Week 8- ACCT1101

• Cash


  Physical currency, coins, and balances in bank accounts that are readily available for spending or investment
• Internal Control Procedures for Cash


  1. Separate duties for handling cash receipts and cash payments

  2. Requiring authorization for cash transactions

  3. Regular reconciliation of cash balances

  4. Safeguarding cash with locked safes or cash registers

  5. Using pre-numbered receipts and checks to track transactions
• Bank Account Management and Reconciliation

  • Purpose: Bank accounts are used to deposit and withdraw funds, facilitate transactions, and earn interest
  • Control Features: Reconciliation ensures that the company's records match the bank's records by comparing transactions, including deposits, withdrawals, and fees
  • Bank Reconciliation Statement: A document prepared to reconcile the cash balance per company records to the balance per bank statement
• Petty Cash Fund


  • Purpose: To handle small, routine expenses without the need for writing individual checks or obtaining approvals for each transaction
  • Operation: A fixed amount of cash is kept in a secure location, and petty cash vouchers are used to track expenditures
  • Accounting: Replenishment of the petty cash fund and recording expenditures are done periodically
• Cash Budget


  • Purpose: To forecast and manage cash flows by estimating future cash receipts and payments
  • Control Features: Helps in planning and controlling cash usage, identifying potential cash shortages, and ensuring sufficient liquidity
  • Preparation: Based on sales forecasts, expense budgets, and other financial projections
• Principles of Cash Management


  • Maximizing liquidity while minimizing idle cash
  • Managing cash flows efficiently to meet financial obligations
  • Investing excess cash to earn returns
  • Forecasting cash needs to avoid shortages
• Measures of Cash Adequacy


  • Cash Ratio: Cash and cash equivalents divided by current liabilities
  • Quick Ratio: (Cash + Marketable Securities + Receivables) / Current Liabilities
  • Operating Cash Flow Ratio: Operating cash flow divided by current liabilities
• Statement of Cash Flows


  • Purpose: To provide information about a company's cash inflows and outflows from operating, investing, and financing activities
  • Format: Divided into three sections: operating activities, investing activities, and financing activities
• Preparation of Statement of Cash Flows

  • Direct Method: Reporting cash receipts and cash payments from operating activities directly
• Advanced Issues in Statement of Cash Flows

  • Treatment of non-cash transactions
  • Classification of cash flows from unusual or non-recurring activities
  • Foreign exchange considerations
• Limitations of Statement of Cash Flows


  • Doesn't provide information about the timing of cash flows
  • Doesn't reflect changes in non-cash working capital items
  • Doesn't indicate the reasons behind cash flow changes