THIS IS DAMAT HOTEL &

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5/12/2020 Compiled by Merkeb.T 1

Occupational Standard:
Accounts and Budget Support
Level--------------------- III
Unit Title Balance Cash
Holdings
Unit Code BUF ACB3 1 0 0 8 1 2
Unit Descriptor
This unit describes the performance outcomes, skills and knowledge
required to clear registers, count money, calculate non-cash transactions
and reconcile takings and balance cash holdings.

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cash is the asset most likely to be used improperly by employees, exposed for
embezzlement and many business transactions either directly or indirectly
affect it, it is therefore necessary to have effective control of cash.

Cash includes money on deposit in banks and other items that a bank will
accept for immediate deposit. Money on deposit in banks includes checking and
saving accounts. Other items such as ordinary checks received from customers,
money orders, coins and currency and petty cash also are included as cash. Banks
do not accept postage stamps, travel advances to employees, notes receivable or
post-dated checks as cash.

CHARACTERISTICS OF CASH
The following are some of the characteristics of cash:
 Cash is used as medium of exchange
 Cash is the most liquid asset
 Cash is mostly affected by business transactions Cash
 is used to measure the value of other assets Cash is
 mostly exposed to embezzlements

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MANAGEMENT OF CASH
Cash management refers to planning, controlling and accounting for cash transactions
and cash balances. Efficient management of cash is essential to the survival and
success of every business organization. Managing cash requires planning wisely so
that there will not be excess cash held on hand at
any point in time; or there is no shortage of cash at any point in time to meet the
business’s needs.
Internal control for cash should include the following procedures:
The individuals who receive cash should not also disburse (pay) cash
The individuals who handle cash should not access accounting records
Cash receipts are immediately recorded and deposited and are not used directly to
make payments.
Disbursements are made by serially numbered checks, only upon proper
authorization by someone other than the person writing the check Bank
accounts are reconciled monthly.
The following are the most common elements of cash control and managements:
• bank account system
• petty cash fund
• voucher system
• change fund
• cash short and over.

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 Control of Cash through Bank Accounts
Bank accounts are one of the most important means of controlling cash that
provide
several advantages such as:
Cash is physically protected by the bank,
A separate record of cash is maintained by the bank,
And customers may remit payments directly to the bank.

If a company uses a bank account, monthly statements are received from the
bank showing beginning and ending balances and transactions occurring during
the month including checks paid, deposits received, and service charges. These
monthly statements (reports) received from the bank are called bank statements.
Bank statements generally are accompanied by checks paid and charged to the
accounts during the month, debit and credited memos, which inform the
company about changes in the cash accounts. For a bank, the depositor’s cash
balance is a liability, the amount the bank owes to the firm. Therefore, a debit
memo describes the amount and nature of decrease is the company’s cash
accounts. A credits memo indicates an increase in the cash balance of the depositor
that it has with the bank.

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Reconciliation of Bank and Book Cash Balances

Monthly reconciling of the bank balance with the depositor’s cash

accounts balance is essential cash control procedure. To reconcile a
bank statement means to verify that the bank balance and the
accounting records of the depositor are consistent. The balance shown
in a monthly bank statement seldom equals the balance appearing in
the depositor’s accounting records. Certain transactions recorded by the
depositor may not have been recorded by the bank and vice versa.

The most common examples that cause disparity between the two
balances are:
Outstanding checks:
Checks issued and recorded by the company, but not yet
presented to the bank for payment.
Deposits in transit:
Cash receipts recorded by the depositor, but not reached the bank to
be included in the bank statement for the current month.

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Service charges:
Banks often charge a fee for handling checking accounts. The amount
of this charge is deducted by the bank form bank balance and debit
memo is issued for the depositor.
Charges for depositing NSF- checks:
NSF stands for “Not Sufficient Funds.” When checks are deposited in
an account, the bank generally gives the depositor immediate credit. On
occasion, one of these checks may prove to be uncollectible because the
maker of the check does not have sufficient funds in his or her account.
In such a case, the bank will reduce the depositor’s account by the
amount of this uncollectible item and return the check to the depositor
marked “NSF”.
Notes collected by bank:
If the bank collects a note receivable on behalf of the depositor, it
credits the depositor’s account and issues a credit memorandum for the
depositor.

When the depositor prepares bank reconciliation, the balances shown in

the bank statement and in the accounting records both are adjusted for
any unrecorded transactions. Additional adjustments may be required to
correct any errors discovered in the bank statements or in the accounting
records.

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 Steps in Preparing Bank Reconciliation
Bank reconciliation is a schedule prepared by the depositor to bring the balance
shown in the bank statement and the balance shown in the depositor’s accounting
into agreement.

The steps to prepare bank reconciliation are:

The deposits listed on the bank statement are compared with the deposits shown in
the accounting records. Any deposits not yet recorded by the bank are
d ep o s it s
I nt r ans it and should be ad d ed to the balance shown in the bank
Thestatements.
paid and received checks from the bank are compared with the check stubs.
Any checks issued but not yet paid by the bank are o ut s t and ing c hec k s and
should be d ed uc t ed from the balance reported in the bank statements.
Any c r ed it m em o r and um s issued by the bank that have not been
the depositor,
recorded by are ad d ed to the balance per depositor’s record.
Any d eb it m em o r and um s issued by the bank that have not been recorded by
depositor are d ed uc t ed from the balance per depositor’s record.
the
Any errors in the bank statement or depositor’s accounting records are adjusted.
The equality of adjusted balance of statement and adjusted balance of the
depositor’s record is compared.
Journal entries are prepared to record any items delayed by the depositor.

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 The name of the company
Bank reconcilliation
Period of time
Balance per bank
--------------------------------------------------------------------------xx
Add deposit intransit------------------------xx
error made by bank ------------------
sub totalxx-
------------------------------------------ xx
----------------------------------------------------------------------------- xx
Less out standing check ---------------------xx
Adjusted bank balance error made by bank -------------------x x
------------------------------------------xx
------------------------------------------------------------------- XX
Balance per depositor
--------------------------------------------------------------------xx
Add note receivable
----------------------xx
subincome
interest total ---------------------xx
------------------------------------------------------------------------------ xx
error made by depositor---------- x x ---------------------------------------------
Less service charge
xx
-----------------------xx
note sufficient fund ----------------xx
Adusted deposit balance
error made by depositor --------- x x
---------------------------------------------------------------- XX 9
-------------------------------------------
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--x x
Illustration of Bank Reconciliation 1
The January bank statement sent by Awash Bank to RAM Company shows Br. 4,262.83.
Assume also that on January 31, 2000, the Cash account of RAM Co. shows a balance
of Br. 5,000.17. The accountant of RAM Company has identified the following items:
A deposit of Br. 410.90 made after banking hours on Jan. 31 does not appear on the
bank statement.
Two checks issued in January have not yet been paid by the bank:
Check No. 301 Br. 110.25
Check No. 342 607.50
A credit memorandum was included in the bank statement, which was for proceeds from
collection of a non-interest bearing note receivable from MAN company Br. 524.74.
Three debit memorandums accompanied the bank statement: Fee charged by bank
for handling collection of notes receivable Br.5; a check of Br. 50.25 received from
A customer, RON company, and deposited by RAM company was charged back as NSF;
and service charge by bank for the month of January amounts to Br. 12.00

Check No. 305 was issued by RAM Company for payment of telephone expense in the
amount of Br. 85 but was erroneously recorded in the cash payments journal as Br. 58.

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 RAM Company
Bank Reconciliation
January 31, 2000
Balance per bank statement, Jan.
31,2000------------------------------------------Br. 5,000.17
Add: Subtotal---------------------------------------------------------------------------------
Deposit of Jan. 31 not recorded by bank------------------------------------------Br. 410.
90 5,411.07
Deduct: outstanding checks:
No. 301-------------------------------------------Br. 110.25
AdjustedNo.
bank342-----------------------------------------------6 07.
balance balance------------------------------------------------------------Br. 4,
693. 50--------------------------1 17. 75
32 per depositor’s record, Jan. 31,2000-------------------------------------------Br.
Balance
4,262.83
Add: Subtotal-----------------------------------------------------------------------------------
Note Receivable collected by bank----------------------------------------------------- Br.524.
74 4,787.57
Deduct: collection fee-----------------------------------Br. 5.00
NSF check of Ron Co. ----------------------------50.25
Service charge--------------------------------------12.00
AdjustedError
cashon check stub No. 305 ------------------- 2 7.
balance-------------------------------------------------------------------------Br.
4 , 693.00--------------------------------
32 94. 25

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The following are journal entries related to the bank reconciliation. 2000
 To record collection of Note Receivable collected by bank
cash………………………….524.74
Notes Receivable ……………………
 524.74
To record bank service charges
Miscellaneous Expense…………17.00
 cash ........................................17.00
NSF check
Accounts Receivable-RON Co………50.25
 cash ...............................................50.25
error in recording Check No. 305
Utilities Expense…………………..27.00
Cash………………
…………………..27

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Illustration of Bank Reconciliation 1
On may1 2002selam company showed balance in its cash account of br37820 on june2
selam receivedbank statement for the month ended may31 which showed an ending
balance 65040
A marching of debits to the cash account to the book with deposit on the bank
statement which showed that br9040 receipts of may31 are includes in cash but not
includes as deposits on the bank statement
An examination of checks issued check cleared showed three check out standing
No 9544----------------------------br6440
9545--------------------------------3360
9546--------------------------------14460
Total ---------------------------------------------24260
Include within the bank statement a credit memorandum where br24500includes of interest
br500for collect of note owed to selam by ship company
Includes within the bank statement is br20400 debit memorandum an NSF check
written by Kamel & deposited by selam
Charge made to selam account includes br240 for safe deposit box rent &br160for service
charge
Check no 9550for 10,160.00 tayew company for the settlement of account
payable recorded for cash payment journal 18,460.00
Require
1. Prepare bank reconciliation
2. Pass the necessary journal entry
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 Selam Company
Bank reconciliation
June 31 2002
Balance per bank-------------------------------------------------------------
65,040.00
Add deposit in transit
--------------------------------------------------------9,040.00
Subtotal
------------------------------------------------------------------74,080.00
Balance per depositor--------------------------------------------------------
Less outstanding check------------------------------------------------------
37820
24,260.00
Add note receivable-----------------------------24000
Adjusted bank balance------------------------------------------------ 49,
Interest income------------------------------500
820.00
Bank error------------------------------------8300------------------------
32800
Subtotal----------------------------------------------------------------------
70600
Less service charge----------------------------400
820.00
Not sufficient fund----------------------20400-----------------------
24800
Adjusted deposit balance---------------------------------------------------- 49,
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 Collection of cash
cash ---------------------------24,500
note receivable --------------24,000
interest income ------------------500
 Error made by error
cash ------------------------------8,300
account payable ------------------8,300
 Service Charge
Mis expense --------------------400
cash ------------------------------400
 Note sufficient fund (NSF)
account receivable --------------20,400
cash
----------------------------20,400

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Illustration of Bank Reconciliation 1
ADA research and development P.L.C Company engaged in the development of
strategic
product with business health industry and defense the following data pertain to ADA
research and development P.L.C
• Balance per bank statement dated march 31,2015birr 4204
• Balance of cash account on the company books as of march 31, 2015birr22,855
Birr 500recipt of march 31,didn’tin the bank (deposit in transits) in the bank
statement
• The following checks issued by ADA research and developed P.L.C didn’t
appear in the march ‘s bank statement
Check no 20 birr 300
Check no 21 birr 250
Check no 22 birr 238
• A noted of birr 1200and interest of birr 25 were collected by the bank for ADA
B=research and developed P.L.C and included with the bank statement as credit
memo
Included the bank statement is birr 150 debit memo for NFS check
• Service and collection charges for the month were birr 50
• Cash payment on account of birr 148 was erroneously recorded be depositor
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 Req uir
ed
Task 3.1. prepare bank reconciliation of march 31, 2015
Task 3.2. prepare the necessary journal entry

ADA research development plc

Bank reconciliation
For the month ended March 31 2015
Balance per bank
-----------------------------------------------------------4
Subtotal 204
Add deposit in transit -----------------------------------------------------
----------------------------------------------------------------------4704
5Less
0 0outstanding check
Ck no 20----------------300
Ck no 21-----------------250
Ck no 22----------------238
Balance per depositor --------------------------788
Adjusted bank balance ----------------------------------------------------
----------------------------------------------------2855
3 9 1 6note receivable --------------------1200
Add
Interest income --------------------25
Error
Subtotal
Less ----------------------------------36-------------------------------
----------------------------------------------------------------------
note sufficient fund -----------150 12
- 4116
6 1charge
Service
--------------------------50---------------------------------- 200
Adjusted deposit balance ------------------------------------------------ 3
916
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Journal entry
 Note collected by bank
Cash ---------------------------------1225
Note receivable
----------------------1200
 Interest income -------------------------25
Error by depositor
Cash
----------------------------------36

Account payable ----------------------36
Note sufficient fund
Account receivable ----------------150

Cash----------------------------150
Service charge
MIS expense
----------------------50
Cash--------------------------------
-50

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Petty Cash Fund
Petty cash fund, which is part of the total cash balance, is used to handle many types of
small payments such as employee transportation costs, purchase of office supplies,
purchase of postage stamps, and delivery charges. Many businesses find it convenient
to make minor expenditures instead of writing checks. The petty cash amount various
from Br. 50 or less to more than Br. 1,000, which will cover small expenditures for a
period of two or three weeks.
Establishment of Petty Cash
To establish a petty cash fund a check is issued to a bank. This check is cashed and the
money is kept on hand in a petty cash box. One employee is designated as custodian of
the fund. The issuance of the check for establishment is recoded by debiting petty
cash account and crediting cash.
Replenishment of Petty Cash
Duriing the periiod,, the custodiian makes smallll payments form the petty cash fund and
obtaiins a receiipt or prepares a petty cash voucher.. Thiis petty cash voucher
expllaiins the nature and amount of every expendiiture and iis kept wiith the fund..
When the fund runs llow or at the end of the company’’s fiscall periiod,, a check iis
iissued to reiimburse the fund for the expendiitures made duriing the periiod.. The
iissuance of thiis check iis recorded by debiitiing the appropriiate expense accounts and
crediitiing cash or vouchers payablle..

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 Voucher System
One method to control cash disbursements is a voucher system. A voucher is a special
form, which contains relevant data about a liability and its payment.
In a voucher system, a voucher is prepared for each expenditure and approved by the
designated officials. Each approved voucher represents liability and recorded in a
voucher register, which is similar to purchases journal. Those registered vouchers
are filed according to their payment date in an unpaid vouchers file. The
vouchers and supporting documents then are sent to the treasure or other official
is the finance department before issuing checks. When the checks are signed, the
paid vouchers are recorded in a check register which is similar to cash payments
journal. Those paid vouchers are filed in paid vouchers file according to their
serial number for future reference
Change Fund
Some businesses that receive cash directly from customers should maintain a fund of
currency and coins in order to make change (Amharic=>”zirzir”). This fund, which
is part of the total cash balance, is called change fund. A change fund is established
by issuing a check to the bank and transferring the cash to the custodian. The
issuance of a check to establish a change fund is recorded by debiting cash on hand
and crediting cash or voucher payable.

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Once a change fund is established, there will be no change in its balance unless there is a
decision by management to increase or decrease the fund balance.
Cash Short and Over
In handling cash receipts from daily sales, a few errors i n ma ki n g ch a n g es will occur.
These
errors may cause a cash shortage or overage at the end of the day. The account cash
short and over is debited if there is shortage and credited if there is overage. At the end of
the period if the account had a debit balance, it appears in the Income statement as
miscellaneous expense; if it has a credit balance, it is shown as miscellaneous revenue.
example, assume that the total cash sales recorded during the day amounts to Br. 12,420.
However, the cash receipts in the cash register drawer (actual cash count) total Br. 12,
415.
The following entry would be made to adjust the accounting records for the shortage in the cash
receipts:
Cash Short and Over 5.00
Cash 5.00
To record a Br. 5.00 (Br. 12,420 – 12,415)
Shortage in cash receipts for the day
Journal entry
Cash ---------------------------12,415.00
Cash shortage --------------------- 5.00
Sales
-----------------------------------12,420.00

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example, assume that the total cash sales recorded during the day amounts to
Br. 12,420. However, the cash receipts in the cash register drawer (actual cash
count) total Br. 12,425.
The following entry would be made to adjust the accounting records for the
shortage in the cash receipts:
Cash 5.00
Cash Short and Over 5.00
To record a Br. 5.00 (Br. 12,420 – 12,425)
overagerage in cash receipts for the day
Journal entry
Cash ---------------------12,425.00
Sales --------------------------------12,420.00
Cash overage ---------------------------5.00
Illustration 1 assume that the total cash sales recorded during the day amounts to Br.
10,010. However, the cash receipts in the cash register drawer (actual cash count)
total Br. 10,100. record the cash shortage and overage of this cash collection.

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