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The New Approach – Banking
Maintaining Investment Records
Author: Steve L. Seawall, CPA Copyright 2015 Custom Micro Works All rights reserved
Revised 7/13/2015
What Are Investments?
For most small cities, investments consist entirely of certificates of deposit (CDs). For that reason this paper will focus on how to maintain records in NA for investments in certificates of deposit (CDs).
Maintaining Investment Records Part of Month-End Reconciliation Procedures
Maintaining investment records is critical part of the month-end budgetary accounting reconciliation procedures. For this reason, all moneys held in near-cash investments must be included in the NA investment records. Of course, probably all of your investments will be certificates of deposits (CDs).
Entering CDs and tracking them in NA can be confusing at first. Probably the hardest part to understand is how to record matured interest income when a CD is renewed or cashed in. Other problems include how to handle the purchase of a CD and how to handle the cash when a CD is cashed in.
Here are a few suggestions to avoid problems:
· Purchasing a new investment (CD). When you purchase a CD DO NOT create a check in the accounting system for it. If you issue a check in the accounting system for the CD, the cash balance of a fund (e.g., general fund) will be reduced and the purchase will be recorded as an expenditure which will then be charged to the budget.
Important: The purchase of a CD does not reduce the cash balance of any fund AND is not an expenditure chargeable to any budget!
When you purchase a CD, go directly to the bank, make a withdrawal, and use the withdrawal proceeds to purchase the CD.
· When you cash in a CD, DO NOT enter a cash receipt. Instead you should simply have the bank deposit the proceeds into the checking account.
There is a big problem with this advice however. Because the interest income earned on the matured CD is “new” money to the city, that amount should be entered in the accounting system as a cash receipt.
If you have any questions about how to handle this transaction, please contact technical support.
· When a matured CD is renewed as a CD, it is important to record the related interest income in the accounting system. How you record that cash receipt depends on whether the interest income is deposited into the checking account or added to the renewed CD.
If you have any questions about how to handle this transaction, please contact technical support.
Transaction: Purchase of a CD Using a Bank Account Withdrawal
Caution: Remember the purchase of a CD is not an expenditure in the fund accounting system. Therefore you should not create a check for the purchase in Budgetary Accounting.
· Select Banking/Investments and CDs
· Click on Enter New Investment
· Enter Required Information
1) Transaction Date: enter the date the CD was purchased or renewed (see bank statement)
2) Select Bank: select the bank issuing the CD
3) Certificate Number: Enter the certificate number. At the end of the number add the following characters: _1. If the bank typically renews your CDs, the next renewal will have the same certificate number but you will add _2, and so on for each renewal.
4) Previous Certificate Number: This applies only to a renewal, in which case you would enter the same certificate number, but would also add the number at the end incremented by one.
5) Description: Enter a description for the CD. For part of the description it might be helpful to include the maturity period (e.g., six months).
6) Investment Amount: Enter the principal amount of the CD.
7) Click on OK.
· Select Banking/Deposits and Withdrawals
· Click on Enter a Withdrawal
· Enter Required Information
Transaction: Redemption of a Matured CD
When the CD reaches its maturity, the CD is redeemed. However, the redemption procedure will vary depending on the circumstances, each of which is discussed below.
· Redemption Case 1: CD is renewed and interest earned is added to the “renewed” CD.
1) Select Banking/Investments and CDs
2) Click on Redeem an Investment
3) Enter the Transaction Date. Use the maturity date of the CD.
4) Highlight the matured CD in the listing.
5) Click on OK.
6) Enter the “renewed” CD as a new investment as explained above.
7) Select BA/Cash Receipt Adjustments
8) Add a new cash receipt adjustment for the amount of the interest earned and use the CD maturity date as the transaction date.
· Redemption Case 2: CD is renewed and interest earned is not added to the “renewed” CD. Instead, the interest is placed in the city’s checking account automatically by the bank.
1) Select Banking/Investments and CDs
2) Click on Redeem an Investment
3) Enter the Transaction Date. Use the maturity date of the CD.
4) Highlight the matured CD in the listing.
5) Click on OK.
6) Enter the “renewed” CD as a new investment as explained above.
Note: The Investment Amount will be the principal on the previous CD.
7) Select BA/Cash Receipts
8) Add a new cash receipt for the amount of the interest earned and use the CD maturity date as the transaction date. Enter this receipt just as you would any other cash receipt.
· Redemption Case 3: CD is not renewed and both principal and interest is placed in the city’s checking account automatically by the bank.
1) Select Banking/Investments and CDs
2) Click on Redeem an Investment
3) Enter the Transaction Date. Use the maturity date of the CD.
4) Highlight the matured CD in the listing.
5) Click on OK.
6) Select Banking/Deposits and Withdrawals
7) Click on Enter a Deposit.
8) Enter the Transaction Date. Use the date the CD was redeemed.
9) Select Bank: Select the bank issuing the CD
10) Amount of Deposit: Enter the principal amount of the CD as the deposit amount.
Note: The interest amount will be entered as a cash receipt, and thus, be “deposited” in the computer like other cash receipts. The principal amount of the CD is not a cash receipt, and thus, this deposit under the Banking menu.
11) Click on OK.
12) Select BA/Cash Receipts. Enter a cash receipt like any other cash receipt and deposit it into the bank account the bank placed the interest in.