Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

Transcription

1 Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

2 Assets Define Assets?

3 Assets Financial Reporting Standard (FRS) defines assets as resources controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.

4 Assets The definition states control rather than ownership. In other words, an entity may not own the resources; as long as it has the control over the use of the assets, the item will be reported as assets.

5 Assets Let s say you had purchased a car with 100% financing from the bank; the car ownership will be transferred to you only when you settle the loan. The bank owns the car, but you will have to report the car as your asset as you have full control of the car (resources). You will also report the liability (the loan) in your balance sheet.

6 Internal Control of Assets Assets are used to generate revenue for an entity. Hence it is important to protect the assets. Good internal control must exist to ensure assets are safe. The following procedures must exist to ensure adequate internal control in an organisation.

7 Internal Control of Assets Maintain adequate records. For example, detailed record of assets should be kept so that it is difficult for assets to be stolen or go missing without detection.

8 Internal Control of Assets Insure assets. Protect business property assets and human resources with adequate insurance coverage. For example, assets must be protected (warehouse locked and guarded) and insured against theft and fire.

9 Internal Control of Assets Separate bookkeeping from custody of assets. Responsibility for initiating business transactions and custody of business assets must be separated from the responsibility for maintaining accounting records. This is to avoid or minimise the risk from misappropriation of assets. For example, a storekeeper is not the same person initiating the purchase of office supplies.

10 Internal Control of Assets Apply technological controls. Use devices designed to protect assets and improve accuracy of the accounting process. For example, the use of electronic tag to protect books in the library from getting stolen. Perform regular and independent reviews.

11 Current Assets According to Malaysian accounting standard FRS 101 Presentation of Financial Statement, an asset is classified as a current asset when it is:

12 Current Assets In other words, current assets include cash or cash equivalent and other assets that can be converted into cash, and other assets that can be resold or used in manufacturing goods within a period of one accounting year or less.

13 Current Assets

14 Accounting for Cash Cash is the most important assets a business has. Cash is crucial to the survival of a business entity. A business may report high profit, but without cash to run its operation, the business will be faced with liquidity problem.

15 Accounting for Cash Cash is the most liquid asset and thus is easily hidden and moved. Hence a good internal control is required to avoid stolen and misappropriate of cash.

16 Internal Control for Cash An effective system of internal control to protect cash should have the following guidelines: (a) All cash receipts and payments must be accompanied by a document or evidence: a receipt, bill, invoice or cheque butt. The use of pre-numbered receipts and cheque helps internal control for cash.

17 Internal Control for Cash (b) All cash receipts must be deposited into the bank account at the end of each day. In the event that cash are kept at the premise of business, it must be stored in a locked vault at the premise until it is deposited into the bank account.

18 Internal Control for Cash (c) All payments must be made through issuing of cheques, except for a smaller amount which uses the petty cash. In many business organisations, a cheque requires two signatories rather than one for tighter cash control.

19 Internal Control for Cash (d) Established responsibility assigned task that is suitable to an individual s qualification and experience. This reduces the possibility of errors and when a problem occurs, it is easy to identify the person responsible. For example, at the check out counter, only the cashier can receive cash from the customer.

20 Internal Control for Cash (e) Separation of duties, staff who receive and handle cash should not be involved in recording (bookkeeping) of cash transactions.

21 Internal Control for Cash (f) Rotation of duties. Temptation and fraud can be reduced if employees know that they can be transferred without notice from one department to another. For example, banks rarely allow their employees to work at the same branch for more than three years.

22 Internal Control for Cash (g) Periodical visits and random checks. Management and supervisors must check on their employees; for example check records and tabulate cash to see if they tally. (h) Perform bank reconciliation.

23 Bank Reconciliation What do you mean by Bank Reconciliation?

24 Bank Reconciliation Bank reconciliation is a document to explain all differences between a firm s own cash records and the bank statement figures on a certain date. It is prepared by the firm (not the bank) to ensure accuracy of financial records.

25 Types of Bank Account Saving Account Current Account Fixed Deposit Account

26 Saving Account Account holder can withdraw money at any time through a passbook or any automatic teller machine (ATM). Account holder can update the passbook to know the detailed transactions and current balance of account.

27 Current Account No passbook is given to account holder although money can be withdrawn through the ATM at any time. An additional feature of a current account is the ability of account holder to draw cheques to make payments. Account holder will receive a bank statement detailing transactions of a particular month.

28 Fixed Deposit Account Cash is kept at the bank for a certain period of time. Cash cannot be withdrawn within this period without a penalty. Higher interest rate is earned compared to saving and current accounts.

29 Bank Reconciliation A business normally owned a few types of bank accounts. However, in this topic, we will assume that business only keeps one type of bank account, which is current account.

30 Bank Reconciliation Did you notice that when we deposit cash or cheque in the bank, the bank statement will show as a credit? Why?

31 Bank Reconciliation When this cash is deposited in a bank, the bank has an obligation to pay the money back to the customers on demand. The deposits represent a liability to banks, and therefore customers` bank accounts have credit balances.

32 Bank Reconciliation

33 Purpose Bank Reconciliation (a) reconcile the balance of firm s cash account with the balance stated in the bank statement for a particular month; and (b) ensure the accuracy and the validity of items recorded in the cash account. Any omissions and errors can then be corrected.

34 Purpose Bank Reconciliation The balance on the bank statement usually disagrees with the cash account balance according to the firm s records because of the following reasons: (i) Items (transactions) which appear in the bank statement (e.g. bank charges, interest, dishonoured cheques, etc...) but have not yet been recorded by the firm.

35 Purpose Bank Reconciliation (ii) Items recorded in firm's cash account (for the same period) may NOT be recorded by bank on bank statement, e.g. unpresented/outstanding cheques drawn by the firm, late deposits, deposits in transit. (iii) Errors made by the firm or bank in their respective accounts.

36 Purpose Bank Reconciliation

37 Bank Reconciliation Format

38 Petty Cash Define is Petty Cash?

39 Petty Cash The cash kept at the business premise is known as petty cash. This cash is used to pay for items of smaller amounts. Although the amount involved is small, frequent transactions can lead to a bigger amount.

40 Creating Petty Cash Fund A specific individual is appointed to handle the petty cash. He or she will be responsible for all payments made using the petty cash. To create the petty cash, an estimate of cash required for a specific period must be made. This amount is then withdrawn from the bank account and given to the person in charge of the petty cash, known as petty cashier (custodian).

41 Creating Petty Cash Fund The petty cashier will keep the petty cash in a safe place (safe deposit/vault). Another control practice is to set the maximum amount for payment. For example, any payment exceeding RM50 must not be made using petty cash. Or conditions or terms of usage; only payment for postage, stationeries or fares shall be allowed from the petty cash.

42 Using Petty Cash Fund Employees or other parties that demand payment from the business must provide bills or receipts as evidence of payment to the petty cashier. These bills and receipts must be kept together with the petty cash. The petty cashier must ensure that all conditions set earlier (e.g. amount not exceeding RM50) must be met before reimbursement is made.

43 Q & A