To provide guidelines on the proper recording of Cash in Transit. It is important that Auxiliary and Service Center organizations take into consideration any unrecorded cash receipts at month end in order to fairly state the balance sheet and income statement, thus ensuring compliance with Generally Accepted Accounting Principles (GAAP) and satisfying the Matching Principle.
“The matching principle means that revenues generated and expenses incurred in generating those revenues should be reported in the same income statement. Revenues for an accounting period are recognized in accordance with the realization principle. Then the expenses incurred in generating those revenues are determined in accordance with the matching principle. Thus, expenses are reported in the income statement for the accounting period in which the related revenues are recognized.” (Intermediate Accounting, by Chasteen, Flaherty, and O’Conner; McGraw-Hill, Inc.; p.60).
At the end of each month, it is possible to have undeposited cash receipts that are not yet recorded in the general ledger. These cash receipts must then be recorded into the KFS in the current month via an auxiliary voucher accrual entry (AVAE).
Example: On November 30, a cash sale occurred for $900 and a check for $300 was received to be applied against external accounts receivable. The funds were deposited on December 1. An AVAE will be required for November (fiscal period 5) to record the November 30th activity.
|Cash in Transit||8005||$1,200|
|Sales and Services||1500||$900|
Because this is an Accrual Voucher, the AVAE will automatically reverse in December (fiscal period 6), which will offset the actual cash receipt entry recorded in December (fiscal period 6).
Undeposited cash receipts would also include cash that is in transit between a university department and the Bursar’s Office. For example, assume a department receives $1,000 cash on April 30th, creates a cash receipt document the same day, and sends the cash to the Bursar’s Office. On May 1st, the Bursar’s Office deposits the $1,000 into the bank and approves the cash receipt document. Because the cash receipt document was not final approved until May 1st, the cash will not be posted to the general ledger until May. Therefore, the department would need to record an accrual entry to recognize the cash received in April but not posted until the following month.