1. Accounting Practices 501 Chapter 7 Cash Controls and Bank Reconciliation Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011

2. Cash control procedures All cash and cheques received should be banked intact. Keep as little cash as possible. All payments should be made by cheques except small payments. Keep a petty cash fund for small payments. Bank reconciliation should be done. Segregation of duties. Rotation of duties. Cash register.

3. Bank Reconciliation Ch7A - Bank Recon 3 Each month a business will receive a bank statement from the bank The balance of the Bank Statement will normally not be the same as the balance in the business’s Bank account in the General Ledger, due to various reasons: Unpresented cheques Outstanding deposits Automatic payments Bank charges Dishonoured cheques Errors A Bank Reconciliation then needs to be prepared

4. Bank Reconciliation Ch7A - Bank Recon 4 Let’s look at an example The following is a very simplified reconciliation as the slides have limited space

5. Ch7A - Bank Recon 5 Cash Sales100 Acc Receiv300 Cash Sales500 Cash Sales700 Cash Sales900 Teleph (#12)200 Purch (#13)400 Acc Pay (#14)600 Cash Receipts Journal (June) Cash Payments Journal (June) Bank Bank reconciliation as at 31 May Balance as per Bank statement$200 Less Unpresented cheq #10 50 Balance as per Gen Ledger Bank acct$150 We have the Cash Receipts Journal (CRJ), the Cash Payments Journal (CPJ) and the previous Bank Reconciliation of the business as well as the Bank Statement received from the bank Opening bal $200 Deposit100 Chq #1050 Chq #12200 Interest150 Deposit300 Chq #13400 Deposit500 Insurance450 Dish cheq120 Deposit700 Bal $730 Cr Bank Statement (30 June) Money in Money out

6. Ch7A - Bank Recon 6 Cash Sales100 Acc Receiv300 Cash Sales500 Cash Sales700 Cash Sales900 Teleph (#12)200 Purch (#13)400 Acc Pay (#14)600 Cash Receipts Journal (June) Cash Payments Journal (June) Bank Bank reconciliation as at 31 May Balance as per Bank statement$200 Less Unpresented cheq #10 50 Balance as per Gen Ledger Bank acct$150 The Bank Statement has to be compared to the two cash journals to find items that do not yet appear in the journals and to find items that do not yet appear in the Bank Statement. We do that by ticking off the items from the Bank Statement. Let’s start with comparing Money In to the Cash receipts journal Opening bal $200 Deposit100 Chq #1050 Chq #12200 Interest150 Deposit300 Chq #13400 Deposit500 Insurance450 Dish cheq120 Deposit700 Bal $730 Cr Bank Statement (30 June) Money in Money out  

7. Ch7A - Bank Recon 7 Cash Sales100 Acc Receiv300 Cash Sales500 Cash Sales700 Cash Sales900 Teleph (#12)200 Purch (#13)400 Acc Pay (#14)600 Cash Receipts Journal (June) Cash Payments Journal (June) Bank Bank reconciliation as at 31 May Balance as per Bank statement$200 Less Unpresented cheq #10 50 Balance as per Gen Ledger Bank acct$150 Opening bal $200 Deposit100 Chq #1050 Chq #12200 Interest150 Deposit300 Chq #13400 Deposit500 Insurance450 Dish cheq120 Deposit700 Bal $730 Cr Bank Statement (30 June) Money in Money out   The $150 on the Bank Statement does not appear in the CRJ Add it to the Cash Receipts Journal Interest150

8. Ch7A - Bank Recon 8 Cash Sales100 Acc Receiv300 Cash Sales500 Cash Sales700 Cash Sales900 Teleph (#12)200 Purch (#13)400 Acc Pay (#14)600 Cash Receipts Journal (June) Cash Payments Journal (June) Bank Bank reconciliation as at 31 May Balance as per Bank statement$200 Less Unpresented cheq #10 50 Balance as per Gen Ledger Bank acct$150 Opening bal $200 Deposit100 Chq #1050 Chq #12200 Interest150 Deposit300 Chq #13400 Deposit500 Insurance450 Dish cheq120 Deposit700 Bal $730 Cr Bank Statement (30 June) Money in Money out   Interest150 Now we can tick off the Interest amount and the rest ^ ^      

9. Ch7A - Bank Recon 9 Cash Sales100 Acc Receiv300 Cash Sales500 Cash Sales700 Cash Sales900 Teleph (#12)200 Purch (#13)400 Acc Pay (#14)600 Cash Receipts Journal (June) Cash Payments Journal (June) Bank Bank reconciliation as at 31 May Balance as per Bank statement$200 Less Unpresented cheq #10 50 Balance as per Gen Ledger Bank acct$150 Opening bal $200 Deposit100 Chq #1050 Chq #12200 Interest150 Deposit300 Chq #13400 Deposit500 Insurance450 Dish cheq120 Deposit700 Bal $730 Cr Bank Statement (30 June) Money in Money out   Interest150 ^ ^       Now we can compare Money Out to the Cash payments journal      

10. Ch7A - Bank Recon 10 Cash Sales100 Acc Receiv300 Cash Sales500 Cash Sales700 Cash Sales900 Teleph (#12)200 Purch (#13)400 Acc Pay (#14)600 Cash Receipts Journal (June) Cash Payments Journal (June) Bank Bank reconciliation as at 31 May Balance as per Bank statement$200 Less Unpresented cheq #10 50 Balance as per Gen Ledger Bank acct$150 Opening bal $200 Deposit100 Chq #1050 Chq #12200 Interest150 Deposit300 Chq #13400 Deposit500 Insurance450 Dish cheq120 Deposit700 Bal $730 Cr Bank Statement (30 June) Money in Money out   Interest150 ^ ^             The Insurance and dishonoured cheque need to be entered into the Cash Payments Journal Insurance450 Dish cheq120

11. Ch7A - Bank Recon 11 Cash Sales100 Acc Receiv300 Cash Sales500 Cash Sales700 Cash Sales900 Teleph (#12)200 Purch (#13)400 Acc Pay (#14)600 Cash Receipts Journal (June) Cash Payments Journal (June) Bank Bank reconciliation as at 31 May Balance as per Bank statement$200 Less Unpresented cheq #10 50 Balance as per Gen Ledger Bank acct$150 Opening bal $200 Deposit100 Chq #1050 Chq #12200 Interest150 Deposit300 Chq #13400 Deposit500 Insurance450 Dish cheq120 Deposit700 Bal $730 Cr Bank Statement (30 June) Money in Money out   Interest150 ^ ^             Insurance450 Dish cheq120 Now we can tick the Insurance and Dishonoured cheque ^ ^ ^ ^

12. To be continued …… Ch7A - Bank Recon 12