Presentation on theme: "6 - 1 Banking Procedures and Control of Cash Chapter 6."— Presentation transcript:
6 - 1 Banking Procedures and Control of Cash Chapter 6
6 - 2 Internal Control of Cash Internal Control Procedures – separation and rotation of duties – cash receipts deposited daily – setting up a petty cash fund – all other payments made by check – authorization required for activities – checks and other documents prenumbered
6 - 3 Learning Objective 1 Depositing, writing, and endorsing checks for a checking account.
6 - 4 Learning Unit 6-1 Opening a checking account n A signature card is required for validation to protect against forgery and unauthorized signing. n Duplicate deposit tickets are used. n ATM cards and personal identification numbers are protected.
6 - 5 Learning Unit 6-1 Check endorsement What is a check endorsement? n It is the signing or stamping of ones name on the back left-hand side on the check. n Checks must be signed by the person to whom the check is made out.
6 - 6 Learning Unit 6-1 Blank endorsement Full endorsement Types of Endorsements Restrictive endorsement
6 - 7 Learning Unit 6-1 The checkbook n A check is a written order. n The drawer is the one who writes the check. n The drawee is the one who pays the money to the payee (bank).
6 - 8 Learning Unit 6-1 The checkbook n The payee is the one to whom the check is payable. n Write checks properly to ensure that amounts and payee cannot be changed.
6 - 9 Learning Unit 6-1 The bank reconciliation n This is a process that verifies the cash balance in the business records to the ending bank balance for the month. n Deposits in transit are deposits not recorded by the bank before the report (add to the bank balance).
Learning Unit 6-1 The bank reconciliation n Outstanding checks are issued checks that have not yet cleared the bank (subtract from the bank balance). n Service charges are fees charged by a bank (subtract from the bank balance).
Learning Unit 6-1 The bank reconciliation n Nonsufficient funds (NSF) checks are those which are received, deposited in the bank, and returned because the drawer did not have funds in their account (subtract from bank balance). n The check and a collection fee is charged back to the drawer.
Learning Unit 6-1 Terminology n Bank credits are when a bank credits the account, which is an increase to the cash balance in the business. n What are some examples? – bank errors – funds collected by the bank on behalf of the business
Learning Unit 6-1 Terminology n Bank debits are a deduction from the cash balance in the business. n What are some examples? – bank errors – NSFs – service charges
Learning Objective 2 Reconciling a bank statement.
The Bank Reconciliation Process n On August 2, Clara J. Accounting Practice received the Julys bank statement. n It indicated the following: n The bank balance was $25,225. n The bank had collected a note receivable from one of Claras customers in the amount of $1,000.
The Bank Reconciliation Process n The bank paid the electric bill of $300. n There was a $200 check returned for NSF. n Interest earned on the account was $15. n Bank service charges were $6.
The Bank Reconciliation Process n Claras books indicates a cash balance of $26,647. n A deposit of $3,250 was mailed to the bank on June 30. n Checks issued in June for $1,319 have not yet been paid by the bank.
Balance per bank, June 30$25,225 Add deposit in transit 3,250 $28,475 Less outstanding checks 1,319 Adjusted bank balance$27,156 Balance per bank, June 30$25,225 Add deposit in transit 3,250 $28,475 Less outstanding checks 1,319 Adjusted bank balance$27,156 The Bank Reconciliation Process
Balance per books, June 30$26,647 Add: Note receivable collected by the bank 1,000 Interest income 15 $27,662 Less: Payment of electric bill 300 NSF check 200 Service charge 6 Adjusted book balance$27,156 Balance per books, June 30$26,647 Add: Note receivable collected by the bank 1,000 Interest income 15 $27,662 Less: Payment of electric bill 300 NSF check 200 Service charge 6 Adjusted book balance$27,156 The Bank Reconciliation Process
Amounts are the same Balance per books Balance per bank $27,156 $27,156 The Bank Reconciliation Process
Learning Objectives 3 and 4 Establishing and replenishing a petty cash fund; setting up an auxiliary petty cash record. Establishing and replenishing a change fund.
Learning Unit 6-2 Petty cash fund n This is an account used for paying small day-to-day expenses. n The only time petty cash is entered in the journal is to establish the fund (or to change the level of cash in the fund). n Expenses are debited and Cash credited to replenish the fund.
Learning Unit 6-2 What is the entry to record the establishment of a $150 petty cash fund? n Petty Cash 150 Cash in bank 150 To open the petty cash fund
Learning Unit 6-2 Forty dollars were taken out of the petty cash fund for coffee and other miscellaneous expenses. What is the journal entry to record the replenishment of the fund? n Miscellaneous expense 40 Cash in bank 40 To replenish the petty cash fund
Learning Objective 5 Handling transactions involving cash short and over.
Cash Short and Over How are small cash errors recorded? n Beginning change fund +Cash register total =Correct amount of cash –Counted cash =Shortage or overage of cash