Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

OVERVIEW

In previous chapters, you learned the basic formats for general purpose financial statements. In this chapter, you begin your in-depth study of accounting for items reported on the balance sheet: (1) what is to be included in an item classification, (2) related internal control procedures, (3) rules for determining the dollar amount to be reported, (4) disclosure requirements, and (5) special accounting procedures which may be required. In this chapter, you will learn what is to be included with the cash caption on the balance sheet and some key internal controls which should be employed for business activities involving cash.

At the end of an accounting period, after all transactions have been recorded and posted, the balance of the Cash account usually does not reflect the amount of cash available in the checking account per the bank statement. A bank reconciliation should be prepared as one control feature over cash disbursements to determine whether errors have been made or if any unrecorded transactions exist. The adjusted cash balance as determined by the bank reconciliation will be the amount used to report for cash on the balance sheet. (The Cash account in the general ledger often includes cash on hand and cash in the bank, although separate ledger accounts such as Cash in Bank and Cash on Hand may be used. The balance of this account and any other unrestricted cash accounts, such as the Petty Cash account, are added together to report cash on the balance sheet.) ...