Ch. 3 Accounting for Cash

Change fund (cash register)• Established by writing check to person in charge of the fund.• They cash check put in the cash• Asset account found after Cash In Bank in chart of accounts –

100 account• Debit Normal• Any overage or shortage recorded in “Cash Short and Over”

Cash Short and Over• Temporary account• No normal balance• Shorts recorded as debits – is an expense• Overage recorded as credit – revenues • Closes to the income summary account• 600 account -- expenses

Petty Cash• Used instead of writing checks for small amounts• Postage, deliveries, cleaning supplies

• Listed after cash fund in chart of accounts• Only Debited when created or increased• Payments recorded with voucher or receipts• Held with petty cash until replenished• Shorts or overs recorded in “Cash Short and Over”

Petty Cash Replenished

Petty Cash Fund Balance $75

Marketable Securities• Short term investments < 12 months• Treasuries, corporate securities

• Purchased with excess cash• A controlling asset account • Ledgers hold detail info of each investment

• Type, purchase date, total cost, maturity date

• Interest earned on securities is recorded as a credit in Interest Income

• Interest Income is a Revenue account

Recording Marketable Securities

ACC REC / Collections• When Receivables are not

• The Direct Write-Off Method• The Allowance method

• Uncollectable Accounts Expense– Expense Account in COA– Used to record uncollectable accounts

• Writing Off• Reinstating

The Direct Write-Off Method

Reinstating Accounts

What about the cash?

The Matching Principle• Revenues should be matched with the expenses incurred in

generating that revenue• Any uncollectable amounts should be reported in the same

period of the sale.• Sometimes you must estimate the amount uncollectible at the

end of the period. • Estimates of uncollectable accounts are adjustments at the

end of the period

The Allowance method• Most large businesses use this method• Accounts receivable can not be used• Because you do not know who wont pay

• Use “Allowance for Uncollectable Accounts”• A contra account

• Credit normal balance

• Acc. Rec. – Allowance for Uncollectable Acc. = book value of Acc. Rec.

Estimating Uncollectable Accounts

Creating a reservoir of Allowance for Uncoll. Accts.

Filling up the credit side to use when we actually write off an account

Writing off Uncollectable Accounts

Using the reservoir to write off.

Reinstating Allowance Method After Writing Off

Estimating Uncollectible Accounts Expense•Percentage of Net Sales Method• Multiply Net sales by estimated amount not

collected• Percentage is based on historical collections

data• Net sales = sales – sales discounts –sales

returns and allowances

Estimating Uncollectible Accounts Expense• The Aging of Accounts Receivable Method• Based on the due date for each customer• Classified by age past due• Each age group has an estimated percentage

rate not collected• Each Age group is multiplied by estimated rate• Results of all age groups are totaled • The total is the balance of Allowance for

Uncollectable Accounts

Installment Accounts Receivable• Installment Sales • Usually a down payment• Monthly minimum payments including interest

• 2 Revenue Accounts used• Installment Sales – includes the sale amount• Finance Charge Income – includes income from interest

• Installment Accounts Receivable• Controlling asset account for the subsidiary ledgers

Installment Accounts Receivable

Installment Accounts Receivable