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Summary Cash and Cash Equivalents

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This summary discusses IAS 7 (Cash and Cash equivalents). Bank Recon is discussed as well as what comprises cash and cash equivalents. How to prevent fraud as well as internal controls that can be implemented.

Last document update: 9 months ago

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  • January 15, 2024
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How to prevent fraud?
• Implement controls over cash.

Internal controls over cash:
§ Segregation of duties.
§ (custody of cash must be separated from recordkeeping of cash).
-> person who keeps the cash must be separated from person who counts the
amount of cash

§ Cash receipts deposited daily.

§ All payments to be made by cheque / eft (unless minor).

, § Minor payments = petty cash float.
§ Maintained on imprest system.

§ Bank reconciliation prepared on regular basis.
§ To prove accuracy of both reporting entity and the bank.

§ Background check on potential employees.

Bank reconciliation:

• Purpose is not to make them equal but to identify and explain why they are different.
• Any difference that is not explained = fraud/ theft.

Record of the entity:

• The bank account in the entity's books are an ASSET since it is the cash it owns.

Records of the bank:

• When the entity puts money in the bank account = gives it to the bank.
• The bank now has the entity's cash, but it is not owned by the bank.
• The bank owes this money to the entity => has an obligation to provide this cash.
• Thus in the bank's books, the money given by the entity is a LIABILITY.

Summary:

Transactions Entity's books (A) Bank's books (L)

Receipts (+ bank balance) DR Bank account (+) CR Entity's account (+)

• Cash + cheques (bank is an asset, (bank owes the entity more money,
deposited in bank increase on the DR liability increases on the CR side)
• Credit + debit card side)
transactions
• EFT receipts

Payments (- in bank balance) CR Bank account (-) DR Entity's account (-)

• Cheques written out (bank is an asset, (bank owes the entity less money,
• Credit + debit card decreases on CR side) liability decreases on DR side)
transactions.
• EFT payments



Entity's books = Normal DR (+) CR (-)
Bank's books = Reverse Dr (-) CR (+)

I receive money = my bank increases = asset increases = DR Bank (+) = Bank owes me more money =
liability increases = CR (+)

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