Category Archives: 1 Basic Accounting

Counting cash balances

Some companies may have considerable amounts of cash meaning they deal on regular basis with cash payments. As such there is usually more than one place for keeping those cash amounts and obviously there are considerable security requirements and procedures introduced.

One thing that also must be remembered is that cash is like all assets, they need to be counted or confirmed for existence every now and then. When bank accounts are confirmed with bank statements, receivables with confirmation letters or payments, the cash is behaving in a way like the inventory.
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Foreign currencies on bank accounts

Every company dealing with either foreign clients or suppliers is bound to have some foreign currencies on their bank account. Normally by the bank you have separate accounts for those currencies meaning you literally have let’s say 100 USD and 500 EUR in the bank. However, on the balance sheet you can only have one currency, the functional currency of the company.

There are a few things that need to be considered here – the goal of keeping things clear and accuracy. First off on the balance sheet we suggest having separate accounts for all different currencies just to keep things clear and to avoid any messing up. There are cases when on the same bank account you can actually have more than one currency – especially on those cases we suggest having separate accounts on the balance sheet. Keeping things sorted on the balance sheet gives a good overview of the resources as well as enables you to see where you money standing in case of any fluctuating currencies being used.
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Short term deposits

Financing wise it may be smart to put some money standing on your bank account to deposit accounts so they would earn you higher interest. Provided that you still may be in the need of those funds you’ll probably put them on the short term deposit accounts meaning in about 2-3 months you will be given back the money. When making these transactions, on the balance sheet you do the following entry:
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Cash in transit

When you have dealings with cash, you’ll definitely have the need to transfer physical cash to the bank on your bank account. The cash receipt is gaining an asset for sure on your balance sheet, but it’s what happens with it inside the group what matters.

The initial cash related entry may be something like this (a very simplistic one):

Dr Cash

Cr Revenue

So eventually you may have loads of cash physically at your premises. Since holding cash there may not be the safest place, you probably want to take it into the bank. Depositing the cash on your bank account is usually more useful provided you don’t have cash dealings of your own with suppliers, employees etc. In case you’re not the one taking money to the bank on your own, you will probably use a special service for this. Continue reading →

Prepayments received

As it happens, in normal course of business you may be paid in advance for something that you still have to do. You will be given resources to use and as such, you have taken a liability on your balance sheet. You are given money in return for a promise to provide a service or sell something in near future. As such the company has a legal liability and this is recognized as one.

When the prepayment is received the entry in the accounting is this:

Dr Cash or cash equivalent

Cr Prepayment received

With this you increase the liability for future actions that you have to do (i.e. revenue still to be earned) and on the other side you gain an asset (resources received).
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Prepaid expenses – how to account them

There are times when you are either asked to make a prepayment for certain services or goods, or you simply decide to make an advance payment regardless of the reason behind it. When you make a prepayment, you give away money against a promise to receive something in near future. As such the payment done is accounted for as an asset on the balance sheet. The company has a legal right to receive the service for an example, thus it’s recognized as an asset for the company.

When first making the prepayment, the accounting entry is as follows:

Dr Prepaid expense account

Cr Cash or cash equivalent

With credit you give away money and with debit you gain an asset instead.
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Non-current assets held for sale

A company may for whatever reason at any given point in time decide to give up on some of its assets. This may be due to discontinuing operations, replacement or something else, however, there are specific treatments for such assets on the balance sheet.

The first and foremost condition is that the asset must be available for immediate sale in its current condition. If it’s continued to be in use, it is questionable if the asset is in fact subject to be sold immediately.

Second condition that must be met is the fact that the sale must be highly probable. This is defined by having a selected buyers who have shown interest, existing market for the asset, reasonable price etc. For any transaction to be probable, obviously an imminent intent and an action plan must be enforced. If any approvals are required, those should also be obtained to ensure the highest probability.
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