1. Lecture 30 Chapter 07 Cash Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

2. 1. Describe the nature of cash and the importance of internal control over cash. 2. Summarize basic procedures for achieving internal control over cash receipts. 3. Summarize basic procedures for achieving internal control over cash payments, including the use of a voucher system. 4. Describe the nature of a bank account and its use in controlling cash. 5. Prepare a bank reconciliation

3. Control Over Cash Many companies need several cash accounts to account for different cash categories and funds. Most companies have multiple bank accounts. The title for each bank account should be: Cash in Bank—(Name of Bank) Preventive controls protect cash from theft and misuse of cash. Detective controls are designed to detect theft or misuse of cash and are also preventive in nature.

4. Cash Receipts CASHIER’S DEPARTMENT ACCOUNTING DEPARTMENT Register records Mail Receipts Remittance advices

5. 1 ACCOUNTING DEPARTMENT Deposit ticket Bank CASHIER’S DEPARTMENT Deposit receipt

7. 1.The employee who opens the mail should initially compare the amount received with the amount on the remittance advice. 2.The employee opening the mail stamps checks and money orders “For Deposit Only” in the bank account of the business. 3.All cash is sent to the Cashier’s Department where checks and money orders are combined with receipts from cash sales and a bank deposit ticket is prepared.

8. 4.The remittance advices and their summary totals are delivered to the Accounting Department where a clerk prepares the records of the transactions and posts them to the customer account. 5.The stamped duplicate copy of the deposit ticket is returned to the Accounting Department where a clerk compares the receipt with the total amount that should have been deposited.

9. 1.Cash controls must provide assurance that payments are made for only authorized transactions. 2.Cash controls should ensure that cash is used efficiently. 3. A voucher system provides assurance that what is being paid for was properly ordered, received, and billed by the supplier. Internal Control of Cash Payments

10. Basic Features of the Voucher System

11. A voucher system normally uses vouchers. The system normally has a file for unpaid vouchers and a file for paid vouchers. Usually prepared by the Accounting Department after all necessary supporting documents are received (purchase order, supplier’s invoice, and a receiving report). In preparing the voucher, the accounts payable clerk verifies the quantity, price, and mathematical accuracy of the supporting documents and files the paid voucher.

15. 1.Compare each deposit listed on the bank statement with unrecorded deposits appearing on the preceding period’s reconciliation and with deposit receipts.

16. 2.Compare paid checks with outstanding cheques appearing on the preceding period’s reconciliation and with recorded checks.

17. 3.Compare bank credit memorandums to entries in the journal.

18. 4.Compare bank debit memorandums to entries recording cash payments. 5.List any errors discovered during the preceding steps.

19. BANK Bank’s books Beginning balanceRs. 3,359.78 Depositor’s records Beginning balanceRs. 2,549.99 Power Network Inc. prepares to reconcile the monthly bank statement as of July 31, 2011

20. A deposit of Rs.816.20 did not appear on the bank statement. BANK Bank’s books Beginning balance Rs. 3,359.78 Add deposit not recorded by bank 816.20 Rs. 4,175.98 Depositor’s records Beginning balance Rs. 2,549.99

21. BANK Bank’s books Beginning balance Rs. 3,359.78 Add deposit not recorded by bank 816.20 Rs. 4,175.98 Depositor’s records Beginning balance Rs. 2,549.99 Add note and interest collected by bank 408.00 Rs. 2,957.99 The bank collected a note in the amount of Rs.400 and the related interest of Rs.8 for Power Networking

22. A deposit of $637.02 did not appear on the bank statement. Three cheques that were written during the period did not appear on the bank statement: #812, Rs.1,061; #878, Rs.435.39, #883, Rs.48.60. BANK Bank’s books Beginning balance Rs. 3,359.78 Add deposit not recorded by bank 816.20 Deduct outstanding Cheques: No. 812 1,061.00 No. 878435.39 No. 883 48.60 1,544.99 Rs. 4,175.98 Depositor’s records Beginning balance Rs. 2,549.99 Add note and interest collected by bank 408.00 Rs. 2,957.99

23. BANK Bank’s books Deduct outstanding cheques: No. 8121,061.00 No. 878435.39 No. 883 48.60 1,544.99 Depositor’s records Deduct cheques returned because of insufficient funds Rs. 300.00 Beginning balance Rs. 3,359.78 Add deposit not recorded by bank 816.20 Rs. 4,175.98 Beginning balance Rs. 2,549.99 Add note and interest collected by bank 408.00 Rs. 2,957.99 The bank returned an NSF check from one of the firm’s customers, Thomas, in the amount of Rs. 300. This was a payment on account.

24. Deduct outstanding cheques: No. 8121,061.00 No. 878435.39 No. 883 48.60 1,544.99 Deduct cheque return because of insufficient funds Rs. 300.00 Bank service charges18.00 BANK Bank’s books Beginning balance Rs. 3,359.78 Add deposit not recorded by bank 816.20 Rs. 4,175.98 Depositor’s records Beginning balance Rs. 2,549.99 Add note and interest collected by bank 408.00 Rs. 2,957.99 The bank service charges totaled Rs.18.00.

25. BANK Bank’s books Depositor’s records Beginning balance Rs. 3,359.78 Add deposit not recorded by bank 816.20 Deduct outstanding cheques: No. 8121,061.00 No. 878435.39 No. 883 48.60 1,544.99 Rs. 4,175.98 Beginning balance Rs. 2,549.99 Add note and interest collected by bank 408.00 Deduct cheques return because of insufficient funds Rs. 300.00 Bank service charges18.00 Rs. 2,957.99 Error recording Cheque 879 9.00 Cheque No. 879 for Rs.732.26 to Taylor Co. on account, erroneously recorded in journal as Rs.723.26. 327.00

26. BANK Bank’s books Beginning balance Rs. 3,359.78 Add deposit not recorded by bank 816.20 Deduct outstanding cheque: No. 8121,061.00 No. 878435.39 No. 883 48.60 1,544.99 Rs. 4,175.98 Adjusted balance Rs. 2,630.99 Depositor’s records Beginning balance Rs. 2,549.99 Add note and interest collected by bank 408.00 Deduct cheque return because of insufficient funds300.00 Bank service charges18.00 Rs. 2,957.99 Adjusted balance Rs. 2,630.99 Error recording Cheque No. 879 9.00 327

28. Power Networking Bank Reconciliation July 31, 2011 Balance per bank statement 3,359.78 Add: Deposit not recorded by bank 816.20 4,175.98 Deduct: Outstanding checks No. 812 1,061.00 No. 878435.39 No. 883 48.60 1,544.99 Adjusted balance 2,630.99 Balance per depositor’s records2,549.99 Add: Note and interest collected by bank 408.00 2,957.99 Deduct: NSF check (Thomas ) returned300.00 Bank service charges 18.00 Error in recording Check No. 879 9.00 327.00 Adjusted balance2,630.99

29. Lecture Overview

30. End of Lecture 30