Running Head for Financial Accounting 1

Allama Iqbal Open University,

Islamabad
(Department of Business Administration)

ASSIGNMENT No. 2
Course: Financial Accounting
Level: M.Sc. Administrative Sciences
Semester: Autumn 2019
Submitted to:
Hamid Ali
Submitted by:
Muhammad Zeeshan Zia
Roll no#:
BY549268
Running Head for Financial Accounting 2

Accounting for Cash & Short-term Investment

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Acknowledgement: -
I would like to express my special thanks of appreciativeness to my teacher who gave
me the excellent chance to do this pleasing project on the theme "Accounting for
Cash and Short -Term Investment"–. They have helped me in doing Research and
I came to think about such a significant number of new things. Besides, I might
likewise want to thank my fallows and companions who helped me a lot in settling
this responsibility inside the constrained period.

Abstract: -
Running Head for Financial Accounting 4

Cash management refers to a broad area of finance involving the collection,

handling, and usage of cash. This study examines the accounting information as
management of cash and short-term investment by obtaining information from a
business organization. On a periodic basis i.e. daily, received card charges, check,
securities and deposit transactions for the ensemble of account participants are
verified and employed to compute an updated credit limit for each subscriber. In
accordance with one aspect of the present invention, the short-term investments
available to subscribers include an ordered ensemble of insured savings accounts.
For this purpose, I collect data from envieda pest management pvt. limited. The
results indicate that individual investors with higher educational qualifications have
more intentions for short- term investments as compared to the investors with lower
and other qualifications.

Table of Contents Page

Running Head for Financial Accounting 5

Acknowledgement 3
Abstract 4
Introduction &significance 6
Literature Review 12
Issues in Pakistan's Education System 15
Recommendations 24
Conclusions 27
Annexes 29
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In general, cash management is defined as the collection and concentration as well as

payment of cash. Short-term investments, also known as marketable securities or
temporary investments, are those which can easily be converted to cash, typically
within 5 years. Its aim is to handle an enterprise’s cash balances in a manner that
helps to avoid insolvency and also maximizes availability of money not invested in
inventories or assets that are fixed. Many researchers have discussed the investors'
behavior and tried to enhance the understanding of people managing investments in
different ways. If we go through the available literature, it is mainly personal
characteristics that influence investment decisionchological factors and individuals'
behavior at the time of investment decision been under discussion. Factors that are
monitored as a part of the process include liquidity level of a company, its
management of balances and strategies for short-term investment.

Financial literacy

short-term opennes to experience

Investment
decision
accounting information

information assmytry

Effective cash handling necessitates more than just mere prevention of bankruptcy. It
also includes augmentation of profitability in addition to reduction of risks that a
Running Head for Financial Accounting 7

company is exposed to. Problems can arise even when there are plenty of clients, a

good industry reputation and products superior to that of competitors. The major
expenses of a business are usually incurred via provision of its services or goods
production. Measuring liquidity — money present for meeting the current obligations
— is the first step. There is, however, a tradeoff in between profitability and liquidity
that discourages companies from having too much liquidity.
Goals of Cash Management:
the primary goal of cash management in a firm is to trade-off between liquidity and
profitability in order to maximize long-term profit.
(i) To satisfy day-to-day business requirements;
(ii) To provide for scheduled major payments;
(iii) To face unexpected cash drains;
(iv) To seize potential opportunities for profitable long-term investment;
(v) To meet requirements of bank relationships;
(vi) To build image of creditworthiness;
(vii) To earn on cash balance;
(viii) To build reservoir for net cash inflow till the availability of better use of funds
by conscious planning;

Functions of Cash Management:

So as to achieve the objectives stated above, a finance manager has to ensure that
investment in cash is efficiently utilized. For that matter, he has to manage cash
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collections and disbursements efficaciously, determine the appropriate working cash

balances and invest surplus cash. 
Efficient cash management function calls for cash planning, evaluation of benefits
and costs, evaluation of policies, procedures and practices and synchronization of
cash inflows and outflows.

Data collection method:

Before submitting the report, all the matters were fully explained to the respondents
in order to create suitability in filling the report and achieve relevant comebacks.
After data collection, it was implied and entered in MS-excel sheet for the analysis.
 Running Head for Financial Accounting 9

Big & Co. Ltd. is a company with an authorized capital of Rs. 5,00,000 divided into
5,000 ordinary shares of Rs. 100 each. On 31.12.1992, 2500 shares were fully called
and paid up. The following are the valances extracted form the ledger of the
company as on 31.12.1992.
Particulars Amount Particulars Amount
Stock 50,000 Advertisement 3,800
Sales 4,25,000 Bonus 10,500
Purchase 3,00,000 Debtor 38,700
Wages 70,000 Creditors 35,200
Discount Allowed 4,200 Plant & Machinery 80,500
Discount Received 3,150 Furniture 17,100
Insurance upto 31.3.1993 6,720 Cash at Bank 1,39,700
Salaries 18,500 Reserve 25,000
Rent 6,000 Loan from Managing Director 15,700
General Expenses 8,950 Bad Debts 3,200
Profit & Loss a/c 6,220
Printing & Stationary 2,400

You are required to prepare trading and profit and loss account for the year ended
31.12.1992 and the balance sheet as on that date of the company. The following
further information is given:
1) Closing stock Rs. 91,500.
2) Depreciation to be charged on plant and furniture at 15% and 10%
respectively.
3) Outstanding liabilities: Wages Rs. 5,200; Salary Rs. 1,200 and Rent, Rs. 600.
4) Dividend at 5% on paid up share capital to ve provided.
Solution:
Big & Co Ltd.
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Trading and Profit & Loss Account

For the year ended 31st December, 1992
Particulars Rs. Particulars Rs.
Stock 50000 Sales 425000
Purchase 300000 Closing Stock 91500
Wages 75200
Gross Profit c/d 91300
516500 516500

Salaries 19700 Gross Profit b/d 91300

Discount Allowed 4200 Discount Received 3150
Insurance 6720
Less Prepaid 1680 5040
Rent 6600
General expenses 8950
Printing & Stationary 2400
Advertisement 3800
Bonus 10500
Bad debts 3200
Depreciation:
Furniture 1710
Plant & Machinery 12075
Net profit transferred to App. a/c. 16275
94450 94450
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Profit & Loss Appropriation Account

Proposed dividend 12500 Net profit this year 16275

Balance c/d 9995 Balance from last year 6220
22495 22495

Balance Sheet of Big & Co. Ltd as on Dec. 31, 1993

Liabilities Rs. Assets Rs.
Share Capital & Reserves: Fixed Assts
Authorized share Capital Plant & Machinery 80500
5000 shares of Rs.100 each. 500000 Less Depreciation 12075 68425
Issued, subscribed & Paid up capital Furniture 17100
25000 shares of Rs.100 each fully Less Depreciation 1710 15390
paid-up 250000
Reserves: Current Assets:
Reserve 25000 Stock (assumed at cost) 91500
Profit & Loss A/c 9995 Debtor 38700
Cash at bank 139700
Prepaid Insurance 1680
Current Liabilities:
Loan from managing director 15700
Creditor 35200
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Expenses outstanding 7000

Proposed Dividend 12500
3,55,395 3,55,395

strength
 Easy to Understand: Cash basis accounting tends to be
simpler to understand than other accounting methods
 Shows Cash Flow: The cash method most resembles a cash
flow statement. It provides an accurate picture of how much
cash your business actually has on-hand.
 Single-Entry System: The cash method can be done with a
simple single-entry system, so a complex accounting program is
not always necessary. This is, however, also one of its
drawbacks, which is outlined below.

Weaknesses
 Single-Entry System: While the simplicity of the single-
entry system needed for the cash method is an advantage, it is
also a disadvantage. The accrual method necessitates the use of
a double-entry system, which is based on accounting equations.
This system provides far greater control of transaction posting,
and reduces the chance of errors.
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 Short-Term Indicator: While it does indicate the cash flow

of a business, it may offer a misleading picture of longer-term
profitability. The cash method doesn’t show income that has
been invoiced but not received. Furthermore, it doesn’t take
future expenses into account. It can also be misleading.
 Restrictions: According to the IRS, you cannot use the cash
method if your business maintains inventory, is a corporation, or
has gross receipts in excess of five million dollars per year.
 While cash basis accounting may be more simplistic, it may
also limit you from making more predictive decisions for your
business.