CHAPTER
7
INTERNAL CONTROL
AND CASH
Chapter 7 Quiz (Unit 3 Quiz#1) will
occur on Monday, Nov 17
I will allow only one page formula
sheet (double sided)  It is not open
book nor group quiz
Summary

Bank Statement Balance
You add or subtract items which appeared in the book but
they did not appear on Bank Statement of this month.
 If the item increased Book Balance, then you add this
item to BSB.


Book Balance
You add or subtract items which appeared the bank
statement, but they did not appear on Book.
 If the item decreased BSB, then you subtract this item
from Book Balance.

Reconciling Journal Entries
Accounting Books

Each reconciling item in determining the adjusted
balance per books MUST be journalized and
posted
Bank Statement

Do NOT journalize any entries on bank side
(because they are already recorded in accounting
records)
REPORTING CASH
The term “Cash” does not mean just “cash”.
 We debit cash if customer pay by:
1. Cash (such as coin, bill)
2. Check
3. Debit card
4. Bank credit card
IOU (informal document indicating who owes
whom) from employees and stamps are not cash.

REPORTING CASH
Cash reported on the Balance Sheet includes:
1. Cash on hand
2. Cash in banks (checking account and
savings account)
3. Petty cash
All three forms of cash can be combined and reported
as Cash in the balance sheet in some companies.
Cash is listed first in the balance sheet because it is the
most liquid asset.

CASH EQUIVALENTS



More than 75% of Canadian public companies
combine cash with cash equivalents in Balance
Sheet.
Cash equivalents are highly liquid investments, with
maturities of three months or less when purchased,
that can be converted into a specific amount of cash.
Examples include money market funds, short-term
notes, (GIC or CD) and treasury bills.
CASH EQUIVALENTS

More than 75% of Canadian public
companies present their cash in this
manner in Balance Sheet:
Assets
Current Assets
Cash and short term investments
$875
CASH EQUIVALENTS



Bank overdraft occurs when withdrawals or
payments (debit payment or check payment) are
more than the amount in the bank account.
This becomes a short term loan from the bank.
Most companies have overdraft protection up
to a certain amount.
CASH EQUIVALENTS

In an overdraft situation, the Cash account
shows a credit balance in the general
ledger and is reported as a current
liability called bank indebtedness.
USING THE INFORMATION IN THE
FINANCIAL STATEMENTS
Management must perform a difficult
balancing act to properly manage cash.
 On one hand, it is critical to ensure that enough
cash is available to pay bills or to buy
inventory.
 On the other hand, too much cash on hand may
indicate that management is not maximizing its
return on assets.

Classwork / Homework



P381 E7-9 and E7-10
P386 P7-7
Ex 7.13 (P383)