Definition of Cash – Nature, Composition, Control, Reconciliation, Reports, Composition: Cash is the most liquid asset. Cash is an exchange tool and is also used as a basis for measurement in accounting. In order to be reported as “cash” the post must be readily available for payment of current obligations and must be free of contractual ties that limit its use in debt servicing.
Cash is a medium of exchange and a means of payment that is accepted for debt settlement, and can be received as a deposit with an amount equal to its nominal value, as well as bank deposits or other places that can be taken at any time.
Cash is the most liquid asset. Cash is an exchange tool and is also used as a basis for measurement in accounting. In order to be reported as “cash” the post must be readily available for payment of current obligations and must be free of contractual ties that limit its use in debt servicing.
Like a human, cash is the blood that will flow in the body of the company, cash will provide food support for all operational parts of the body of the company.
If the cash flow is disrupted, the company’s operations will also be disrupted. Once the importance of cash for a company or business, cash is the most liquid asset among other assets, and is always placed at the top of the company’s balance sheet.
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Understanding Cash According to Experts
Douglas Garbutt (1985)
understanding of cash in general, namely cash is money owned by the company. Meanwhile, according to Gito Sudarmo, I and Basri (1995: 61), the definition of cash is the value of cash in the company along with other items in the near future that can be cashed as a means of payment of financial needs, which have the highest level of nature its liquidity.
stated that cash is cash and other payment instruments used to finance company operations. From the three definitions above, it can be concluded that cash is the most liquid / current asset that is not limited to cash, but also bank cash, checks, money orders, and securities that can be immediately used as a means of payment .
Cash is cash that can be used to finance company operations, including in the sense of cash is a check received from customers and company deposits in the bank in the form of demand deposits or demand deposits, namely deposits in banks that can be taken back (by using a check or bill) .
Theodarus M. Tuanakotta, AK
Cash and banks include cash and deposits in banks which can be cashed directly at any time without reducing the value of these deposits. Cash can consist of petty cash or other cash funds such as cash receipts and checks (which are not reversed) to be deposited to the bank the next day.
Financial Accounting Standards
“Cash is a payment instrument that is ready and free to use to finance the company’s general activities”. Zaki Baridwan (2003: 85), “cash is a means of exchange and is used as a measure in accounting”.
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Properties of Cash
Cash is arguably the single most important item on the balance sheet. Because it acts as a medium of exchange in our economy, cash is seen directly or indirectly in almost all business transactions. This is consistent with the nature of cash, namely:
- Cash is too involved in almost all company transactions.
- Cash is an asset that is ready and young to be used in transactions and exchanged with other assets, easily transferred and varies without owner’s mark.
- The amount of cash owned by the company must be maintained in such a way that it is not too much and not less.
- Generally recognized as a legal tender
- Can be used at any time if desired
- Its use is free
- Received according to the nominal value at the time of cashing.
Cash consists of cash balances held by companies and includes current accounts. Cash deposits are assets held to meet short-term cash commitments, not for investment and can quickly be turned into cash.
Included in cash in the sense of accounting is an acceptable exchange tool for debt relief, as deposits to banks, as well as deposits in banks or other places that can be taken at any time. Cash consists of banknotes, coins, checks that have not been deposited, deposits in the form of demand deposits or bilyet, traveler’s checks, cashier’s checks, bank drafts and money orders.
To be classified as cash is usually limited to being accepted as a deposit by a bank with a nominal value not grouped in cash. If any notes receivable are handed over to the bank to be billed, then the notes receivable are still recorded as notes receivable until they are repaid by the person making the notes.
Sometimes stamps can be used for small payments, but stamps will not be accepted as deposits by banks, so stamps are not cash.
Post dated checks are still recorded as receivables until the date on which the checks can be cashed. The reverse checks belong to the receivables group.
Marketable securities such as shares and bonds may be sold immediately and become cash, but prior to the sale of these securities do not belong to the cash group. Before being sold securities are still reported as short-term investments.
Deposits in foreign banks pose a special problem because of different currencies. Therefore, deposits in foreign banks must be deducted in rupiah. Frequently deposits in foreign banks cannot be taken at any time, therefore in the balance sheet the deposit will be reported separately.
Cash that is restricted in use, usually in the form of funds, is not included in cash but is reported separately as funds. If its use is still within one year, it is included in the current assets group, but if it cannot be used within one year, then it is reported as non-current assets.
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There are 2 cash controls, namely:
- Control for Cash Receipts
- All cash receipts must be recorded immediately
- All cash receipts on that day should also be deposited with the bank
- The separation of functions between officers who handle cash receipts is done by a cash register machine
- Control for Cash Expenditures
- All cash disbursements must be made using checks, except for small amounts that are not efficient if done by check can be made using petty cash funds.
- Checks must be signed by at least 2 officials
- Checks that are canceled or mistyped must be neatly arranged
- Should be paid in full for evidence and checks that have been issued
If every money received is deposited in a bank and every expenditure of money (except for a relatively small amount) by check, the cash account can be compared with the bank statement.
Usually bank statements are received monthly and will be reconciled with cash and bank records. In addition, reconciliation is also useful for knowing receipts or expenses that have occurred at the bank but have not been recorded by the company.
Reconciliation of bank statements should be made by employees who have no interest in cash, so that the preparation of bank reconciliation can be used to check cash and bank records.
In making a reconciliation of bank statements, it is necessary to know that the reconciliation is a record of the company and the bank, so a comparison must be made between the two so that differences can be known.
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Things that make a difference can be classified as follows:
- Elements that the company has recorded as revenue but have not yet recorded by the bank.
- Deposits sent to the bank at the end of the month but have not been received by the bank until the following month (deposits on the way).
- Deposit received by the bank at the end of the month, but reported as a deposit the following month, because the bank’s report has already been made (deposit in transit).
- Cash not deposited in the bank.
- The elements that have been recorded as revenue by the bank but not yet recorded by the company.
- Interest calculated by banks for deposits, but not yet recorded in the company’s book (current account services).
- Bank notes are recorded by the bank as receipts but the company has not recorded them.
- The elements that have been recorded by the company as expenses but the bank has not recorded them.
- Outstanding checks, namely checks that have been issued by the company and have been recorded as cash disbursements, but by those who received them have not been cashed, so banks have not recorded them as expenses.
- A check that has been written and has been recorded in a cash disbursement journal but the check has not been submitted to the payer, then the check is not an expense and therefore the cash disbursement journal must be corrected at the end of the period.
- The elements that have been recorded by the bank as expenses but not yet recorded by the company.
- Checks from subscriptions rejected by the company because they are empty but have not been recorded by the company.
- Interest is calculated on overdrafts (cash credit balances) but not yet recorded by the company.
- Bank service fees that have not been recorded by the company.
Bank reconciliation can be made in 2 different ways:
- The final balance reconciliation can be made in 2 forms:
- Reconciliation statements of bank balances and cash balances to show the correct balance
- Bank balance reconciliation report to cash balance.
- Reconciliation of initial balances, receipts, expenses and final balances that can be made in 2 forms:
- Bank balance reconciliation report to cash balance (4 columns).
- Bank balance and cash balance reconciliation report to show the correct balance (8 columns).
Petty cash funds are cash that is provided to pay relatively small amounts of expenses and is not economical when paid by check. In conjunction with petty cash, there are 2 methods that can be used, namely (a) imprest system (b) fluctuation method.
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- Imprest System.
In this system the amount in the petty cash account is always fixed, that is, as much as a check that is given to the petty cashier to form a petty cash fund. By a petty cashier, the check was cashed into the bank and the money was used to pay for small expenses. Every time you make a cash payment, a petty cashier must make proof of expenses.
- Fluctuation Method
In the fluctuation method the formation of petty cash funds is done in the same way as in the system imprest method. The difference with the imprest system is in the method of fluctuations in the balance of petty cash accounts that are not fixed, but fluctuate according to the amount of replenishment and expenses from petty cash.
In the fluctuation method every time money is disbursed from petty cash is directly recorded. So the petty cash book has a function as a journal book and is the basis for accounting the ledger accounts. Because the records are made every time an expenditure is made, the petty cash account is debited for the amount of money received.
Cash flow statement
Cash flow statements represent cash receipts and cash payments (cash disbursements). The cash flow statement reports cash receipts and cash disbursements that are classified according to the entity’s main activities: operations, investments and expenditures. The report reports net cash inflows or net cash outflows from each activity and for all business activities.
The main purpose of a cash flow statement is to provide information about the cash receipts and cash payments of the entity during a period. The second objective is to report on an entity’s operating, investing and financing activities during the period.
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Benefits of a Cash Flow Statement:
- The ability of an entity to generate future cash flows.
- The ability of an entity to pay dividends and fulfill its obligations.
- The reason for the difference between net income and net cash flow from operating activities.
- Investment and financing transactions involving cash and non-cash for a period.
Cash Flow Classification
The cash flow statement classifies cash receipts based on operating, investing and financing activities. The characteristics of transactions and other events of each type of activity are:
- Operating activities involve the cash effects of transactions involved in determining net income, such as cash receipts from the sale of goods and services, as well as cash payments to suppliers and employees to obtain inventory and pay expenses.
- Investment activities generally involve long-term assets and include, (a) lending and collection of loans, and (b) the acquisition and disposal of investments and long-term productive assets.
- Financing activities involve liability and shareholder equity items and include, (a) obtaining cash from creditors and repayment of loans, and (b) obtaining capital from the owner and providing a rate of return on, and return on his investment.
Included in cash in the sense of accounting is an acceptable exchange tool for paying off debt and can be accepted as a deposit to the bank with an amount equal to its nominal value.
Included in the definition of cash is deposits in banks in the form of savings, time deposits or demand deposits or other places that can be taken at any time.
- paper Money
- unpaid checks
- deposits in the form of demand deposits or bilyet
- saving account
- traveler’s checks
- cashier’s check
- bank draft (bank draft)
- money order
- petty cash
- change money
- cash in permanent branches
Which Does Not Include Cash
- Post dated checks.
Reverse checks are still recorded as receivables until the date on which the checks can be cashed.
- Bon debt
Debt receipts are treated as receivables.
- Advance travel
Advances for trips are treated as receivables if the advances are collected from the employee or deducted from his salary.
- Postage stamps
Postage stamps are treated as supplies for office or store supplies or as prepaid expenses.
- Cash funds for special purposes
for example funds set aside for debt bond payments