Accounting (Basics) - Lecture 6
FINANCIAL ACCOUNTS, THEIR STRUCTURE AND IMPORTANCE, CASH, CASH IN TRANSIT, BANK ACCOUNTS


Content
nFinancial accounts, their structure and importance
nCash
nCash in transit
nBank accounts
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Financial accounts
nShort-term financial assets are assets in which an entity intends to own it, trade it and use it
for one year or less than one year. nIt is characterized by high liquidity and immediate
tradability. nFinancial accounts capture both financial assets (assets) and financial resources
(short-term finance loans and assistances).
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Financial accounts
nShort-term financial assets include:
qCash - includes cash, ie. money, checks, vouchers and valuables (postage stamps, highway stickers,
stamps, phone cards, etc.)
qBank accounts - contain bank accounts (current account, foreign currency account, deposit account
with a notice period of up to 1 year, etc.).
qShort-term securities and shares and short-term financial assets – include securities, debt
securities and own shares.
·
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Financial accounts
nShort-term financial assets include:
qTransfers between financial accounts include cash in transit, which is intended to cover the time
discrepancy between the moment of movement of the funds from bank account to cash box or from
current account to loan account etc.
qProvisions for short-term financial assets.
Adjustments are expressed in the temporary impairment of assets.
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Financial accounts
nShort-term loans and financial assistance include:
qShort-term bank loans are loans granted over a period of time up to 1 year, eg. bridging loans,
discount bills, and so on.
qShort-term financial assistance received from others entities than banks and which are under an
obligation to do so.
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Recording cash transactions
nCash transactions are those where payment is made or received immediately (i.e. when cash is
exchanged at the point of sale/purchase). nSales and purchases made by cheque, however, are classed
as cash transactions as well. nThe main reason for this is that traditionally such transactions
would be processed using a cash register or cash till. nThe cheques and the cash in till would be
counted at the end of the day and then transferred to the bank account.
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Recording cash transactions
nCredit transactions, on the other hand, where goods are sold and purchased and paid for at a later
date are more commonly paid using electronic payments, methods (i.e. they are paid online) and are
commonly referred to as bank transactions. nWhen cash is received (i.e. receipt of an asset) the
entry in the cash ledger is a debit. nWhen cash is paid out (i.e. a reduction in an asset) the
entry in the cash ledger is a credit.
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Recording cash transations
nIllustration
qShow the following transactions in ledger accounts (Cash, Rent, Purchases, Sales)
q1) The company pays 80 for rent by cheque
q2) Company sells goods for 230 cash which it banks
q3) Company then purchases 70 of goods for resale using cash
q4) Company sells more goods for cash, receiving 3 400
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Recording cash transactions
n1) rental expenses 80
qDebit rent 80, credit cash 80
n2) selling of goods 230
qDebit cash 230, credit sales revenue 230
n3) purchase of goods 70
qDebit purchases 70, credit cash 70
n4) selling of more goods 3 400
qDebit cash 3 400, credit sales revenue 3 400
n
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Recording cash transactions
n
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Cash
Sales (Revenue)
Rent (Expense)
Purchases
(2)   230
(4) 3 400
(1)    80
(3)   70
(2)   230
(4) 3 400
(1)    80
(3)    70

Evaluating of short-term financial assets and liabilities
nThe funds, valuables and liabilities are valued at nominal values. nPurchased securities are
valued at acquisition price, including acquisition-related costs, such as fees and commissions to
brokers, advisers and stock exchanges. nIn the event of loss, they are valued using the weighted
arithmetic mean of the purchase price or the FIFO method. nThese valuation techniques can be used
within
the same type of securities, the same issuers etc..
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Evaluating of short-term financial assets and liabilities
nAt the balance sheet date, securities are priced at fair value (except securities held to
maturity). nThe fair value is intended to express the current market valuation of the security.
nTherefore, either the market price quoted on the stock exchange (or other regulated market) or a
valuation determined by a qualified estimate.
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Valuables
nThis account accounts for the state and movement of the valuables prior to their release.
nValuables are postage stamps, government stamps, phone cards, fuel cards, meal vouchers, prepaid
tickets for public transport, etc. nValuables entrusted to workers for use for predetermined
purposes are recognized as a receivable for employees.
n
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Bank accounts
nEntities use the following types of accounts:
qCurrent Account - An entity has funds in its account to finance its own activities.
qOverdraft Account - Allows the business to make payments even when they are not in the account
funds, providing a short-term (overdraft) loan on the basis of credit agreements with the bank.
qDeposit account – it is used for deposit of temporarily free funds as term deposit for a certain
period of time.
qForeign exchange account - is intended to store cash in foreign currencies, the accounting entity
is obliged to keep it also converted into Czech crowns (in the Czech Republic).
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Bank accounts
nThe entity is informed about the state and movement of the funds in the account
from bank statement. nThe bank forwards the interest, the financial return that is charged for the
deposited funds on account Financial revenue. nFor individual operations, the bank charges the
fees, which serve to cover the costs associated with the operations concerned.
nThese costs are charged on Financial costs.
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Transfers between financial accounts
nCash in transit account serves to cover the time gap between movement of money and issuing
appropriate accounting documents. nCash in transit is used when the transfer from cash desk to bank
account takes place or vice versa. nCash in transit account is also used for transfers between two
bank accounts or at providing a bank loan and paying its installments.
n
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Transfers between financial accounts
nIf the cashier withdraws money in the bank, the bank issues an expense cash slip, not an account
statement. nThe cashier of the entity issues a cash receipt when receiving the cash and until the
Current account statement is received posts in the account “Cash in transit” instead of the bank
account.
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Transfers between financial accounts
nThe Cash in transit account is also used when a transfer occurs between two bank accounts or when
a bank credit and its instalments are provided
n
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Short-Term Securities and Shares and Acquired Short-Term Financial Assets
nShort-term securities include securities for trading, debt securities, debt securities with a
maturity within one year held to maturity, the company’s own shares and bonds and other feasible
securities (not tradable on the public market).
n
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Equity securities held for trading
nThese securities include shares which are tradable on the public market (stock exchange). nThe
profit is the difference in their prices over a short period, not more than one year. nTheir
acquisition is posted firstly in the calculation account, where the acquisition price is created
(purchase price and costs of acquisition, e.g. fees for exchange brokers).
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Equity securities held for trading
nSecurities at acquisition price are transferred to the respective account.
nSales of securities are accounted in two transactions:
qa decrement in securities where the balance of securities on the respective account is decreased,
correlatively as a financial cost
qorigination of a receivable (or receipt of financial funds) and, at the same time, financial
revenue
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Example
nThe entity purchased shares at 200 for trading through an invoice, paid commission to the brokers
from the bank account; after three months sold the shares at the price of 300.
n
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Example
Transaction
Text
Amount
Debit
Credit
1.
Invoice (received) from the broker for purchasing shares
200
Acquisition of short-term financial assets
Other payables
2.
Current account statement -  paid commission to the broker
10
Acquisition of short-term financial assets
Cash in bank
3.
Internal accounting document – transfer of the shares at the acquisition price into evidence
210
Equity securities held for trading
Acquisition of short-term financial assets
4.
Current account statement - Payment of received invoice for purchased shares
200
Other payables
Cash in bank
5.
Issued invoice for the sale of the shares
300
Other receivables
Revenues from sale of securities and shares
6.
Internal accounting document – decrement of shares at the acquisition price
210
Securities and shares sold
Equity securities held for trading
7.
CAS (Current account statement) - Payment of invoice for shares sold
300
Cash in bank
Other receivables
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Own shares and equity (own ownership) interests


nThis account is used to account for the entity’s own shares which the entity issued and which the
entity may withdraw for a particular time. nThis happens if, for example, the joint-stock company
withdraws shares from shareholders to exchange them for shares with another nominal (face) value or
wants to decrease the registered capital, etc.
n
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Bonds held for trading
nThis account is used to account for debt securities for trading (these securities are used when
the issuer acquired financial funds through securities). nIf they are tradable on the public
market, the accounting is the same as for Equity securities.
n
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Own bonds
nThe account Own bonds is used to account for withdrawn not sold bonds of the entity; purchased
non-transferable registered bonds before the expiry of the maturity period if the issuer undertook
to re-purchase them; repurchased employee bonds in the case of cancelled employees’ labour
relations.
n
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Bond securities maturing within one year held to maturity
nSecurities held to maturity are securities that have a firmly stated maturity and the entity wants
to hold them to maturity. nThe revenue is either interest stated by a fixed revenue rate (‘coupon
piece’ of securities) or is equal to the nominal value decreased by the lower rate of issue
(‘discounted piece’ of securities).
n
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Short-Term Bank Credits
nShort-term bank credits are classified as follows:
n
nPredefined credits, i.e. credits for purchasing real estate, machines, equipment, etc. nDiscount
credits, provided by the bank for owners of bills nGuarantee credits, when the bank guarantees to
pay a commitment to a third party for its client nLombard credits, provided on the pledge of a
movable item.
n
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Short-term bank credits
nThe source material for accounting for credit accounts is credit account statements.
nThere are two kinds of credits:
qcommon – the bank provides financial funds for an entity, they are accounted for through a
correlative record to the debit of the bank account.
qpredefined - the bank does not provide the entity with financial funds in its bank account, but
pays the invoice of the supplier directly from the bank account.
n
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Example
nIf a short-term bank credit is provided, the entity posts the following transactions:
n
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Example
Transaction
Text
Amount
Debit
Credit
1.
Credit account statement – short-term bank credit provided
200
Cash in transit
Short-term bank loans
2.
Current account statement – crediting the credit on the account
200
Cash in bank
Cash in transit
3.
Credit account statement – paying suppliers
100
Trade payables
Short-term bank credits
4.
Current account statement – paying interest for the credit
10
Interest
Bank accounts
5.
Credit account statement – credit instalment
50
Short-term bank credits
Cash in transit
6.
Current account statement – credit instalment
50
Cash in transit
Cash in bank
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