ACCTG102 · Accounting Concepts
Cash, Bank Reconciliations & Receivables
Week 7 of ACCTG 102 Accounting Concepts at the University of Auckland opens the second half of the course with the assets most exposed to loss: cash and accounts receivable. You learn the five internal-control principles over cash receipts and payments, the four-step bank reconciliation, and the allowance method for doubtful debts — plus notes receivable, factoring, petty cash and four ratios. The mid-semester test covers Chapters 1–5 only, so this chapter is examined through the comprehensive final exam, the pre-workshop quiz cycle and the WileyPlus assignment covering Chapters 7–10.
What this chapter covers
- 01Cash defined: cash on hand + cash at bank + cash equivalents (bank overdrafts, money-market deposits, 90-day bank bills)
- 02Five internal-control principles applied to cash receipts and cash payments: establishment of responsibility, segregation of duties, documentation, physical/mechanical/electronic controls, independent internal verification
- 03Bank reconciliation: timing differences (outstanding deposits, outstanding EFTs) vs errors, and the course's four-step procedure ending at adjusted bank statement balance = Cash at bank ledger balance
- 04Book-side updates that need journal entries: bank fees, direct debits and credits, and the firm's own recording errors
- 05The allowance method: period-end estimate (Dr Bad debts expense / Cr Allowance for doubtful debts), write-offs against the allowance, recoveries in two entries, and receivables at net realisable value
- 06Estimating the allowance by ageing accounts receivable — the adjusting entry is the required balance minus the existing balance
- 07Notes receivable: accepting a note, honouring at maturity, and exchanging before maturity at a discount (interest expense)
- 08Accelerating cash receipts: selling receivables to a factor for a service charge, and credit-card sales where the issuer absorbs losses for a fee
- 09Cash management: five principles, the three-section cash budget, and petty cash (establish, voucher, replenish, cash over and short)
- 10Chapter-7 ratio kit: cash to daily cash expenses, credit risk ratio, receivables turnover, average collection period
Ageing the receivables, the adjusting entry and the ratio kit
- +3Work the ageing schedule band by band: 96,000 × 2% = 1,920; 42,000 × 4% = 1,680; 24,000 × 10% = 2,400; 12,000 × 20% = 2,400; 6,000 × 40% = 2,400.
- +1Sum the bands: the REQUIRED closing balance of the allowance is $10,800 — this is a balance, not the entry amount.
- +2Adjusting entry = required − existing = 10,800 − 3,300 = 7,500: Dr Bad debts expense 7,500 / Cr Allowance for doubtful debts 7,500. Debits equal credits.
- +2Current-assets extract: Accounts receivable 180,000 less allowance for doubtful debts (10,800) = accounts receivable, net $169,200.
- +3Ratios: credit risk = 10,800 ÷ 180,000 = 6.0%; receivables turnover = 960,000 ÷ [(147,200 + 169,200) ÷ 2] = 960,000 ÷ 158,200 ≈ 6.1 times; average collection period = 365 ÷ 6.1 ≈ 60 days.
- +1Judgement: customers take about 60 days against stated terms of n/30 — roughly double the credit period, so the credit policy needs tightening.
Key terms
- Cash equivalents
- Highly liquid investments readily convertible to cash — the course's examples are bank overdrafts, money-market deposits and 90-day bank bills. Included with cash on hand and cash at bank in the accounting definition of cash.
- Bank reconciliation
- The internal-control procedure comparing the bank statement with the firm's Cash at bank ledger account, explaining the difference through timing items (outstanding deposits and EFTs) and errors, until the adjusted bank statement balance equals the updated ledger balance. Prepared by someone independent of other cash duties.
- Outstanding deposit (deposit in transit)
- A receipt recorded in the firm's cash journals that the bank has not yet recorded — added to the bank statement balance in the reconciliation.
- Allowance for doubtful debts
- A contra-asset account holding the estimated uncollectable portion of accounts receivable, so receivables report at net realisable value. Credited by the period-end estimate; debited when a specific account is written off.
- Net realisable value (of receivables)
- Gross accounts receivable minus the allowance for doubtful debts — the amount actually expected to be collected, reported in the statement of financial position.
- Ageing of accounts receivable
- An estimation schedule classifying customer balances by how long they are overdue and applying a loss percentage to each band; the total is the required closing balance of the allowance account.
- Factor
- A financial institution that buys a business's receivables for a fee (a service charge) and collects from the customers itself — a way of accelerating cash receipts.
- Cash over and short
- The temporary account that absorbs petty-cash discrepancies at replenishment: a debit balance is reported as an expense, a credit balance as revenue; closed to the profit or loss summary.
Cash, Bank Reconciliations & Receivables FAQ
Is Chapter 7 in the ACCTG 102 mid-semester test?
No — the mid-semester Inspera test covers Chapters 1–5 only. Cash and receivables are examined in the comprehensive final exam (the practice exam gave the area an MCQ plus two full analytical questions: a bank reconciliation with internal-control matching, and a receivables question with the allowance entry, a statement extract and three ratios), in the pre-workshop quiz cycle, and in the WileyPlus assignment covering Chapters 7–10.
Why doesn't a bad-debt write-off hit Bad debts expense?
Under the allowance method the expense was already recognised when the period-end estimate was made (Dr Bad debts expense / Cr Allowance for doubtful debts). The write-off simply uses up the allowance: Dr Allowance for doubtful debts / Cr Accounts receivable. Gross receivables and the allowance fall by the same amount, so net receivables are unchanged — the write-off affects statement-of-financial-position accounts only.
Can AI help me with bank reconciliations and receivables in ACCTG 102?
Yes — Sia can explain each step of a bank reconciliation or an ageing schedule, walk you through why an item belongs on the bank side versus the book side, and check your reasoning on practice problems step by step. Use it to understand the method, not to outsource marked work: ACCTG 102's mid-semester test explicitly prohibits AI tools during the assessment, and no tool can promise you marks — the exam rewards labelled workings you can produce yourself.
Exam move
Learn this chapter as two drills. Drill one: the bank reconciliation — practise sorting items onto the correct side (bank side: outstanding deposits and EFTs; book side, with journal entries: bank fees, direct credits and debits, your own errors) until the two columns converge without hesitation, because the practice exam pairs it with internal-control scenario matching. Drill two: the allowance method's three entries (estimate, write-off, recovery) plus the ageing logic that the adjusting entry equals required balance minus existing balance — the same adjust-to-required pattern reappears with warranty provisions later in the course. Memorise the four Chapter-7 ratios exactly as taught, since no formula sheet was provided for the mid-semester test and you should assume the same for the final (confirm on Canvas). At the practice paper's pace of 75 marks in 2 hours, budget about 1.6 minutes per mark and always fill the workings box — labelled workings carry marks even when a figure slips.
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