Your goals for this “cash” chapter are to learn about:
- The composition of cash and how cash is presented on the balance sheet.
- Cash management and controls for receipts and disbursements.
- Reconciliation of bank accounts.
- The correct operation of a petty cash system.
- Accounting for highly-liquid short-term investments.
Chapter 6 begins with definitions of cash and cash equivalents. This is not always as obvious as it would seem, and presentation of items and amounts in the Cash account on a company’s balance sheet should follow fairly precise guidelines. The initial portion of the chapter also emphasizes the importance of proper cash management and provides insight into tools and opportunities for improved cash management.
A detailed discussion and illustration of the bank reconciliation is presented, along with appropriate accounting adjustments. Another illustration is used to demonstrate the correct methods for managing and accounting for a petty cash fund.
The chapter closes with an examination of highly-liquid short-term investments. These investments are made with the objective of generating profits. Oftentimes they are acquired with excess cash funds. Short-term investments are measured on a balance sheet at fair value, and fluctuations in value are reported in income as they occur.