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Bank Reconciliation Checks
- Time lags
- Errors by either party
Bank Reconciliation Steps
1 - Tick the items that match.
Correct any errors in the cash receipts and cash payments journals.
Bank statement errors added to bank reconciliation statement.
2 - Identify unticked items on bank statement.
Examine cash journals for unticked items (outstanding deposits, unpresented checks).
Carry unticked items from opening reconciliation to current bank reconciliation.
3 - Total cash journals and post to Cash at Bank ledger account.
4 - Complete bank reconciliation statement (Outstanding deposits increase bank account, unpresented cheques decrease bank account.)
Statement of Cash Flows
Provide information about cash receipts, cash payments and net change in cash resulting from operating, investing and financing activities.
Reconcile the beginning and ending cash balances.
Usefulness of the Statement of Cash Flows
Ability to generate future cash flows.
Ability to pay dividends and meet obligations.
Reasons for difference between profit and net cash provided (used) by operating activities.
Cash investing and financing transactions for the period
Cash inflows - sale of goods or services, cash received from customers, receipt of interest/dividends.
Cash outflows - payments to suppliers, payment of wages, payment of interest and tax.
Cash inflows - sale of PPE, sale of investments, collection of loan principle from loans made to mother entities.
Cash outflows - purchase of PPE, purchase of investments, loans to other entities.
Cash inflows - issue of shares, issue of debentures and notes.
Cash outflows - payments of dividends, repayment of long term loans, payment to repurchase shares, payment to lessors of financial leases held.
Prepare Statement of Cash Flows
Calculate the net...
1 - decrease/increase in cash.
2 - cash provided/used by operating activities.
3 - cash provided/used by investing activities.
4 - cash provided/used by financing activities.
Analysing Statement of Cash Flows
General analysis - provides general observations and identification of early warning signals.
Trend analysis - compares information about an entity over a period of time.
Ratio analysis - assess the health of an entity by helping the user interpret key items in the financial report.