6 - 1 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Banking Procedures and Control of Cash Chapter 6

6 - 2 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Internal Control of Cash 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 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 1 Depositing, writing, and endorsing checks for a checking account.

6 - 4 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-1 (Bank Procedures) Signature card Duplicate deposit tickets ATM cards and personal identification numbers are protected.

6 - 5 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-1 (Bank Procedures) It is the signing or stamping of one’s name on the back left-hand side on the check.

6 - 6 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-1 (Bank Procedures) Blank endorsement Full endorsement Restrictive endorsement

6 - 7 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-1 (Bank Procedures) 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). DrawerDraweeBank

6 - 8 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-1 (Bank Procedures) The payee is the one to whom the check is payable. Write checks properly to ensure that amounts and payee cannot be changed.

6 - 9 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-1 (Bank Procedures) The bank reconciliation is the process that verifies… the business records cash balance, and the bank statement ending cash balance.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-1 (Bank Procedures) Items that cause differences between the bank balance and the book balance. A. Items recorded by the company but not yet recorded by the bank: recorded by the bank: – Deposits in transit – Deposits in transit – Outstanding checks – Outstanding checks

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-1 (Bank Procedures) B. Items on a bank statement but not recorded by the business: recorded by the business: – Bank credits – Bank credits – Electronic funds transfers – Electronic funds transfers – Service charge – Service charge – Interest revenue earned on account – Interest revenue earned on account – NSF checks – NSF checks – Errors – Errors

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 2 Reconciling a bank statement.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Bank Reconciliation Process The bank statement of Debbie Wholesale Co. shows a balance of $6,919 on April 30. The balance of the Cash account on the ledger has a balance of $7,330.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Bank Reconciliation Process 1. The April 27 and 30 deposits of $500 and $1,200 do not appear on the bank statement. $1,200 do not appear on the bank statement. 2. The bank charged $5 as service charges. 3. Two checks have not been paid by the bank. the bank.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The Bank Reconciliation Process Check No. Amount Check No. Amount 4$ Total$1,294

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Balance per bank, April 30$6,919 Add deposit in transit 1,700 $8,619 Less outstanding checks 1,294 Adjusted bank balance$7,325 The Bank Reconciliation Process

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Balance per books, April 30$7,330 Deduct service charge 5 Adjusted book balance$7,325 The Bank Reconciliation Process Balance per books Balance per bank These amounts are the same.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater 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.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-2 (The Establishment of Petty Cash) 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.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-2 (The Establishment of Petty Cash) Debbie Wholesale Co. General Journal Page 1 Date Account Title and Description PRDr.Cr. 200x May 1 Petty Cash Cash Cash Establishment of fund 6060

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-2 (The Establishment of Petty Cash) DateItem Cost DateItem Cost 2Cleaning package$ Cleaning package$ Postage stamps$ Postage stamps$ First-aid supplies$ First-aid supplies$ Delivery expense$ Delivery expense$ Delivery expense$ Delivery expense$ Postage stamps$ Postage stamps$ 6.00 Total$54.00 Petty cash items documented by vouchers for the May 200x:

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-2 (The Establishment of Petty Cash) Debbie Wholesale Co. General Journal Page 1 Date Account Title and Description PRDr.Cr. 200x May 31 Various Expenses Cash Cash Replenishment of fund 5454

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 5 Handling transactions involving cash short and over.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 6-2 (The Establishment of Change Fund) Debbie Wholesale Co. General Journal Page 1 Date Account Title and Description PRDr.Cr. 200x Apr 1 Change Fund Cash Cash Establish change fund

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Cash Short and Over If there is a shortage… Cash Short and Over is debited. If there is an overage… Cash Short and Over is credited.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater End of Chapter 6