Presentation on theme: "Banking Procedures and Control of Cash"— Presentation transcript:
1Banking Procedures and Control of Cash Chapter 62
2Internal Control of Cash Internal Control Proceduresseparation and rotation of dutiescash receipts deposited dailysetting up a petty cash fundall other payments made by checkauthorization required for activitieschecks and other documents prenumbered4
3Depositing, writing, and endorsing checks for a checking account. Learning Objective 1Depositing, writing, and endorsingchecks for a checking account.4
4Opening a checking account Learning Unit 6-1Opening a checking accountA signature card is required for validation to protect against forgery and unauthorized signing.Duplicate deposit tickets are used.ATM cards and personal identification numbers are protected.5
5Learning Unit 6-1 Check endorsement What is a check endorsement? It is the signing or stamping of one’s name on the back left-hand side on the check.Checks must be signed by the person to whom the check is made out.6
6Restrictive endorsement Learning Unit 6-1Types of EndorsementsBlank endorsementFull endorsementRestrictive endorsement
7Learning Unit 6-1 The checkbook A check is a written order. The drawer is the one who writes the check.The drawee is the one who pays the money to the payee (bank).7
8Learning Unit 6-1 The checkbook The payee is the one to whom the check is payable.Write checks properly to ensure that amounts and payee cannot be changed.7
9The bank reconciliation Learning Unit 6-1The bank reconciliationThis is a process that verifies the cash balance in the business records to the ending bank balance for the month.Deposits in transit are deposits not recorded by the bank before the report (add to the bank balance).
10The bank reconciliation Learning Unit 6-1The bank reconciliationOutstanding checks are issued checks that have not yet cleared the bank (subtract from the bank balance).Service charges are fees charged by a bank (subtract from the bank balance).
11The bank reconciliation Learning Unit 6-1The bank reconciliationNonsufficient 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).The check and a collection fee is charged back to the drawer.
12Learning Unit 6-1 Terminology Bank credits are when a bank credits the account, which is an increase to the cash balance in the business.What are some examples?bank errorsfunds collected by the bank on behalf of the business
13Learning Unit 6-1 Terminology Bank debits are a deduction from the cash balance in the business.What are some examples?bank errorsNSFsservice charges
14Reconciling a bank statement. Learning Objective 2Reconciling a bank statement.4
15The Bank Reconciliation Process On August 2, Clara J. Accounting Practice received the July’s bank statement.It indicated the following:The bank balance was $25,225.The bank had collected a note receivable from one of Clara’s customers in the amount of $1,000.
16The Bank Reconciliation Process The bank paid the electric bill of $300.There was a $200 check returned for NSF.Interest earned on the account was $15.Bank service charges were $6.
17The Bank Reconciliation Process Clara’s books indicates a cash balance of $26,647.A deposit of $3,250 was mailed to the bank on June 30.Checks issued in June for $1,319 have not yet been paid by the bank.
18The Bank Reconciliation Process Balance per bank, June 30 $25,225Add deposit in transit , $28,475Less outstanding checks ,319Adjusted bank balance $27,156
19The Bank Reconciliation Process Balance per books, June 30 $26,647Add:Note receivablecollected by the bank ,000Interest income$27,662Less:Payment of electric billNSF checkService chargeAdjusted book balance $27,156
20The Bank Reconciliation Process Balance per books Balance per bank$27, $27,156Amounts are the same
21Learning Objectives 3 and 4 Establishing and replenishinga petty cash fund; setting upan auxiliary petty cash record.a change fund.4
22Learning Unit 6-2 Petty cash fund This is an account used for paying small day-to-day expenses.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).Expenses are debited and Cash credited to replenish the fund.
23Learning Unit 6-2What is the entry to record the establishment of a $150 petty cash fund?Petty Cash Cash in bank To open the petty cash fund
24Learning Unit 6-2Forty 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?Miscellaneous expense Cash in bank To replenish the petty cash fund
25Handling transactions involving Learning Objective 5Handling transactions involvingcash short and over.4
26Cash Short and Over How are small cash errors recorded? Beginning change fundCash register totalCorrect amount of cashCounted cashShortage or overage of cash