have a separate department to receive it. Then we're gonna give ah, copy there so that they can see the information or the item coming in. And then we have the accounting department, which will finally be recording this information. Then we're gonna have the vendor have the invoice. So the vendor is going Teoh, provide the invoice to us. Notice it's a little bit backwards than you might think of something like buying from Amazon, where we we would make the payment by credit card, possibly before we got the goods here. We're going to send the purchase order of their request and then get the vendor getting the invoice, possibly at the same point in time that we receive the goods that we requested and the invoices going to go to the accounting. So accounting now has the purchase request, the purchase order and the invoice, and then the receiving department is going to have the receiving report. And that means that they got the actual whatever item was there. You can imagine the receiving department is you know, the truck came in, we got whatever it is that we ordered and that's going to the receiving report is going to go to and note that the receiving report now can count the information or the goods that has been received. And they're gonna give their receiving report to the accounting department. They're requesting department, the original requester and purchasing the purchasing department. So note the accounting department now has the purchase requisition the purchase order the invoice. They're receiving report, and then the accounting department is going. Teoh invoked having the invoice approval. And finally the cashier will get that and weaken, record that information in to the system and make the payment. The cashier then writing the check to the vendor. So this is gonna be a process. You can see that it's gonna be. It involves a lot of people within the purchasing department that allows us to make the separation of date of duties. It allows us to have the verification in process. It allows us to record things in a different location than the original request. It's happening so also, however you can see that it has a lot of of added steps, then a system with. If you are a small company, you would just say requesting department to check. That would be a lot faster and note that if if these kind of processes aren't being followed, it's very likely that people will start to tend towards that because that being the quickest point between the two activities that we want to do. But if we do that, we're missing the recording, were missing toe, have everything recorded the way we want. We're missing that separation of duty duties and that will increase the likelihood of fraud . So we need to review this process and make sure that we're going through this process because although it takes more time and it's not as efficient as just writing a check, it does provide those other goods which we are balancing out, that being the safeguarding and all that other stuff. In comparison Teoh a quick process and as we grow our goal then will be going will be will be that we need to figure out what the best system of internal controls will be. It's a small system of internal control is gonna work and we can we just have approval process by management or by the owner or that we have toe have, ah, larger system. And as we implement that larger system, how many separate it separations and approval process is, do we need in order to have an efficient system and also have one that safeguards us against potential problems such as fraud? 4. 40 Cash Disbursements Internal Controls: in this presentation, we're gonna talk about cash disbursements, internal controls. Now we're gonna talk about a voucher system for the payment process. But before we get too into the voucher system, note that the systems will change depending on the type of organization and what industry were in and how large the organization is. So if we just have a small organization, then we probably just wanna have some internal controls for the owner of the company, the owner being a key component of the internal control system and having a lot more oversight over many of the things that happened. For example, for the payments that happen, we may have someone that requests something on an employee that wants to request the payment may even enter the payment into this system. However, we want to make sure that the owner still has some control over, such as the Czech signing. So remember that we would typically want to pay things by check so that we have that audit trail and we would want the owner to sign the checks so that if we had a clerk or bookkeeper that was entering the information, they couldn't make you know basically purchases for themselves That may look like business purchases or something like that. That's gonna be a very typical type of fraud. So for a small company, we want to make make payments by check. Make sure that the owner has the access to the purchasing information of of the company, and the owner is able then to sign the checks, and that'll be a good control. Now the owner also may want to do the bank reconciliations. They may not be entering everything into in a system, but if they do the bank reconciliation at the end of the month, they have, ah, lot more. That's another control that can be done even by small companies and reconciling the books itself. Records on the bank account is often a very good control over cash in and of itself. Now, when we talk about a large organization, then we're gonna have mawr components to have purchasing system and way. We're gonna have to set up a system of controls limiting different type of activities that can be involved within the purchasing process. Note that the purchasing process is a huge area where fraud can take place. Um, and it's gonna be ah, area where fraud can happen, where purchases happen that are not approved or that are going for personal use rather than business use. So broadly speaking, the components of the system will to be to verify what will be purchased. We want to verify the activity. We want to make sure there's an approving process. So if there's one person that's asking a one department asking for purchases, we want to make sure that we have an approval process in place for the purchases. We want to make sure that the recording takes place, and then we wanna have the issuing of the checks finally within. These components will typically have some separation of duties within those components. In order Teoh safeguard our assets and not have purchases that will be apply, for example, personal use or non needed information or or components for the system. So a voucher system example may look something like this. For example, we might have some department requesting for a purchase. Something needs to be purchased. The department is making a request for a purchase. We then we're gonna have the form of ah purchase request so we'll have the purchase request , It's going to go to the purchasing department and the accounting department. So they So we're gonna have that purchase the purchase request, go into the department of purchasing purchasing, and the purchasing typically will be its own department. The only one authorized Really, Teoh, you know, prove the purchasing process. And in the accounting department who will ultimately record the information into the system and in the purchasing department more than create the purchase order and the purchase order will then be going Teoh the vendor as role as are requesting department to show that they have sent it out to the vendor receiving and accounting. So the purchase order eyes going to go now, remember, if they purchase order is just gonna be a request from the vendor to to send it over. Payment has not yet been made. There's actually no transaction happening here. We're going to send the purchase order to the vendor, Of course, to in order. Teoh, give us the item that were requesting. We got the requesting with department being the purchasing, being the requesting department up here, the retarded, the department that requested whatever item we are purchasing and we've got receiving, which could be somebody like if it was being shipped to us and have a separate department to receive it. Then we're gonna give ah, copy there so that they can see the information or the item coming in. And then we have the accounting department, which will finally be recording this information. Then we're gonna have the vendor have the invoice. So the vendor is going Teoh, provide the invoice to us. Notice it's a little bit backwards than you might think of something like buying from Amazon, where we we would make the payment by credit card, possibly before we got the goods here. We're going to send the purchase order of their request and then get the vendor getting the invoice, possibly at the same point in time that we receive the goods that we requested and the invoices going to go to the accounting. Accounting now has the purchase request, the purchase order and the envoys. And then the receiving department is going to have the receiving report. And that means that they got the actual whatever item was there. You can imagine the receiving department is you know, the truck came in. We got whatever it is that we ordered and that's going to the receiving report is going to go to and note that the receiving report now can count the information or the goods that has been received. And they're gonna give their receiving report to the accounting department. They're requesting department, the original requester and purchasing the purchasing department. So note the accounting department now has the purchase requisition the purchase order, the envoys, the receiving report and then the accounting department is going Teoh invoked happen the invoice approval and finally the cashier. We'll get that and weaken, record that information in to the system and make the payment. The cashier then writing the check to the vendor. So this is gonna be a process. You can see that it's gonna be. It involves a lot of people within the purchasing department that allows us to make the separation of date of duties. It allows us to have the verification in process. It allows us to record things in a different location than the original request. It's happening so also, however, you can see that it has a lot of of added steps than a system with, If you are a small company, you would just say requesting department to check. That would be a lot faster and note that if if these kind of processes aren't being followed, it's very likely that people will start to tend towards that because that being the quickest point between the two activities that we want to do. But if we do that, we're missing the recording were missing to have everything recorded the way we want. We're missing that separation of duty duties, and that will increase the likelihood off fraud. So we need to review this process and make sure that we're going through this process because although it takes more time and it's not as efficient as just writing a check, it does provide those other goods which we are balancing out, that being the safeguarding and all that other stuff. In comparison Teoh a quick process and as we grow our goal then will be going will be will be that we need to figure out what the best system of internal controls will be. It's a small system of internal control is gonna work and we can we just have approval process by management or by the owner or that we have toe have, ah, larger system. And as we implement that larger system, how many separate it separations and approval process is, do we need in order to have an efficient system and also have one that safeguards us against potential problems such as fraud? 5. 50 Bank Reconciliation Accounting%2C Financial: Hello. When this lecture will discuss a bank reconciliation At the end of this, we will be able to describe what a bank reconciliation is perform a bank reconciliation, making needed adjustments to our books in the reconciliation process as well as record those adjustments. So this is gonna start off the bank reconciliation process will start off with, of course, the bank statement. So the bank statement is going to come from the bank. Generally, it happens at the end of the month, although we could get it Elektronik Lee at any time frame. But typically, it's still good to get it as of the end of the month so that we can have a set time frame as to when we're gonna reconcile our accounts and deal with the timing differences at that time. So this bank statement coming from the bank is going to be as of the end of February into this case and we'll have a typical information on a bank statement, which will be that we will have the beginning balance and then we're gonna have the additions to its generally are deposits, and then we're gonna have the subtractions to it. Generally, the checks, but also going to include things like bank fees and withdraws in this case. And then we'll come up to our Indian balance. So that's what the bank says we have. As of the date the cut off date being February 28 then we're going to sum up this information. So the total deposits here are going to consist of these deposits by date in this case, and that adds up to this number, which, of course, is up here in our summary. We also have the checks. We have the date. We have to check number. We have the amount as well as the other information that is coming out of our bank account withdrawal such as an A team withdraw in this case and a bank service charge of a couple dollars that comes up with the amount that is going to come out and that will give us the ending balance. We're gonna compare the bank statement to our books, so notice what the bank statement is doing its recording, all of our transactions. This is exactly what we've record in our books. That bank is doing it again for us and the bank usually does a very good job of doing that . So the purpose of a bank statement is really to tie out the banks records to our records, thereby giving us a second check assurance that we have recorded everything correctly. Now, this is the second hugest type of check that we have other than the double entry accounting system itself in order to guard against making errors on our transactions. So and that's because there's so many transactions that go through the cash accounts. So many of the transactions that we're gonna make, of course, will either be a deposit to the cash count or coming out of the cash count. Therefore, if we can verify cash in some other ways such as this, then that's gonna be a huge check for us to catch any errors that we may make. So the bank reconciliation, therefore, is really needed to be done for any type of organizations, whether you're large, whether you're small, even a personal accounts, the reconciliation process is really something that should be done any any type of business and probably is applicable for personal finances as well. It will help to catch any errors that are happening So if we go back Teoh licking at our books. Now, here's our bank statement on this side and our books. If we look at the trial bounds, we've got our cash account over here. We can see that we are in balance because the debits equals credits were showing revenue. In this case, of the 50,000 down here, revenue less expenses, there are no expenses. And we also see that we're in balance by the green accounts being assets Equalling the liabilities, which are the orange accounts and the owner's equity being that capital and all of the income statement. So we are in balance in this way. We, of course, are concentrating on the cash account. So we're gonna take a look at the T account or the general ledger in terms of cash. So if we go over here, we can take a look at the g o. We have the Geo by date and it started at January 20th and going down to the end of the month the end of February and we're seeing our list of activities of the debits are increasing the cash account as we could see some of 15 43 is going up by the 6 82 the 15 7 23 Then it's a debit bounce accounts going down with the credit down to 15 4 73 Then it's going down with a credit to 14 3 73 and then it got a debit, so it went up. So this is a running total over here. Of course, the end of this account as of the end of the month, ties out to our balance on the trial balance Notice. What it does not tie out to, however, is the balance on the bank statement as of the end of the month, and that's typically going to be the case. That's almost always going to be the case, and that doesn't necessarily mean we made an error. Even if we recorded everything perfectly, there still would be a timing difference, because if it is the timing difference, meaning if we write a check, then vet check is going to come out of our books right away. So, for example, this check here, this to 50 that was written is gonna come out of our account as soon as we wrote it, which imposed on January 23rd but it needs to go through the mail. It needs to be picked up by the recipient of the Czech within needs to take it to the bank , the bank, midst of in contact our bank. So it's not gonna clear until a later date. So we recorded it correctly. We wanted on our books. That seems to be right to the check. We want to record that, but we can't verify that it's been cleared until it clears the bank, which in this case happened here on February 2nd. So that's gonna be the idea, and that's what's gonna make the difference. That will always be there. So we expect there to be a timing difference. Also note that the beginning balance here that's 15 43 does not equal the beginning balance or the ending bounce as of January, which would be the beginning balance of the February, which is 14 to 73 on our books. And that's because of the timing difference of the last month. So noticed that if we took out these three transactions and we were up here, which on our books was before January 20th then we tie out so we see that we tie out here and that's when we reconciled. Last month, we had these three transactions outstanding. So when we then reconcile this month, we expect that these three transactions have cleared. And then we're gonna go through the our current transactions and see what has cleared and see if there's anything then that is outstanding. So that's the process that we're going to take a look at now. So let's go ahead and do that. If this is a computer system, we generally do the same thing. If we had something like QuickBooks, it would basically give are beginning balance. And then we would take our bank statement and we're just gonna take anti everything off. And so anything I see over here, I'm going to say, There it is. It cleared bank at 21 Here it is. Over here. It cleared our books. It was still outstanding as of the in January. Now it has clear That's good. Then we got the 500. I'm going to see if it I confined it over here. 500 on this side. I see the 500 deposit on this side. Therefore it has cleared. I'm gonna check that off. So here's the 4 20 Here's the 4 21 scan. We wrote it on February 20th. It cleared on February 20 1st These air deposits we would expect them to clear within three days. Realistically, at this point, probably sooner than that problem like a day they should. They should be in there if their deposit checks. On the other hand, typical toe happen. Be longer than that. Here's the 5 10 Here's the 5 10 So we've checked all those off. Let's take a look at the other side of it and we have the check. In this case. It cleared on to to check number 5005 or 1005 And in this case, we wrote it on January 23rd notice. We have a longer timeframe between when we wrote it, and when it clears, that's gonna be typical with checks. If checks were outstanding for a longer time frame, not not a problem. Usually that's usually normal. So then we're gonna have the 1002 here. We wrote it on the 31st. It was outstanding. As of the end of last month, it now has cleared in this month in February, and then we have, Ah, check that we wrote for 75 on February 10th. It has now cleared on February 13th. Here's a check for 2 50 we wrote it on February 12th. It's cleared on February 15 so we've tied everything out Now. Now we've found everything on the bank that we could on our Vicks. If there's something except for, of course, these two transactions down here, the A and the two those are not on our books, and the general rule is gonna be this. If it's on the bank statement and it's not on our books, then we probably have to fix our books now. The exception to that is what often people think of the reason of doing a bank reconciliation. And that is what if the bank made an air that does happen. I've seen errors before, but the bank is pretty good at it, so they don't often make an error. What happens a lot more often is that there's transactions on the bank that we have to record, and that's the case with, of course, these two transactions here that 80 and the to 80 represents something that maybe we went to the bank and took a withdraw and never came home and recorded that or to the office and recorded that withdraw. And therefore obviously, it came out of our checking account. Therefore, it should be reducing our checking account. It is reductive and reduced from the banks aside, We haven't recorded it on our side or something like bank charges. If we got a if we bought checks or if we just had a non sufficient fund charge something like that, then of course, the bank will just take it out of our account. We wouldn't even know about it. And we don't know about it until we get the bank statement and say, Okay, they took, you know, in this case, $2 for just service charges that we're gonna have to reduce from our side. Also note that if we're a small company of some small companies, may do a lot of stuff basically on a debit card or even individuals may do a lot of stuff on a debit card and actually record it monthly meaning they're gonna get the bank statement . Look at all the charges they have made and basically record that the transactions from the bank statement Teoh v the books in that fashion. Now the other side of it is, if we have something on our books that's not on the bank statements such as these three items here. So we have these two checks and this item, this deposit, then that difference is probably due to timing differences. Meaning? We wrote these checks clearly, and we made that deposit. But they have not yet cleared the bank. The bank hasn't had time to process those because these happened are these two checks have to once again get picked up by the recipient of the check, and they have to deposit it and then tell our bank the deposit should take 1 to 2 days. But this was deposited on February 28. So what we're gonna do is we're gonna say, OK, here's these two checks. If we're concerned about them, then what we want to do is call the bank. Maybe because note, win, we're doing this process. It's gonna be even though it's as of the 28th of February. It's gonna be sometime in March because obviously we got the statement sometime in March and so we can call the bank. We can say, Hey, bank or go online and say, Hey, did these two checks clear sometime in March? And if they did, that's what we would expect and we say, Okay, we're just gonna record that. That's a That's a difference. That the timing difference We're good. Same with this deposit. We're going sometime in February. Now we can call the bank of if we're concerned about it and say I would expect this deposit to have cleared sometime between before March 3rd, is that the case? If it is, then as of this time period, we just record that as the timing difference. So first, let's take care of these two items. We noted that these two items were on the bank statement, but they're not on our books. So what we're gonna do is just make the adjustment. Let's just make the adjustment for those two items we need to fix our books, meaning that if we took out $80 here on, we drew it out of the account and just got cash for it, and we didn't record it in our books than what's gonna happen toe happen is cash is gonna have to go down. By that $80 we could see that Cash has a debit balance. We need to make it go down. We're gonna do the opposite thing to it. Therefore, that would be a credit. So that's gonna be this credit here. We're gonna credit cash by the $80 which will reduce the cash account. Then we're gonna have to record some other side of it. So we know that cash has to go down. What about the other side? Most likely, it's gonna be some kind of expense. If we re took something out in cash and didn't keep the receipt, that's, you know, we should keep the receipt. Probably. But if we took it out and we don't know what we spent the cash on, then we're gonna have to put it somewhere. One place we could put it is probably the miscellaneous account here, so we're probably We could put it into miscellaneous. It's gonna be some type of expense. Most likely and expenses have debit balances. And once again, they only go up. So we're gonna make it go up by doing the same thing to it. We're gonna debit the $80 expense. If we record that, then what would happen is the expense goes from zero up to 80. It brings net income down because net income has a credit balance. It's the 50 minus 2 80 would bring it down here also. Of course, the cash has a debit bounce. It would go down by that 80 and bring the cash balance down. That would put it back in balance. And what the effect on the net income would be once again, this is income, not a loss. The other side of it. If we had a bank charge, this would be also something that the bank would record that we wouldn't know about 10. We got bank statements of bank, took the money out. If there's a non sufficient fund, if they charge is the late fee or something, then we just get it. We go. Okay. We're gonna have to record that. Were enough to reduce our cash in town once get cash at the debit balance, we're gonna do the opposite thing to it. Therefore, we're gonna credit cash, so we know that has to happen. So we're gonna go ahead in credit Cash? What's the debit gonna go to? What's the expense account? Probably going to be an expense account. I personally like to make an expense account called bank service charges. So I like to record what the bank has taken out in a separate account. It is up to the bookkeeper to do that if they want to or not, because note that it is probably gonna be a small amount. So hopefully and hopefully the banks not taking a lot out. So since the amount some people might say is in material, then why don't we just put that into, like, miscellaneous as well or something? Because it's a small in material amount. Personally, most with people I've seen. I kind of like to see how much the banks taken out, even if it's small, just to make sure it is small. But that's a choice that the bookkeepers gonna make. In this case, we have a separate count. Thanks, Service charge. It's an expense expenses that debit balances. We're gonna make it go up by doing the same thing to it, which in this case, would be a debit. So we have it going from zero up by the two here to to to holders that's gonna bring down the net income. The expense goes up, which brings down net income. And then the cash is the other side of the entries being recorded here. That's what's making the 80 to 80 plus the two. And so the, uh, the cash is a debit balance is gonna go down by the credit for the $2 in that case. And now we've recorded these two transactions. So now we can say, OK, those now I can see if we look at this same transaction in terms of our General Ledger. Now, note that this is where we were at on our trial bounce before these two transactions, where we should also reflect this, This would be be reflected on the General Ledger as well, meaning in rgl we have, as of the 28 there's that $80 that's gonna come bring it down, represented by this journal entry. And here's the $2 bringing it down represented by this journal entry. So that would also of course, be reflected on our G l. So that our new balance in the jail would be 16 to 56. So this is where we stand now. This is still where the bank statement is, so we're still not in balance. Even though we've adjusted for these two amounts, what we have not adjusted for yet is, of course, these that were outstanding. So that's what we'll have to do next time. So now you'll remember. You'll recall that we take untied all this off. We have now taken tied these off and we're left with these items, these three items. So these two, they're on our books, but they're not on the bank statement. And we wrote them as of the end of the month. So it's expected we would assume that we wrote them and they just haven't cleared yet, So that's gonna be on the bank reconciliation. So the bank reconciliation should, for the most part, B these timing differences, meaning this is what we started with or this is what is on the bank statement. And then we're going to say what should be on the bank statement. That is not due to timing differences. Well, this 1 30 plus the 1 10 our checks that we wrote and they're not included in the ending balance on the bank statement. And they should be because it's just the timing difference. They're already out the The bank just hasn't got to them yet in order to record them. Therefore, we're gonna reduce the balance by that and that what that'll do, it will bring the balance down to 15. 56. And of course, we're still not quite there yet because our balance on the books is is 16 to 56 at this time. What's the difference? It's the deposit we haven't yet recorded. I would hope so. Let's do that now. So now we've found these two again. These two are done. The only outstanding Adam being this now at this time. So we found these. So that, of course, will be recorded here. So now we have the outstanding deposits. Same idea. We deposited it as of the last day of the month. Therefore, the bank reconciliation for the month does not yet have it. We could verify that it has passed and cleared in March, but we just want to record as of this time that that's the difference. And so if we take the 15 minus the outstanding checks plus the outstanding deposit. We come up to 16 to 56 which is now adjusted to what we have in our books. So what's the purpose of this? Now we can say this is what's on our books, and it ties out exactly to what's on the bank statements. So weaken double verify our our entries because we know exactly what the differences and the difference is exactly what we expected to be. It's the timing differences. And if that's the case, then we've double checked our our work, and we've double checked it with a very strong source being the bank. And if our caches and reconciliation we have a much better verification and way feel a lot more comfortable that are transactions are correct. So whether you're a large business or a small business, if you get the cash reconciled, that is a huge check. In order. Teoh verify the books, so obviously we can see that this ties out here. It ties out to the General Ledger, and it ties out to our any bounce on the trial balance. All right, so we are now able to describe what a bank reconciliation is. Perform a banker reconciliation, make needed adjustments to our books in the reconciliation process and record adjustments 6. 60 Petty Cash: In this presentation, we will talk about how to set up and record a petty cash fund. Setting up a petty cash fund seems like an easy thing to do to have a minimal amount of cash that we can have expenditures for a small purchases. Four. However, it can be a little bit tricky to set up the petty cash fund, and there is kind of a short cut to recording transactions for the Petty Cash fund. So we'll go over the process of setting up the Petty Cash Fund, recording the initial investment in the Petty Cash Fund and then recording the activity from the Petty Cash Fund. Now the objective, of course. And this will be to have not just the checking account where we need authorization in order to take money out of a checking account. We would typically want anything going out of the checking account to be by Elektronik Fund transfer or by check, so that we have a clear paper trail of what is going on the petty cash. However, if we just have some small items that we need to take care of with cash, and it's just convenient to have small items with cash to be paid. The Petty Cash Fund is good to have the idea of the petty cash fund. Of course, being that the small purchases we make with the petty cash are probably going to be in material in nature compared to the other purchases and therefore not affect our financials too much and the petty cash we're going to try to keep at a level that it's small enough that if it was ah stolen, it wouldn't increase the likelihood of people trying to rob us of a petty cash fund that we will have on hand and that if it was stolen again, it would be some something that would be in material because we will have less safeguards over the petty cash, given that we have cash on hand rather than the money in the bank account. So we want to keep that level of the level pretty steady at what the Kitty Petty cash will be able to monitor and track to some extent what is going in and out of the petty cash as we go. So we'll talk about that by setting up a petty cash count. We're gonna start with a trial balance here. It's just gonna about some limited accounts because we're really only working with the cash and the petty cash and then we'll have some expenses when we start to spend out of the petty cash here. So here is gonna be our trial balance. The debits are gonna be non bracketed. The credits here are going to be bracketed. The zero here indicates that if we were to add up the debits and subtract out the credits, they would be equal and therefore add up to zero. Net income is now 4009 05 That's this. 10,000 of revenue minus all the expenses to get to income, not lost income credit over the credit over the expenses credit over the debits of 4009 05 Now, we're just gonna set up the petty cash fund and it ZZ as you would think to set up a petty cash fund, Clearly, we're gonna we're gonna in our chart of accounts, have another account called Petty Cash, and we will set up that account. We're gonna try to pick some number that we think is ah, good enough number to cover the small types of purchases, but not too high to have too much cash. Uh, at any one given time and we're gonna say that's going to be $250. So what we're gonna do is just set up the petty cash. It's a debit balance account. It's gonna be a cash count asked. Account has a debit balance. We're gonna increase it, doing the same thing. Another debit and the other side will, of course, be coming out of the checking account. So we're just gonna move money, write a check from the checking account, or take money out of a checking account and put it into the petty cash account. Therefore, the checking account is gonna go down. It's a debit balance. Were going to the opposite thing to it. A credit. So we are, in essence, just adding another cash type account. Teoh, our chart of accounts to our trial balance posted this out to our little worksheet. We're gonna say that petty cash is gonna go from zero up by this debit in the debit direction to 250. The cash accounts is going to go from this 2002 05 down in the credit direction down in the credit direction to 2 2055 So we just lowered the cash accounts, set up the petty cash Pretty straightforward next item we're gonna have. And if we saw that in context, of course, then if we pull over all the other accounts, we are still in balance. We're still at a zero balance here. No effect on net income, just in essence, bringing the cash countdown, putting the money into the petty cash. Next, we're going to say that the activity happened during the month and we need to replenish the petty cash. So at the end of the month, we're going to say whom how much cash is left of the 2 50 we put in there. We have not been taking it out as we go. What we have done is just paid whatever petty cash out for minor purchases, and we now have $19 in 17 cents left in the petty cash at the end of time. Here what? We also have our receipts that we got from the petty cash dispersement. So any time we spent petty cash, we wrote it down or we got a receipt for it. And we're putting those into the into the safe the petty cash drawer in order to track our petty cash. Now we need to replenish it Now the quick. That way, you might think that we would want to replenish. This would be to first do a journal entry, taking everything out of petty cash and then replenishing it with cash. But this is the kind of a tricky part. We're going to a bit of a shortcut which will save us some time and the data entry. So first, we're just gonna go through and we're gonna say, OK, what did we spend money on according to our records, any kind of receipts that we kept, or any kind of thing that we wrote down to help us track what we spent money on, and we're gonna record that the debits to these expense accounts in accordance with that. So we're going to say that there's janitorial expenses of some kind that we had to deal with, which was $78 that we spent out of petty cash. We're going to say that there's miscellaneous expenses. We just have a receipt in our Jordan that's all. The way we wrote down probably should be more specific than that, but and it could have been it could have been something more specific. And we're just gonna put it into miscellaneous expense because there's no other account that that we want to set up for such a small item. Possibly we're gonna say that. Then we have postage expense that we paid money for postage for 3 50 And again, we're just gonna pull these from the expenses we're gonna record our journal entry. These are old debit balance accounts, so we're gonna increase them by doing the same thing to it, which is a debit which is building our journal entry by what we find in the petty cash drawer. In terms of our records for what we spent this 250 on of which we only have $19.17 left. We're gonna say we had advertising expense of 57. That's something we spent our petty cash on. And that's all we have in our drawer now. So if we think about this and we're gonna say OK, well, we had 250 in there at the beginning and Now we spent 78 minus 78 minus 63.68 minus 43.5 minus 57.15 So according to our records, the receipts that we have and the original amount that we had in place, you would think that we would be left with $7 in 67 cents. However, we are left with $19.17 so we have a difference there. We can't just put the difference of the $7 of the $7 there. We've got it. We've got a problem because we're left with $19. So we're going to a subtraction problem. There were going to say, OK, what we will. We think we should have been left with 17 but we got 19. If we subtract out minus 19.17 then we have a difference. An over short difference of this $11.50 a difference between what our records show. Starting at 2 50 minus the activity that we show in accordance with our records. The difference of 11. 50 off. We're gonna put that difference into the cash over and short so that cash over in short account is gonna be that difference of the 11 50 that will need in order to be in balance. Now, the tricky thing is that you would think that the difference here would go to the petty cash account. So in other words, if we're saying that the petty cash only has that 1917 in it left, you would think we'd say Okay, well, there's 250 minus the 19.17 And that would be 230 87 that we would have to write this down by in order to bring it to this $19.17 and then do another journal entry taking money out of the cash account and putting it into the petty cash account so you could, and we could do it that way. That would be a legitimate way to do it, but often we could skip those steps. And instead of writing this down to 19 and then write another check bringing it back up, which would be more journal entries, we could just put this difference just 2030 83 into the cash account. So we're just basically going to write a check for cash of the difference that we need $230.83 to bring this account back to what's already in our account. Here. We already have 2 250 here. This is what we need in order to bring the balance back up to that from the checking account. So one more time. In other words, we could have done this two different ways. We could have said this 2 to 230 is what we need in order to bring this balance down to zero or in order to get us in balance. The debits minus two credits equals this 230 83. So after this transaction, total debits would equal total credits. We could have put this instead of to cash to the Petty Cash fund, bringing the balance down to the $19.17 which would make sense and then write a note, another journal entry, which would be crediting the cash account by $230.83 and then debuting the petty cash by $230.83 to bring it back up to 250 but that's some repetitive nous there. So most of these type of problems will just say, Hey, I'm just going to skip that extra step and we're not gonna reduce the petty cash fund. We're just gonna write a check out of the cash account here, apply it to all the expenses that have already been expended. And then the difference, of course, will go to the cash over and short. So if we post this out, then we're going to say that the janitorial expenses air here 400 debits going up with a debit direction to 478. We have the miscellaneous expenses are gonna go from thes 650 up by the 63 68 to 713. 68. We have the postage 43 15 increasing the posters by one from 100 by 43 50 to 143 50. Then the advertising is going to increase the 300 by 57 15 to 357 15. The cash over short is gonna be here. Now, this is gonna be our new account here, And it could be something that's gonna increase income or decrease income depending on it for over or short on the cash. In this case, it's actually going to increase income because we must have. Basically, Miss wrote one of these items here that were in the in the petty cash. We have this difference which is going to increase the Net income with a credit here so it could be a debit. It could be a credit. It could go either way. This cash over short, in other words, doesn't have, like a normal, normal balance. Not always gonna have a debit normal balance like every other type most other accounts do. For example, expenses are all debits and and the revenues that credit balance normal balance. But But the cash over short could flip from a debit balance to a credit balance. And then we've got the cash it's going to go down by the 230. So we're actually writing a check and we're taking more money out. We're taking 230 out. You could say we got that cash. We go to the bank and take 230 83 out, and we put it back in the drawer back in the pity Castro or But when we recorded it, when we record the taking of this money out, we're gonna record it to the expenses that we had already expended in the expenses we had already expended really came out of the O original $250. And that's just gonna be again, a kind of shortcut that weaken Dio. To put this in more easily, note that this transaction will, of course, decreased net income. All the expenses are going up because that's what we spent the petty cash on net income revenue minus expenses, then going down by what we spent the petty cash on. Now, if we're back at the 250 if we wanted to increase the balance of four saying, Hey, that 250 is not enough for our pretty cash needs We spend more than that. And what the months time period, then we might want to increase that minimum balance, whatever that level is to say 450. And then, of course, all we'd have to do is take out up, increase the petty cash by the 200 to bring it up to 450 write another check. Take it out of the checking account. So now we're gonna we're gonna say, Hey, I don't want to keep that level at 250. We want to keep the new level at 450. So if we post this out, then petty cash is gonna go up by, uh, this 200 from 250 up by that 200 to 450 and then the cash accounts going to go, uh, down in the credit direction. So here's the debit balance. It's gonna go down by that 200 to 8 1024 17 So this is just like the original investment. If we wanted to increase or decrease the minimum balance, then we could just do that same type of transaction, taking it out of the checking account, put it into the petty cash account, and then if we do this replenishing one more time now, we're at the 400 fifties, the minimum level. We spent a month's worth of stuff out of petty cash again, and we're trying to say Okay, we have to record this information, and we're left with if we do account at the end of the month. $288.38 9 cents. So we're going to this same type of calculation. We're gonna look through all the receipts that we have in the petty cash drawer for months to and see what we can align those two in terms of expense categories. So if we look through the petty cash drawer, we're gonna say there's a postage expense. It it's an expense debit balance. We're gonna increase a debit to our journal entry. We're gonna say there's a mileage expense, So that's expense. We're gonna put that into a debit for our journal entry delivery expense. So it's an expense to debit balance. We're gonna debit it to our journal entry, and that's all we have this time. So if we if we add this up in, we have now the 450 minus the 48.36 minus 38.5, do that one more time. 450 minus the 48.36 minus the 38.5 minus. The 39.75 gives us the 3 30 to 39. That's what we would think that we had left. However, the physical count shows us that we have 288 39. The difference, then to 88.39 is $35. So we're gonna say there's an over short then of 35 this time needing to be a debit, and then the credits gonna go to cash. We're gonna reduce the cash, and we can We can know that, you know, obviously, if we add all these up, it should add up to 1 61 61 And if we take the difference between the 450 minus 2 to 88.39 that gives us that same 1 61 61 That's what we need in order to, you would think, take the petty cash down to the physical count. So again, same journal entry we could have taking the petty cash, reduced it by the 1 61 61 to bring it down to what we physically counted it to be 288 39 then done another journal entry to take money out of the checking account. and put it into the petty cash account for the same amount 1 61 61 to bring the balance back up to the $450. However, of course, we can reduce that process the number of journal entries by instead just taking the money out of the checking account and replenishing this. So, in essence, we're taking the money out of a checking account. We're getting that physical cash, putting it back in the petty cash drawer, but were never really adjusting the petty cash because we're writing that original 4 50 off for the expenses had happened during the month. So if we post this, then we end up right where we need to be. We've got the post postage expanse going up from 1/4 1 43 50 up the debit direction to the 1 91 86 then we've got the mileage here. Here's the mileage expense going up Debit Here. Debit there is going up in the debit direction. We've got the delivery expense here, going up in the debit direction as all expenses do. We got the cash over and short being a debit this time, so notice it's gonna flip, and that's what can happen with the over a short account. It could be a debit balance. It could be a credit balance. It has no real normal balance. And so it flipped this time to 23. 50. Now, this scenario might be more you familiar? One we don't like to see more often and that the receipts that we added up don't add up to what we think that receipts should be given the physical count. Meaning it looks like we've spent money on something on didn't record it in here. So that is probably more typical than us writing off a receipt that didn't didn't go out for the petty cash. But in any case, this could flip to a credit balance or debit balance. And this can in this case is gonna flip back down and had a credit balance of 11 50 weight of $35 debit, bringing it down by the 11 52 0 and then back in the debit direction to 23 50 in this account. And then the cash counts gonna go from 8 1024 17 down by the 1 61 61 which were actual worship, are physically writing a check for taking money out of the checking account for bringing the bounce down to 6 1060 to 56. Nothing happened to the petty cash fund, even though we're dealing with the petty cash fund because it's already at the balance that we want. And instead of doing that two step process, we're just gonna do a one step process taking the money out of the checking account, physically taking it out of the checking account, putting it back into the drawer, the drawer only half in 288 39 needing that 1 61 61 to get back up to the balance that we already have recorded of 450. And then we're recording the expenses here that we had done during the month into our system. So if we see the whole thing here, here's here's all the accounts. Of course, all of these debits to the expenses are going Teoh decrease net income because net income is calculated as revenue has a credit balance minus all the expenses. The expenses went up so net income went from 6 4074 17 income, not a loss. This is income credits beating the debits. It went down by 1 61 61 to 4005 12. 56. So, of course, we are recording the fact that we made expenditures during the month decreasing net income . 7. Discussion Question 1 Cash & Internal Controls: In this discussion, we will discuss the and discussion question of list and describe the principles of internal controls. Now, when we talk about internal controls, we're talking about a specific list of activities or some activities or some system that we're going to put together in order to achieve objectives. Now we can talk first about what those objectives are a little bit in terms of the internal controls and then go over the types of principles that we're gonna put in place in order to achieve those objectives. The idea of internal control seems pretty simple at First clans, but it can get very complicated very quickly as we start to look through different techniques and then list out the principles were going to in order to get to the ultimate goals of the internal controls. So the goals of internal controls are gonna include things like safeguarding the assets, making sure that we have a system that is set up that's gonna be in compliance with policies and regulations and be in compliance with with laws and regulations as well. We want to have a system that's gonna promote growth in the operation, so a system that's gonna promote efficiency within the operations. We want to have a system that's gonna have a good paper trail. We wanna have a system that is gonna result in us having data that we can look at and see ah and make decisions on. So those going so we want to have control. In other words, they're gonna make accurate financial statements. We also want to have control that are going to reduce the likelihood of fraud or anything such as fraud within those controls. So once we take a look at the internal Control goals and then we want to take a look, what are the principles that we can apply in order to achieve those ultimate objective? Those are gonna include things like establishing responsibility. We want to maintain adequate records. We want toe, have the assets, make sure the assets are ensuring the assets s so that if in case of loss, we wanna have a separation of duties are some of the most common types of principles of the internal controls. One of the first ones you probably want to think of is is the separation of duties. That's gonna be one of the things that When you go into a system, we're gonna have this separation of duties and it can Austin be a situation where we, you know, we think, Why are we doing this? Why do we have the separation of duties here when it could be a lot faster? Teoh do things a different way. So the separation of duties is going to be a NY idea that will lead Teoh some of these. Some of these objectives that we have in that it's going to hopefully reduce fraud and hopefully lead to good, accurate record keeping. But it can add a level of of of complication to separate the duties. For example, we want to have the custody of things like assets to be different than the record keeping of things like the assets. So in particular cash, that would be we won't have those two things separate so that the person who is handling the cash if they were to steal the cash and then someone else would be able to catch that. And if the person recording the information wants to do something, they can't steal the cash because they don't have physical control of the cash. So that would be one idea. We also have separation of responsibilities within different transactions, which again will help us to have two eyes basically looking on a single transaction, reduce the error from one individual person or fraud committed by one individual person. That's going to be one of the principles that you probably want to think of first when thinking about internal controls. But it is really important to also think about some of these others establishing responsibility. It's gonna be very important because it's also something that's overlooked within an organization. As an organization grows, we obviously have pretty broad objectives. Our objective is to, you know, service our customers and this where that provide the best customer service. And we often can get to a situation where we were. An organization basically says Everybody needs to chip in on this goal of providing doing this, providing the best service, providing the financial statements. And if we don't really assign gold specifically, however, then it's a lot of critical tasks may fall through the cracks, and once they do, when we see when we go back and look at it, we we won't be able to know who is actually responsible for it. So in order to both praise people that do a good job and in order, Teoh follow up where there's problems, we really need to have defined responsibilities within our system. Who is responsible for what? How can we measure that responsibility? We want to have adequate record keeping. And of course, that's gonna be a critical system within the internal control system. And it's something as we have more technology involved, we automate more things, and that could actually lead to less kind of an audit trail. But we can compensate for that within the computer system and put in systems in place to make sure that we have the records, the audit trail in place so that we have the financials. You know, the records there that will back up the end product. That being of the financial statements, we also have controls that could be in place with relation to the technology that we have. For example, a computer technology. Using a database program is going to be a system that can really help us to increase internal controls. It can help us to separate duties. It often obviously the computer system will help us to reduce data input type of errors because it will catch it automatically catch things that, for example, not in balance. If we record something that's not in balance, the computer system can help us. Teoh, pick up those that stuff now. Note. Of course, computer system has pros and cons because automating systems means that there's no person running the system. And we do need to go back in and make sure that we have the checks in the system to see that audit trail to see what's going on rather than just automating the process and not being able to go back and see. Okay, what happened? How is this thing created? And that's some components to the system that we have to set up through it. We also want to have regular reviews of the system, and that's going to be really important because, like we said, with the separation of duties, it's very possible that as we increase controls that we make the system more complex. As a tradeoff. Teoh having some of our other goals being met, meaning reducing fraud on having a system in place that reduces fraud and the likelihood of theft and has a better record keeping may take more time on and then having one person, for example, do the entire process or no the entire process over, have access to the entire process of order. Have everybody have access to everything that might make things easier? Because then if there's a problem, we have more people that know how toe fix it. But if we don't have that separation of duties, we increase the likelihood fraud and we don't have separation of duties. We won't have a clear delineation of who's responsible for wet, and that will lead to more problems. So in other words, it's it's it's human nature to try to find the simplest way to get to something not taken into consideration. The other reasons why the internal controls are in place and therefore they're gonna probably short cut the system. And we're gonna want to do the reviews to make sure that not only we've put together a good system of internal controls, but they're being followed. A good system of internal control doesn't matter if it's not implemented well, and so we have to go back and do the reviews and make sure that the system is put in place and implemented as designed 8. Discussion Question 2 Cash & Internal Controls: in this discussion, we will discuss the discussion question of discuss a voucher system and how it can work when we're thinking about a voucher system were typically thinking of the internal controls this time on the payment side of things. So we're talking about cash going out for purchases typically, and we want to make sure that we have a system of controls in place here. This is a place where much of ah fraud takes place within the cash leaving the company. And there's various ways that you know might make checks or purchases that aren't actual business purchases and that type of thing or fictitious purpose purchases and the purchasing side of things. Therefore, the we need to have ah, really good system on this side in order to check against that problem. Now again, that this will change a lot as the as we grow. If we're small company, we probably have the owner of the company very involved in all the purchases, signing all the checks, possibly doing the bank reconciliations, and therefore that's your major internal control. You want to make sure that a small company has the signing of the checks as as their internal control and reviewing and having access to the financial records. But as things grow, then we're gonna have a lot of different departments, and we were not gonna be able to do that. We're not gonna be able to have that one individual being in place. So we have to set up some type of system, a voucher system being a type of system that can be set up. The voucher system is going to set up some type of control procedures for verifying, approving and recording obligations for the cash dispersement that we will eventually have in the future. So we're gonna issue the check in the future. But in that process, we want to make sure that sure that there's verification, approval and record obligations have been met in order to do so now, voucher system could be more or less complicated again, depending on the size of the organization. We may have something like a purchasing department, for example. And if we had the purchasing department that is in charge of making the purchases, then we could have say a department that wants to make a purchase. The requesting department would then go to the purchasing department, which could then make approvals for any type of purchases. And they would use something like a purchase order, which they would then issue Teoh, the vendor who were purchasing from and Teoh the accounting department as well as the requesting department. The purchase order would then be requesting the goods. Although the payment has not yet been made at this point in time because the purchase order is just a request, then once we get the goods, we may get something into are receiving department. We can see the truck going into the receiving department. The receiving department could then count ah, the information and make a receiving reports that they can give to the purchases department and the accounting department. And once the receiving report is approved, then we can finally issue the check for that and record the journal entries. It's just example of some of the forms that could be put in place. But the major, our essence of the voucher system is that we're gonna have some type of verification of what is needed. There's gonna be some type of approval process out, possibly be up by being set up through ah, purchasing department, which has the purchasing department being there, major goal for purchases. And then we want to make sure that we have the proper record keeping of that information in our example, in terms of the accounting department making the record, keeping separation here, bought by the person who is requesting the information to the purchasing department and then the people that are actually making the journal entry being the accounting department . 9. Discussion Question 3 Cash & Internal Controls: In this discussion, we will discuss the discussion question of describe outstanding items as it relates to bank reconciliations. So when talking about outstanding items we are talking about in relation to a bank reconciliation, so we may 1st want to start there. We may 1st want to start with what is a bank reconciliation. And remember the bank reconciliation is going to be the process of reconcile in what is on a bank statement, the document from the bank recording the activity for a month's time period and what is on the books for that same point in time. So the bank statements gonna be for as of the end of the month, let's say the end of December 12 31 and then we're gonna have our information on the books as of the end of December for the checking account. And those two amounts, of course, will not be in balance. You would think they would, but they're never gonna be in balance, even if it was a perfect system, unless there was no outstanding items, because there's gonna be issues of checks that we have issue that haven't cleared the bank , just timing differences. And there's going to be issues in terms of deposits, possibly as well. And that's what we're talking about here. So our goal here is to reconcile as of a point time, the end of the point time of the bank reconciliation and to our books at that same point in time and know exactly what those differences are. And if we can't do so, then we have good assurance that all the information that is on the bank statement we have recorded and recorded properly and have a double check for that huge internal control very relevant thing to do so then the outstanding items, then, are gonna be the key differences that that's gonna be the differences between what the bank statement has, what the bank says. The balance is at a certain point time and what the books say it is at a certain point in time. Now we typically would think of outstanding checks and on outstanding deposits are two types of ways we could think of outstanding items says kind of a broad term eso We would think of deposits that haven't cleared the bank yet and outstanding item outstanding checks . Now the outstanding checks, of course, are gonna be those checks that we wrote at some point time. If we're talking about the month of December, we wrote them sometime in December, Possibly, like, you know, probably the end of December towards the end that have not yet clear. So if we wrote it on December 25th we got the bank statement for the month ended December 31st. And that check is not on the bank statement. Well, that means that it just hasn't cleared yet. So we're not really wrong in the recording of the Czech, because we know we we recorded the check. We know that our bank accounts should be decreased by that amount, but it hasn't been cleared. Why? Because it takes some time for the check to go to the other person or company and they have to deposit it into their checking account. And then they have to notify our bank that the money has been taken out and that could take some time to do so. And therefore there's gonna be this timing difference. Our goal here is just to record that time indifference. Now that the checks could that could be a pretty long time difference depending on who were giving the check to. Some people cashed the cheque very quickly. Others take some time to cash the check on. Therefore, we could have outstanding items for some time. On the other side of things. We could have the outstanding deposits and that's the same thing. If we go to the bank and we put the money into the into the bank at this point in time, it possibly December 31st let's say and then we check the bank statement as of the month ended December 31st and there's no activity for it being deposited yet. Then we, uh it's probably just a timing difference. We're gonna record that as something outstanding. It will dp deposited soon. Now note that the deposit should clear pretty quickly these days. So So if the outdated deposit is more than it like three days, then it's probably ah, bit of a worry. If we want to check either the outstanding checks or the outstanding deposits, however, we can easily just go to the bank and see okay. If it didn't clear in December, did it clear in January and go to the bank and just ask them that, and if it cleared in January, then it's just the timing difference. Something that we're gonna record on our bank statement for the outstanding items on the bank reconciliation. They will be recorded, of course, on the bank side of things. Not because the bank got it wrong, but they just don't have all the information yet we do. So we're going to say that the bank balance is going to be whatever it is on our bank reconciliation and the bank balances, not including outstanding checks. So therefore it's too high. The bank balance is too high by the fact that they didn't include the checks yet because they haven't yet known about them. Therefore, we would have to decrease the bank balance by the outstanding checks and then the ah, the outstanding deposits. Of course, our deposits that the bank doesn't know about yet. We do so. Our books are higher already by the deposits we have made into our account that banks are not, and therefore we're going to increase the bank balance by and our bank reconciliation by the outstanding deposits. And that's really the essence of the bank reconciliation. It should be there's probably not a whole lot of errors or anything like that. And once we make the adjustments on our side for the things that we have to enter to the books on our side, the remaining relevance of the bank reconciliation is typically going to be beginning balance. Ah, of the bank balance. And then we're gonna have to take away from that. The outstanding checks add to that the outstanding deposits and that will give us the bank balance that will be matching than our book balance after we make the adjustments for any things on our side of the of the system, after we make the journal entries related to any things that we have discovered that we have not yet recorded in the bank reconciliation process. 10. Discussion Question 4 Cash & Internal Controls: in this discussion, we will discuss the discussion question of what is petty cash and its purpose. So petty cash is going to be the concept of us setting up a cash fund, a petty cash fund for those minor purchases that we might want to make with cash. Now, remember, this is gonna be a departure from the normal internal controls. The normal internal controls are going to say we don't pay for things with cash. Cash doesn't give us an audit trail, and we want to have an audit trail not. And most people, when we say that an audit trail, they might say, Well, I don't want an audit trail for the IRS to, you know, dig into my information. But note that on auto trail is going to give us the information to go back and figure out what we have spent money on. So from a book keeping standpoint, we typically do want an audit trail so we can be transparent to what we are doing and make our financial statements as accurate as possible and try to reduce theft and having good internal controls. So the way we do that one of the ways we do that if we don't pay for things with cash because we we like the idea of the bank account having recording the information that's going in and out of the account. And we could do that by Elektronik transfer or with a check. Then we have a good idea of who we paid, and we can go back and see that if someone asks us whether we paid them or not, we can easily go back in and finance I Hey, the money went out of the bank account here. Here it is, going specifically to you written by the canceled check or the electronic transfer here, so we typically want to write a check as part of our internal controls. But for those type of purchases that it's convenient to use cash and we have a small amount of ah of transaction, therefore, it being in material, we might want to use a petty cash fund, so that's gonna be the concept of it. When we set up the Petty Cash fund, our golden is gonna have it to be big enough to cover any kind of small type of transactions that would be convenient to do the petty cash funds and not too large to like incur any risk of people wanted to heighten risk of staffed or people trying to rob us or an employee wanting to steal the cash because of the amount there's we want haven't even level of cash that it's enough to pay what we need to pay for not too much to incur in any added risk or problem or too much added risk or problem due to having the cash on the site . So once we set it up, we, of course, want to have the petty cash in some type of lockbox. We will typically set up the petty cash by just taking it out of bank. We're gonna credit the bank and debit the petty cash fund for some type of amount, and then what we're gonna do is spend anything on the payday cash. We need Teoh during the month or whatever time period we are covering, and at the end of that time period, then will record the transaction. When, of course, when we do this, we're gonna we're gonna be making receipts. We're gonna get receipts over. Write down what we've spent the cash on. And then at the end of the time period, we will make an adjustment and replenish the petty cash. As we replenish the petty cash, we will record the expenses related Teoh the items that we had spent on. So we're gonna do this on a periodic basis, like a monthly basis at the end of each month. Recording the expenses in accordance with all the receipts and Castro are, uh, Teoh. Do what we have spent the petty cash on. And so it's gonna be the kind of flu in the process of the petty cash. The petty cash can seem like an easy thing to track, but it can be a little bit tricky to Teoh track the the expenditures and record that transaction within the petty cash fund. So I want to make sure, because if our petty cash doesn't line up to the cash receipts drawer, then we're gonna have to use an over and short account which will be an income statement account another kind of tricky account because it doesn't have a normal balance, meaning it could flip from a debit balance to a credit balance. Whereas if we're talking about an expense account, it typically only has a debit balance. If we're talking about any account, it only usually it's only gonna have a normal balance of either a debit or credit. The cash over, in short, will flip from a debit to accredit, depending on if the cash was over or short, and it'll be an income saving account, therefore, that will increase or decrease net income. 11. Multiple Choice Questions 1 Cash and Internal Controls: In this presentation, we will take a look at multiple choice questions related to cash and internal controls. First question. Which is not one of the goals of internal control system A. Protect assets. Be reliable accounting. Three. Adherence to policies de return on investment or E efficient operations. Someone scan will read the quote question read through them. See if we can cross any out with the process of elimination. Question is which is not one of the goals of internal control system A to protect assets so the internal control system typically is gonna achieve some objectives. We would think some of those would be positive objectives protecting assets. I would think that that would be one of the core type of things that we want to do with internal controls. So I'm going to say it's not that one B says Reliable accounting. Um, again, a reliable recordkeeping might be more what we would think. So I'm gonna leave that for now. But I think that I mean, it sounds like a good goal. See adherence to policies. So an internal control wants to help us adhere to policies. I think that may I think that is an internal control system. So I'm going to say That's not it because that's true, De says. Return on investment and that's a good thing. But I'm not sure that the Internal control is really designed specifically for the return on investment. So I'm gonna keep that for now, he says. Efficient operations And I would think that internal controls would be a form of system that we're trying to put in place to have efficient operations. So I went across that out so well, Let's with B and D reliable accounting and return on investment. So once again, the question which is not one of the goals of internal control system be reliable accounting or D return on investment. And those These are both two things that a company wants, of course, But the internal controls, I don't believe, is specifically designed for the return on investment, whereas reliable accounting. That's kind of our goals here. So the internal controls, while return on investment, is a goal of the company and hopefully the internal controls don't take away from that way . Typically are looking at the internal controls to do things like protect the assets, have reliable recordkeeping or accounting to adhere to policy and have have the efficient operations through the process, which may lead Teoh return on investments. But that's not typically the specific goal of Ah, of the controls themselves. Next question. Internal control system A eliminates the company's risk of loss. Be monitors, company and employees Performance. See, eliminates human error. De eliminates the need for audits or E eliminates the need for managers. So we're gonna read through this one more time and see if we can cross things off with the process of elimination internal control systems. Now, if we think about internal control system and we just get an idea of what they are in our head, then it might help us to go through these and cross off certain information. So they're gonna help us to achieve certain goals. We want to safeguard the assets. We wanna comply with policies and procedures with our internal control system and way want Teoh. Make sure that we're in adherence with laws and regulations, and the internal control systems can help us to do that. Help us to make better recordkeeping processes. So if we go through these, eliminate the company's risk of loss Now this one is pretty interesting because it says when we say eliminate, that's That's pretty definitive of a statement. So I'm not sure any internal control could eat. Eliminate the risk of loss eso so it might reduce the risk of loss. And that might be a reasonable But the word eliminates. I think it's really gonna say now that's nothing is off the table. Typically, with a loss could happen. Be monitors, company and employees performance that could be an internal control. So we'll keep that for now, See, eliminate human errors. And again, I think that eliminate word. It's really ah human. It might reduce human error is greatly by having checks and balances and computer systems. So if it said reduce human errors, maybe that would probably good. But no, not eliminate eliminates the need for audits. And again, uh, pride doesn't eliminate the need for audits. We might have a nicer audit if we if we have good internal controls, but I don't think so. And then he eliminate the need for managers. But obviously the managers are gonna be port of the Internal Control system s. So I don't think that they're gonna be within the process, not eliminating them. So I think clearly just that that word eliminates pretty much eliminates four of the five choices. I think he's gonna be the answer here. Question. Answer. Internal control system be monitors company and employees performance. Next question. If an internal control system is designed well, it a means we're not using a computer system. Be guarantees profitable operations. See eliminates the need for review. De requires the use of non computerized systems, and e reduces the company's risk of loss. I'm going to read through this one more time. See if we can eliminate some of the awesome options with the process of elimination. If an internal control system is designed well, it a means we're not using a computerized system. So an internal control system may ah, you know you not use a computerized system. But computerized system could be used as well within the control system and could benefit greatly to it. So I don't think it's dad be guarantees profitable operations. And again, that really definitive word of guaranteeing profits is not. It's not really the objective internal control to guarantee profits, not even the really the objective. Teoh Teoh increase profits likely. It's really to save, safeguard the assets and safeguard against losses. Oftentimes, it's probably gonna be helpful for long term profits, but that's not really the specific objective of the internal controls. Really. The internal controls are really to improve the operations and monitor the processes, which could increase assets. But no guarantee, Si says, eliminates the need for review and, again, a review process within internal controls. It's probably gonna be port of the internal controls, and an external review would not be necessary. Eliminated from ah from good internal control. So again, that eliminates words, probably de qualifying that D requires the use of non computerized systems. Eso eso again internal controls doesn't mean we're not using a computer, that we might have less of a paper trail with computers. But we can adjust for that in some of the ways, so that's not it. So eat by the process of elimination seems like it's gotta be in it says reduces the company's risk of loss. Now, let's let's read that one more time. If an internal control system is designed well, it e reduces the company's risk of laws. Now, note that if we just changed this word to eliminates the company's risk of loss, it would not be correct. But reducing the risk of loss could be an objective, especially if we're trying to safeguard ourselves and against assets being stolen o R. Fraud that could certainly reduce the risk of loss. That's one of the objectives of the internal control system. 12. Multiple Choice Questions 2 Cash and Internal Controls: in this presentation, we're gonna take a look at some multiple choice questions related to cash and internal controls. First question, which is not a limitation on internal controls, a human error. Be fraud. See cost benefit principle, C R D collusion and e establishing responsibility. So one more time we will read through this since and then see if we can cross out some of the answers with the process of elimination, which is not a limitation on internal controls now, internal controls of those procedures that are trying to help us achieve certain goals like safeguarding assets, being in compliance with policies and procedures with being in compliance with laws with trying to make accurate record keeping. So what types of things are gonna be limiting to that now? Any internal control has problems with it. There's no perfect system. That's why whenever we say something is going to be guaranteed by the outcome of the internal control, it's not true because there is no there is no guarantee. So we're gonna say if we go through here, which is not a limitation on internal controls, human error, well, human error is probably going to still be a limitation. We may reduce it with good internal controls. The problem of human air. But human error will still be a problem. So it's not gonna be human error. B says. Ah, fraud. Now again, we could reduce the likelihood of fraud. But fraud could still take place. If someone has an intent to commit fraud, it's not gonna eliminate fraud. It might help us to catch it or stop it. But it's still gonna be a problem in the system. So I think that's a limitation cost benefit principle. Now that's a little you know, that's a principal of a cost benefit, so I'm not totally sure I'm gonna keep that for now, De says. Collusion. And when you think about limitations for internal controls, that's like the 1st 1 you should think about meaning. It's kind of a bad word. It really means to People are getting well in terms of internal control. That's a bad word. It means that two people are getting together on and to circumvent the system, one of the major controls typically being to have a separation of duties, so collusion could be ah, limitation to just about any internal control system, he says establishing responsibility. And again, that doesn't sound like a ah weakness. Really? So I'm gonna leave it with C and E. We'll go through this one more time, which is not a limitation of internal controls either See, cost benefit analysis or e establishing responsibility. Now, all of these two, I would think that See, we could think of as a limitation that limitation in the internal controls in that we're always gonna have a cost benefit analysis. We're never going to get the internal controls up to the point where where we have perfect assurance about anything, because if we were to do so, it would cost too much. So we got to find some cost benefit analysis, which is kind of a problem with the internal controls. They're So I think that is kind of a weakness in that we're gonna apply a cost benefit analysis and there's always there's never complete car. We can't just spend anything to have the internal. So that's gonna be establishing responsibilities. Is one of this procedures of internal controls. I don't think it's a weakness, really. It's gonna be one of the things we do in order to help the internal control system. So I think the question and answer then would be which is not a limitation of internal controls. E establishing responsibility. Next question. Which internal control principle is violated by sharing the one cash register? A. Establishing responsibility. Be maintained. Adequate? Were records. See safeguard assets D trace employees e Apply technological controls. Once again, we'll read through the process and see if we can cross them out with the process of elimination. Which internal control principle is violated by sharing the one cash register? A. Establishing responsibility? That could be it. Because we're not. You know, we got to people on the one register, and we don't know who is responsible for the cash maintenance of that registered. If there's a problem with it, you know who's responsible for it, so we'll keep that one. For now. Be maintain adequate records. Uh, and you could kind of think that cause it's not were not being able to keep the records per person, but it should. Still, the register should still be recording the records for the sales, so I don't think it's gonna be that si says, safeguard assets. And again, you can kind of think about that. As as, well, there's two people involved. Maybe there's less safeguarding. I'll keep it for now, de track employees. And that's, you know, we're not able to track employees as well. Keep that for now. And he says, apply technological controls. Now we are using a register as part of our controls, but I'm not gonna I don't believe it's gonna be technological control because we are using the registers. I'm gonna I'm gonna leave it at a, C and D either establish responsibility, safeguard assets or track employees. So we read through it one more time. Which internal control principle is violated by sharing the one cash register? One. Establish responsibility. That does seem a problem or not. We don't know who is responsible for that cash register, and the cash in it, and that's really want is a good example of just how this problem could be a problem, because obviously, if the cash drawer there's too many people responsible for one cash drawer, then we have less worry if there's a cash problem, because we know that it's not our responsibility alone. And if anybody's blamed, they gotta blame some kind of group, which means that no one's gonna be responsible? Probably so That seems pretty good. Safeguarding the assets? No, because we don't establish the responsibility. The assets don't seem to be as safeguarded because because the lack of responsibility, it's not going to safeguard the assets. So I think it's not this one, because that's kind of a secondary result the cash register. So if it's safe guarding the asset, the real weaknesses that we have not established responsibility and that could lead Teoh theft or problems or lack of care track employees now that's technically kind of true, cause we're not able to track the employees like we should. But of the two A and D track employees is not really, ah, internal control principle. It's it's kind of something it's not. At least it's not worded, as typically, the principles are and where as established responsibilities clearly is. So I don't think track employees is gonna be the one. It's gonna be a and so the question and answer then will be which internal control principle is violated by sharing with one cash register, a establish responsibility. Next question. The impact of technology on internal controls includes a eliminate fraud, be elimination of the need for review. See elimination of the need to count cash de elimination of separation of duties and e reduced errors. Once again, we read through this, we're gonna use the process of elimination. The impact of technology on internal controls includes a eliminate frauds. Um, no. Again, the eliminate really kind of takes. It could reduce the likelihood of frauds. And so that one word is really taken most of these out. So I think that eliminates that one. Be eliminate the need for a review. Now, if we're talking about a review within the internal control system, that would be part of the internal controls. And if we're talking about an external review, it doesn't eliminate the need for it. So I reduce it again or reduced in type of procedures. So but the elimination really takes that one out. Elimination of the need to count cash now, obviously, even within a technology technology system that's going to record the cash information, how much is going in and out? We still would need to count the cash as part of the control procedures, So that's not it. Elimination of separation of duties and clearly separation of duties. It's still going to be something we put in place with technology we still want have separation duties. That's not it. Reduce errors and notice again. The non use of the elimination word, if it said, eliminate errors, that would not be it. But by the process of elimination, it's kind of the e and reduce errors seems seems a reasonable so three through that one more time. The impact of technology on internal controls includes reduced errors. So as we use technologies, we will hopefully reduce errors that will be in place, especially errors related. Teoh Putting things in place that don't match up like Deb. It's not equal in the credits as we enter information into ah, computerized system. 13. Multiple Choice Questions 3 Cash and Internal Controls: In this presentation, we will take a look at multiple choice questions related to cash and internal controls. First question. Which is not a principle of internal control. One. Applied technological controls that, when applicable, two R B one person tracks and records assets. See performer reviews de separate recordkeeping from custody of assets or e divide responsibility for related transactions. So once again, we will read through this and then see if we can eliminate some of the options with the process of elimination. So the question which is not a principle of internal controls, a applied technological controls when applicable, Um, that that seems like something that we would do so we would want apply to technological controls. So I don't think it's that be one person track and record assets we may. We may wanna have different people do that. I'm gonna keep that for now as not possibly one of them see perform reviews. Ah, that's gonna be one of the things that we do do within the internal controls. We're gonna have a review process to see that the system is doing what it should or that we are in compliance with the system de separate record keeping and custody of assets. Note that B and D are kind of the opposite of each other, in a way, possibly not exact opposites, but I'll keep that for now. E divide responsibility for related transactions. And again, that's gonna be one of the things we want to dio. So I'm gonna keep b and D just to compare and contrast to to if we read this one more time , which is not a principle of internal controls, be one person track and record assets or D separate recordkeeping for custody of assets. So one is saying that one person should do everything and, well, these two procedures and D essay in which separate and member that that separation of duties is the one that it will be a principal. So we typically want to separate duties, not have individual do more more transactions. So, at least at the very least, this isn't ah ah, no objective of of the internal control to have one person track and record assets, whereas it is an objective. Two separate certain activities, especially custody of the assets versus the recording. So answer then, which is not a principle of internal controls be one person track and record assets. Next question. Cash equivalents A are short term, highly liquid investment assets be include six month assertive certificates of deposit. See, include the checking account de include petty cash or E include these savings account. So once again, if we read through this and use the process of elimination, we're gonna say cash equivalents either aim our short term, highly liquid investment assets. That sounds pretty good, B says include six month certificate of deposits. Now, cash equivalents have to be really liquid. They're really close to cash. If we're gonna have a six month certificate, probably not short enough. You have to be less than like three months to be considered, I would think for a cash equivalent, so I don't think that's gonna be liquid enough. SI says include the checking account. Now the checking account is basically cash. It's not pity. It's not Ashley equivalent, which would be some type of investment, which is very liquid but not cash. So it's not the checking account. Petty cash. Also cash. That's gonna be a cash, not a cash equivalent. They're gonna be. They could be grouped together on the balance sheet as cash and cash equivalents. But this would be up cash and not in a cash equivalent, E says includes the saving accounts, which again is a form of cash. As long as we have access to it and we can you know there's no restrictions on the savings account then then it's a highly liquid, typically a liquid account. And not and not to be part of cash. So on this one could be close if there are restrictions on the savings account. But I would think the best answer here is gonna be a A. So if we read this, cash equivalents are a are, ah, short term, highly liquid investments. That's pretty much the definition of a cash equivalent. Next question. The internal control principle that requires the use of pre member checks is a technological controls. B maintain adequate what records see perform reviews, de established responsibilities or e divide responsibility for related transactions. So once again, we will read through this. See if we can eliminate some of the ash options with the process of elimination. The internal control procedure that requires the use of pre numbered checks is a technological control. Yeah, I don't think it's technological control to have the pre number chicks be maintain adequate records. Ah, that sounds kind of read. A reason might help with the maintaining of records. See perform reviews. So I don't think the pre number checks we could use the pre number checks in the review, but I don't think that's part of that principle. Specifically de established responsibility. I don't think that pre number checks established responsibility, particularly D or E divide responsibility for related transactions. So I don't think that's it either. I think we're I think we're left with be maintained adequate records. So if we read through this, we're going to say internal control procedures that require the use of pre number checks is be maintain adequate, adequate records. So the pre number checks they're gonna help us toe. Make sure that our checks it helps us to not have ah fraud or anything within the checks or miss a check that would be recorded because of the number sequence he wants. Sequencing would help us to know if we're missing a check and and therefore our records would be complete or help to be complete by having that type of internal control of the pre number chicks. Next question. Cash includes AIM postage, be customer checks, cashier checks and money orders. See accounts receivable D three years certificate of deposit or e notes with the end cash equivalents includes or cash includes a postage now posted. Just gonna be a like a current asset. But it's not, of course, cash or even a cash equivalent, even though it's gonna be kind of liquid and that we're gonna use it soon. Can't use it to pay. Our bills typically accept the pay postage bills, but anyway, be customer checks, cashier checks and money orders. That sounds pretty good, SI says Accounts receivable. Now Accounts receivable is going to be something that we hope to be converting to cash soon . But it's not cash yet, so I don't think that's it, De says. Three year certificate of deposit. Uh, a CD is gonna be a form of investment, but if it's not due for three years, then it's not. Liquid is not even a cash equivalent, so that's not it. And he says notes like a note payable. And once again it's not cash that's going. That's cash leaving. That's not It's not it. So it looks like these is gonna be pretty much the definition of cashier cash and clear with or not the definition, but ah, good list of typical cash. What cash typically includes cash includes be customer checks, cashier checks and money orders. 14. Multiple Choice Questions 4 Cash and Internal Controls: In this presentation, we will take a look at some multiple choice questions related to cash and internal controls . First question. Preparing a bank reconciliation on a monthly basis is an example of a a required procedure . By law, be separation of duties. See protecting assets by providing the accuracy of cash records by proving the accuracy of cash records. D a waste of time or e poor internal controls. So we'll go through these one more time. See if we can eliminate some of the options with the process of elimination. Preparing a bank reconciliation on a monthly basis is an example of either aim a required procedure by law. Now, typically, it's not really required by law. It might be for for publicly traded companies but to be in compliance and be part of the internal control process for them. The audit process but not typically for non publicly traded companies, at least. So I'm going to say it's not really a requirement. It's really something. That company would want to do something. Eliminate that, he says, the separation of duties preparing a baked reconciliation. Now that's maybe a part of the separation of duties process, but I don't think it's a separation of duties necessarily just to create the bank reconciliation. If we had a different person doing it and they were explaining that and the question that it would be see protecting assets by providing the act accuracy by proving the accuracy of cash records, that sounds reasonable. We are checking the cash records by doing the bank reconciliation, De says. A waste of time and probably not probably as accountants. Not going to say it's a waste of time to reconcile. And then e says, poor internal controls and ah, bank reconciliation probably is gonna add to the internal controls. So I think it would be good internal controls. So just by the process of elimination, they were basically left with see here, which says, protecting assets by proving the accuracy of cash records. And that's kind of what we're doing here. We're basically double checking the cash records by 1/3 party, the bank to double check the activity that has happened, thereby getting a better understanding of cash, which could help us Teoh protect the assets. So that sounds reasonable. Let's read it one more time. Question and answer. Preparing a bank reconciliation on a monthly basis is an example of sea protecting assets by providing the accuracy of cash records. Next question the three parties involved with a check a writer, cashier and the bank be maker manager and pay ee See bookkeeper pay ee and bank de signer, cashier and company or e maker Pay ee and the bank. So once game will go through these and see if we can eliminate some of these options with the process of elimination question is the three parties involved with a check. Now, this is one of those where we might want to think about the three parties first before going through these cause it could get confusing as we go through these. I mean, if we think about writing a check we've got, we've got the company of the person that's right in the Czech and then we're gonna have who were writing the check to. So maybe the vendor that we're getting the check to, and then, of course, within this transaction, helping us out is the bank. So you would think that, you know, those are gonna be what's kind of involved here. It's usually we're paying someone that's an A to b transaction, but we have the person that's helping us process this information. The financial institution, that being the bank so a says the writer, the cashier. Ah, and big. Now that seems, uh, like it possible, because the cashier is someone within the company. So we've got the writer of the check, and then the cashier sounds a bit repetitive. I'm not sure if that's gonna be everything we don't see. Um, the vendor B says the maker, the manager and the pay ee So that's gonna be the person I guess making the check and then manager possibly supervising the shake is how we're thinking of that and the pay. But I don't see the bank involved here, and that seems pretty crucial. I would think the bank would be in there somewhere, so I don't think it's that si says it's gonna be the bookkeeper, the pe e and the bank. So, you know, it's kind of possible, but But I'm not sure if the terminology is right. I'm gonna keep that for now, he says. The signer, the cashier and the company. So the signer on the cashier and the company, it all sounds like kind of the same entity that sounds like those are all on the side. We don't see the bank or the personal writing the check to, so I don't think it's that. And then it says the maker, the pay ee and the bank and that from a most kind of broad standpoint is it sounds pretty good because we got the person making that pay. Ee and the bank, which would represent, are three areas here. So I'm left with a C and E. We've got the A, C and writer cashier in the bank see bookkeeper, payee and bank e maker, payee and bank. Once again, the question the three parties involved with a check are gonna be a writer cashier in the bank or bookkeeper pe e and the bank or maker payee. And the bank now a seems a bit kind of repetitive with writer in the cashier. Um, so I don't think I don't think we have a pe e. There is kind of the problem. See? Ah, bookkeeper pay in the bank and e are gonna be similar in the process. I think the difference between these are that the bookkeepers are really kind of broad term . If if we were talking about any check, it might just be an individual writing a check. And so whoever the maker of the check is whether they be a, you know, a bookkeeper or company or whoever is responsible for writing the check. This would be a more broad characteristics that I think For that reason, E would be the better choice. So one skin the three parties involved in writing a check E maker, PE e and Bank. Next question account. Used to record cash over edges and shortages from petty cash transactions. A cash gone, be bank reconciliation. See petty cash D cash over and short E cash receivable. Someone SKIN will read through. Cross them off with the process of elimination account. It used to record cash over edges and shortages from petty cash transactions. A cash gone. I don't think that's the thing that that certain that term doesn't sound familiar to me. Be a summit. Cross that out, be bank reconciliation. Ah, that's gonna be a bank. Reconciliation is the process of reconcile ing from the bank to the books, but I don't think that's what we're looking for here. see, says Petty Cash. That's the fund. We're looking at petty cash, but it doesn't tell us what account we're going to go to for the over. In short, it's not going to go to the same petty Cash and D says cash over and short. That seems reasonable, because that would be the over a short account E says cash receivable. And that's probably not gonna be the case, because what we're looking for is when the cash is not lined up. Teoh, What happened on the on the cash, in other words, the capital receipts register doesn't line up to the actual cash we already received doesn't mean we're gonna get more cash or less cash because the difference has already happened. We just have to record that difference between what has been received versus what was recorded as cash sales and that will get in the cash over. In short, so D looks like the answer. Once game question and answer accounted. Used to record cash over edges and shortages from petty cash transactions, D cash over in short, 15. 800 CPA Exam Part 1 Bank Reconciliations and Cash CPA exam %26 other accounting test prep: So with this lecture, we're gonna work some smaller test type problems That will be the size that could be in multiple choice type questions. 1st 1 says, if a check correctly written and paid by the bank for 4 52 is incorrectly recorded in the company's books for 3 89 how should this air be treated on the bank reconciliation? So obviously what we will see in the bank reconciliation will see The bank statement has something different than what our books say. And obviously, if we take these two numbers we have the bank says that we have 4 54 52 on the bank statement in our books say that we have 3 89 then we have a difference of the 4 50 to minus t 3 89 And that's gonna be 60 23 now our books of the thing that is wrong. So on our books Side of things, we wrote it on there at 3 89 that's too low. Therefore, we're gonna have to take this money that 63 out of our account we're gonna have to reduce our checking account side of it on the on our books side of things when we do the bank reconciliation. And then, of course, what will really happen? And really, you know, after we do that as well, make the adjustment to it, meaning well, actually credit cash. And then we'll have to debit whatever accountant needed to be debit debited when we wrote the check in the first place. Next Woman says, if a check is correctly written and paid by the bank for 5 41 is incorrectly recorded in the company's books for 5 14 So we switched to those two numbers. Obviously the four and one. How should this ever be treated on the bank reconciliation? So there's another one that will be caught by the bank reconciliation. That's why we're doing the bank reconciliation. And of course, the bank got it right because they actually had the check and we on our books when we entered the data into the books. It's probably because, of course, our books were writing the checks outside of the system and then just entering it in. And that would mean that we'd have a data entry air here by transposing those two numbers, and it should have been the 5 41 but we're gonna subtract 5 41 minus 25 14 What we accidentally put in there. There's a $27 difference. And if we're doing the bank reconciliation, we have to fix our books. So we have to goto hours out of the books and say, OK, it should have been 5 41 We put in 5 14 Therefore, we're gonna have to decrease because it was a check going out our book balance by 27 again . What will happen after that in real life? Well, we would have to make a journal entry for that. We have to credit cash, reduce cash in some way and record the debit to something else. Whatever we wrote that, check four. If it was the utility bill or whatever, we'd have toe put it into a utility expense or something like that. We have the following Information is taken from the company's balance sheet. Gonna skip down to the bottom before we read off. The balance sheet amounts here and it says if net credit sales for the current year was 60 6000 and the company's day sales uncollected for the year is what, And we're gonna use a 3 65 days in a year we're gonna assume it's a 3 65 day. You're not a leaky or anything. And so we have the following information. So what we're gonna need to do this is gonna be a ratio that we are going to be calculation . It's gonna be the day's sales. Uncollectible, collected, collected. All right. And what we're trying to do is figure out how long it takes between a sale on account Teoh make the sale and then to receive the money from the sale. And the way we are going to calculate that is we're gonna take the A R accounts receivable I'm gonna select also enters to go underneath and A are divided by credit sales. So these air sales that we made just on account that went into accounts receivable I'm gonna go ahead and merge these cells so it'll be a little bit larger, and I'm gonna underline this home tab font underlying there's our ratio that we're gonna have and now we just need to plug the numbers in there, and then we need to multiply that we need to multiply that times 3 65 So we most by that times 3 65 So if we plug this in there, then we're going to say this equals and the accounts receivable is this 75 9 22 759 22 divided by the credit sale. So we have to take the credit sales. We can't take the cash sales I got kind of take those out. That's why they gave us the credit sales down here. And that's gonna be the six. So 6000. And if I If I make the desk multi, I gotta hometown numbers and I'm gonna add decimals like this. Notice it's It's a long number here. Now we could round it 2.1 free and then multiply it out and we could be off by a little bit by rounding. So note, if we do it in excel, it will not, um, reduce it due to rounding. It'll it'll used the actual ratio that has been input, even though we can only see the ratio up to these amounts, the actual ratio being this ratio. So it keep that in mind if you're if you're working a problem and you're off by rounding. That's the reason. So we're going to say this equals this number times 3 65 days in the year. So we've got 46. And again we could see if there's any rounding here and we're gonna go add decimals. 45.7 threes. What we got next. Woman says that in the process of Records Island, it's bank statement. 4 April Company compiles the following information. Going to skip to the bottom, Look at what we want to do and then go through that information. So it says that the adjusted cash balance her the books at April 30th is and I'm assuming what is what? That's what we want. So what we're doing is a bank reconciliation. We're looking at our side, the stuff that we got wrong or the stuff that we need to correct our cash accounts by. And that's the purpose generally have doing the bank reconciliation so that we can find things that the that cleared the bank that we probably didn't record correctly, and that's usually what we're going to pick up. So what we have here is we got a cash balance for April. That's we're going to start with. We're gonna have to adjust that for anything that we found out about from the bank statement that we had not accounted for. So we're going to start off. This is what we have before the bank reconciliation in process, and then we have a deposit in transit at the end of the month. So what we need to think about is is that the banks fault or that our fault that this difference is there, and in this case, it's That's the core thing that's always gonna be in the bank reconciliation. It's the bank's full that's there, and it's really nobody's full. Obviously, that thing didn't clear that the deposits were made. They haven't yet cleared the bank. But our books are correct. We have that information now. Therefore, we're not gonna fix our cash balance. Our cash balances right. The cash balance on the bank statement is wrong due to the fact that the information is not there yet. Then the next one says outstanding checks at the month end. Well, that's the same thing on the other side. Meaning were right. We know we wrote the checks and they went and got sent out. It's just the fact that the banking doesn't know about it yet. And therefore the bank balance is what needs to be adjusted, not our balance. We're not gonna fix our balance for that. And we have the bank checking for prints, new checks. So now we have the $75 that the bank automatically took out of our count because we purchased new checks or got checks printed or some kind of service they provided, and we're gonna have to say I didn't know about that. But that's true. We didn't have that service and therefore we're gonna have to reduce our balance. It's not included in our belt. We didn't know about it. Now we dio. Now we'll include it. Then we have a note receivable and interest collected by bank on companies. Behalf now, depending on what type of company you are looking at, this may not happen all the time, but what we're saying here is that there's an investment that's that's generating interest . That's automatically putting that interest into the checking account as it accrues as it as they earn it. And we're not tracking that until we get the bank statement when we get the banks, then we go, OK, Yeah. We got this interest from this investment that happened. Now we know about it. That's good. We're gonna say interest that we got income and so that's good. It's going up. Our balance is too slow by this interest because we didn't know about it. So we need to increase our interests at the time we get the bank statement, which indicates that that has been happened. So a check paid to company during the month by a customer's returned by the bank as in S f not sufficient funds that we don't like to see that. So what happened is we got we got money, we deposited it and then it bounced. Got that came back. So that means that we're gonna have to reduce our check. We put that in our bank balance, but it's not a good check. It wasn't cleared and clear. So not sufficient fund. Check that bounce that we're going to say we're going to reduce our balance by that. Then if we add these up, I mean equals the sum of these, and that should be our bank balance at this time and Of course, if we did that with a calculator, we're doing 6245 minus 75 plus 710 minus 540 And there we have this. 6340 Also note that these would be adjustments that we would need to make meaning we would have to credit cash and debit something like bank expense or or, you know, miscellaneous expense for checks or something like that. Office supplies, Possibly we would have to debit cash here and credit interest income and the not sufficient funds. We'd have to credit cash and then debit, possibly accounts receivable or something like that, and then see if we can get that money from the customer. 16. 800 CPA Exam Part 2 Bank Reconciliations and Cash CPA exam %26 other accounting test prep: Hello. When this lecture, we're gonna work some smaller test type of problems problems that could be in the format of multiple choice type questions we have here. A company records purchases using the Net method on February 1st, they purchase merchandise inventory on account for 4 8080 with terms 3 10 in 30 3% discount if paid within 10 days, otherwise paid within 30. The February for journal entry to record this transaction would include what now, normally, when we buy something and the and usually the problem will assume that we're gonna by not including the discount and then if we happen to pay it within 10 days, we have to adjust for the fact that we got the discount, the assumption being that we're gonna basically pay at the end in 30 days. And if there was no discount, that's what we would typically do because we want to hold on our money as long as possible . But if we think that we're always going to take advantage of the discount, meaning we're gonna do our best to pay within 10 days, then we want to put it on the books at the amount it would be after the discounts. I wouldn't calculate that a couple different ways. We can say that the amount the inventory costs is going to be this eight for 80 and they discount rate. That rate of discount is going to be 3% or points. 03 That's of course, what this three means up here in this 3-10. 3% discount. Now I'm gonna go home tab numbers add decimals like this, and then I'm gonna make it a percent over here so you can see it's 30.3 or 3% and then I'm gonna go home. Tap font. Underline that. And then if we multiply that out, this is 8480 times three, we get our discount of 2 54 We could go home tab numbers group, add some decimals. It's 2 54 40 cents. This is the discount. So if we want to think about the amount of money that will eventually be paid after the discount, it's gonna be this 8480 minus B 2 54 40 And that's amount of money that will actually paid once again. Home tab numbers add decimals Now, it could be useful for us to think about this. Ah, little bit quicker. You could think about this more quickly. This is kind of like a discount here of a sale if you went to the store. If he said eight for 80 was the sales price, and then there was a discount of 3%. Well, that means you're gonna get 100% minus that 1000.3 is what you're gonna pay. So I'm gonna go to the home tab numbers group percent. If we're gonna get a 3% discount, we're gonna pay 97%. And therefore, that could be a bit quicker for us to calculate. We could just take us 8480 times 97%. That's the amount that would be paid then. So the journal entry would be an inventory. I'm going abbreviate. It would be the 8th 2 to 5.6 if we add the decimals here, add the pennies on and then we're gonna have a credit to the accounts payable. Now, if the question had multiple choice questions and they and they basically said that, is it a debit to inventory Is it a credit to inventory that a debit to payable is a credit to a payable? It's good to actually write out the entire journal entry, even if it only asks for half of it, because that will tell you what the debit is and what the credit is. Next Woman says that during the month of September, company issued a check in the amount of $712 to supplier on account. The check cleared the bank. During September, company recorded the dispersement incorrectly as 7 22 journal entry to correct the mistake . So what happened here is we issued a check, and what we data input into our system is different from the check him out I get How would this happen? Well, if we made the checked by hand outside of our system and then we just enter that data into the system, it's possible for us to miss key. If we made the check within the system. It's unlikely for this type of error to happen, but if this does happen, what we're doing is that bank reconciliation process. We're going to see that the bank account is gonna have something than What we have here is the check number on the bank account. And here's the amount. It's different than the check number in our system and the amount we have the bank is probably right because they actually process the check. So we're gonna have to fix our side. We're going to fix our books. So we're gonna obviously say this is the amount that we had 7 12 The company recorded the dispersement at 7 22 And so 7 12 minus 7 22 That's the adjustment. We're gonna have to make $10 to our cash account. The only question being you know, is it gonna go up or down? And for that we have to say, Well, this is what we had in our checking account, and that amount is a check bringing down our cash balance and therefore, this difference. We have to, um, bring it down by I'm or bring it down by 10 more because this was the check that we wrote. This is what it should have been. It should have been higher. The check decrease in our cash balance should have been higher. Therefore, the difference needs to be decreased from our cash balance because we recorded the check at an amount that was too low compared to what it should have been. So getting the direction is usually what's kind of complicated on the next woman says that the falling information is available for the company at December 31st Money market. Well, let's see what they want to do. First, we're gonna go down to the bottom here. Says based on this information company should report cash and cash equivalents in December 31st of what? So basically, I put these numbers over here. What we're doing is we're trying to figure out what qualifies as cash. Is it close enough to cash that we're gonna group it into the cash box? And what type of investments basically gonna be cash and what taxes investments are not cash. And we're gonna basically I'm just going. What we're gonna do is just take these numbers and I'm going to sum them up over here. I was gonna some this column up. Not like that. We're gonna some this column up like this, and then we're just gonna decide go through these and decides, should they be included in cash now money market fund account. It's it's pretty liquid. It doesn't have any restrictions on it. So yeah, that's basically going to be in the cash number. If we look at the balance sheet, which is going to say that's in our line item for cash. We're not gonna break out that into a separate cash line item and then certificate of deposit maturing June 30th. This is an investment. It's going to mature, but there's a restriction on it. We can't just spend that money, So we're gonna break that out. Asked that some other type of investment post dated cheques from customers we're assuming, and this is kind of tricky in this problem. We're assuming that post dated checks are something that's gonna be dealt with when we report our checking account balance number and cash cash in the bank cash in the bank account. That's gonna be this one off, of course, that the one we would most often think of is the cash in the bank account not sufficient checks from customers returned by the bank. And again, we're kind of assuming that this has had been dealt with in the checking account amount here. We've dealt with these inconsistent or the problems when we did our reconciliation. So we're not gonna include that petty cash. We are gonna include that if we have, this is outside of our checking account, but clearly it's very liquid. It's gonna be cash inventory of postage stamps. We're probably gonna use those. That's gonna be a current assets, but it's not cash. US. Treasury Bills Bill purchased December 15 and maturing February 28. And because these are very liquid treasury bills, we actually are going to include the Treasury bills here at 10,003 and that'll bring us up to a cash amount of 36. 81 at this point. So we were just gonna look at one line item on the balance sheet. It could just be one line item saying cash and cash equivalents 36 81. Next one says the company had 65 missing from petty cash. That was not accounted for by petty cash receipts. The correct procedure is to what so we can imagine here that, of course, we're counting up the petty cash, and we're trying to reconcile it with the receipts that we have been saving for things like lunch and whatnot that we've been pain out of the petty cash. And there's a discrepancy of $65 meaning there's $65 missing comparing to the receipts to the petty cash that is remaining. And so we have to account for this. And if we are replenishing the petty cash, we can imagine that we're putting money taking money out of the checking account, putting it back into petty cash. What we're doing is we're adding up all those expenses like meals, entertainment, expense or any other miscellaneous expense. Probably we're gonna put that in, and then we're gonna credits the the cash account, the checking account to put that money out of the checking back into petty cash. And then we're gonna have this. He's here 65 is gonna be missing out of this journal entry if we imagined that. And what are we gonna debit for? That we're gonna debit the cash over short, so we're gonna kind of track it by putting it in this cash over short account and say, Yeah, we recognize the fact that that was short and this 65 credit then is going to be included in the cash checking account that we're gonna credit. And once again, it's probably gonna be more than 65 over here because this might be done with some longer journal entries such as we have. Also, miscellany is expense. We have meals and entertainment, so it's probably but part of a larger type of journal entry. And then we would sum it up in this way, negative some. So we would if if if it was the case that we needed 8 15 to replenish the petty cash coming out of our checking account going back into the petty cash, we would have to reduce the checking account. And then we would have to account for our receipts and put him into the proper accounts. And we would have this difference of 65 due to the fact that $65 was not recorded somehow and therefore we're going to just dump that into account called cash over short. In so doing, we are able to track the amount in there and, of course, reconcile. At the same time,