Bank Accounting - Types of Bank Accounts, Cash Receipts & Disbursements, Disclosures Required for Cash Accounting
Bank account involves accounting for cash transactions including organization-wide cash receipts, cash disbursements, payroll disbursements, vendor payments, rent payments, employee salary payments, etc. Cash refers to:
o Currency on hand
Why is Cash Critical to Accounting?
o Virtually all accounting transactions that flow through the organization pass through the cash account
Sources of Cash (Cash Receipts)
Uses of Cash (Cash Disbursements)
Types of Bank Accounts
i) General cash accounts – principal cash account used by the organization for cash receipts from the revenue process and cash disbursements from the payroll and purchasing processes
ii) Imprest cash accounts – contains a stipulated amount of money and the account is used for limited purposes (for example disbursing payroll and dividend cheques).
o When used for payroll, the total amount of the net payroll is drawn from the general account and then the individual cheques are drawn from the imprest cash account. The payroll account serves as a clearing account and maintains adequate control over cash).
iii) Branch accounts – used by companies with branches in multiple locations. Each branch is able to pay local expenses and maintain a banking relationship in the local community. May be in the form of an imprest account with designated amounts transferred based on cash reports submitted to headquarters.
Disclosures required for Cash Accounting
• Accounting policy for defining cash and cash equivalents
• Restrictions on cash (funds allocated for a specific purpose by the board of directors)
• Contractual obligations to maintain compensating balances (debt covenant restrictions)
• Cash balances restricted by foreign exchange controls
• Letters of credit
• Restriction on the use of specific funds of cash