CHAPTER 6 : ACCOUNTING FOR CASH

Definition of - Cash includes cash, bank deposits and other instruments that can be converted into cash Example :
Cash immediately when urgently when necessary such as cheques and postal money. Coin, money paper, cheque, money
- The key feature to be classified as cash is that it is ready to settle the maturity of the debt order, money in hand, savings in bank
without any barriers or contractual obligations and whatever the bank accept as deposit

Cash book - One form of internal control for a company is to use cheque for each payment and to include all cash received into the bank.
(cash receipt - To enable a company to use a cheque, it is necessary to open a current account into the bank.
journal & cash
payments Cash - The company records every turnover of money into an
journal) and book account known as Cash Book. Dr Cash Book (Bank Column) Cr
Bank Statement i. Cash receipts journal (records all cheque receipts)
ii. Cash payment journal (records all cheque payments) + -
Cash receipts Cash payments

Bank - The bank prepares a bank statement showing cash outflow in

Statement the current account of the company with the latest balance. Bank Statement
- The bank statement will be sent to the company at the end of Dr Cr
each month - +
Cash payments Cash receipts

Bank - Adjustments of the amount of the difference between the cash book and the bank statement
Reconciliation - Purposes :
i. Evidence that the differences that exist not due to an error.
ii. The accuracy of the entries in the Cash Book can be verified without any deliberate error or not.

Reason recorded in the cash book but not recorded in • Deposit in transit / Deposit dlm perjalanan
for the bank statement • Outstanding Cheque / Cek belum kemuka
Difference • Non Sufficient Fund (NSF) / Cek tak layan

recorded in the bank statement but not in the • Bank service charge
cash book • Collection by the bank
• Standing instruction

errors Cash book Add : Receipt of understated

& Bank Statement Payment of overstated
Deduct : Receipt of overstated
Payment of understated
Preparation of - Adjusting bank balance statement and cash balance to a adjusted cash balance (baki tunai terselaras)
Bank Reconciliation Steps in the Preparation of Bank Reconciliation :
Adjusting bank i. Identify ending bank balances Cr (+) ; Dr (-)
balance ii. Identify and list deposits in transit and bank errors that Add these items to your bank
statement cause the understated balance. statements
iii. Identify outstanding cheque and bank errors that cause Deduct these items to your bank
overstated balance. statements
iv. Calculating adjusted cash balance
Adjusting cash i. Identify ending cash book balances Dr (+) ; Cr (-)
book (column ii. Identify and list collection by the bank, bank interest income Add these items to the cash
bank) and company errors that cause the balance of the book balance
understated cash balance.
iii. Identify and list bank service charges, Non Sufficient Fund Deduct these items off of the
and company errors that result overstated cash balance. cash book balance
iv. Calculating adjusted cash balance
Format of Bank Reconciliation Statement Updating Balance Of Cash Book To Adjusted Cash Book Balance
- In this case the adjusted transaction only consists of :
Names of Company a. Unrecorded transactions in cash books.
Statement of Bank Reconciliation b. Error recording in cash book.
As at 31 ………….
RM RM General Journal
Ending bank statement balance XX Date Items Dr Cr
(+) : Deposit in transit XX (RM) (RM)
Error understated XX XX Jan 31 Bank XX
XX Notes Receivable XX
(to record cash receipts)
(-) : Outstanding cheque : Bank XX
Cheque Number : XX Interest / Dividend revenue XX
Error overstated XX (XX) Jan 31 Bank charges / Cheque book expense XX
Adjusted Cash Balance XXX Bank XX
Ending cash book balances XX (to record cash payments)
(+) : Notes receivable (collection) XX Notes receivable charges XX
Interest revenue / Dividend revenue XX XX Bank XX
XX Account receivable – NSF XX
(-) : Bank charges / Cheque book expense XX Bank XX
Notes receivable charges XX
Account receivable - NSF XX (XX)
Adjusted Cash Balance XXX