© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Banking Procedure and Control of Cash Chapter 6

Learning Objective 1 Depositing, writing, and endorsing checks for a checking account © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Internal Control System of procedures and methods to control a firm’s assets as well as monitor its operations © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Internal Control Examples Responsibilities and duties of employees are divided All cash receipts are deposited into the bank on a daily basis All cash payments are made by check Employees are rotated All checks are authorized for payment © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Internal Control Examples At time of payment, all invoices or documents are stamped “paid” All checks are pre-numbered The monthly bank statement is sent to and reconciled by someone other than the employees who handle, record, and/or deposit cash © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Checking Account: Getting Started Signature Card - verifies the authenticity of the signature on all checks Deposit Slip - form used when making deposits ◦ Lists each check individually ◦ Lists total amount of currency, coins & checks being deposited Debit Card - carries MasterCard/Visa logo ◦ Use anywhere MasterCard/Visa are accepted ◦ Amount of purchase is deducted directly from the checking account © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Checking Account: Check Endorsement Endorsement – signing or stamping of one’s name on back side of check Payee has transferred the right to deposit or cash the check to someone else © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Checking Account: Check Endorsement Types ◦ Blank endorsement – does not specify that a particular entity must endorse it ◦ Full endorsement – entity signing the back of the check indicates the name of the entity to whom the check is to be paid ◦ Restrictive endorsement – stamped for deposit only © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Checking Account: Checkbook Check – written order signed by drawer instructing a drawee to pay specific sum of money to payee Cancelled Checks - have been processed by the bank and are no longer negotiable © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-1

Learning Objective 2 Reconciling a bank statement © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

Bank Reconciliation Process of reconciling the checkbook balance with the bank balance given on the bank statement ◦ Deposits in transit ◦ Outstanding checks ◦ Service charges ◦ Nonsufficient funds © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

Bank Reconciliation Checkbook balance Add: Deduct: (Service Charges, NSF Checks) Reconciled balance Bank balance Add: Deposits in Transit Deduct: Outstanding Checks Reconciled balance © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

Exercise 6-1 Bank balance$1200 Add: Deposits in transit900 $2,100 Deduct: Outstanding checks678 Reconciled balance$1,422 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

Exercise 6-1 Checkbook balance$1,500 Deduct: Bank service charge40 NSF check38 Reconciled balance$1,422 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

Exercise 6-1 Bank balance $1200 Add: Deposits in transit 900 $2,100 Deduct: Outstanding checks 678 Reconciled balance$1,422 Checkbook balance $1,500 Deduct: Bank service charge 40 NSF check 38 Reconciled balance$1,422 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-2

Learning Objective 3 Establishing and replenishing a petty cash fund; setting up an auxiliary petty cash record © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

Petty Cash Fund Account dedicated to paying small day-to- day expenses Asset account, normal debit balance Custodian – oversees the fund © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

Petty Cash Vouchers ◦ Filled out each time a payment is made from petty cash fund ◦ Sequentially numbered Contains: -Voucher # -2 signatures -Date -Account to be charged -Amount -Reason -Person/Company to whom payment is made © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

Establish Petty Cash Fund © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal Page 8 DateAccount Titles and DescriptionPRDr.Cr. May 1 Petty Cash 100 Cash 100 Petty Cash LO-3 Establish a petty cash fund

Making Payments © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Petty Cash Voucher No. 15 Date: _________________Amount: ________________ Paid to: _______________ For: ___________________ Approved by: ____________ Payment received by: _____________ Debit Account No.: _________ Sept. 6, 200X$10.83 Foster’s Office Supply Office Supplies Sharon Kahl Carol Miller Office Supplies Expense – Account No LO-3

Making Payments © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

Auxiliary Petty Cash Record Supplementary record for summarizing petty cash information Not required, but is helpful part of petty cash system © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

Replenish Petty Cash Using information on vouchers, record expenses in journal A new check is cashed for total amount of expenses Cash is placed in petty cash box © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-3

Replenish Petty Cash Fund © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal Page 8 DateAccount Titles and DescriptionPRDr.Cr May 31 Postage Expense Supplies Expense Miscellaneous Expense Cash LO-3 Replenish petty cash fund

Exercise 6-2 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal DateAccount Titles and Description PRDr.Cr. July 1 Petty Cash Fund 100 Cash 100 To establish the fund LO-3

Exercise 6-2 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal DateAccount Titles and Description PRDr.Cr. July31Donations Expense 20 Postage Expense 18 Office Supplies Expense 25 Miscellaneous Expense 25 Cash 88 To replenish petty cash fund LO-3

Learning Objective 4 Establishing and replenishing a change fund © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-4

Change Fund Fund made up of various denominations that are used to make change for customers Remains the same amount one business day to the next © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater DateAccount Titles and Description PRDr.Cr. 120 May 1 Change Fund Cash LO-4 Establish change fund

Learning Objective 5 Handling transactions involving cash short and over © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-5

Cash Short and Over Account that records cash shortages and overages If ending balance is a debit – recorded on income statement as miscellaneous expense If ending balance is a credit – recorded on income statement as miscellaneous revenue © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-5

Cash Short and Over If there is a cash shortage: © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal DateAccount Titles and Description PRDr.Cr Sales 550 Record sales and shortage May 13 Cash Cash Short and Over LO-5

Cash Short and Over If there is a cash overage: © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal DateAccount Titles and Description PRDr.Cr. Record sales and May 13 Cash 600 Cash Short and Over 50 Sales 550 LO-5 overage

Exercise 6-5 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal DateAccount Titles and DescriptionPRDr.Cr. Record sales and May 13 Cash 1,126 Cash Short and Over 74 Sales 1,200 LO-5 shortage

Exercise 6-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater General Journal DateAccount Titles and DescriptionPRDr.Cr. July31Donations Expense20 Postage Expense18 Office Supplies Expense25 Miscellaneous Expense25 Cash Short and Over1 Cash89 Replenish petty cash LO-5

Exercise 6-4 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater LO-5 General Journal DateAccount Titles and DescriptionPRDr.Cr. July31Donations Expense20 Postage Expense18 Office Supplies Expense25 Miscellaneous Expense25 Cash Short and Over1 Cash87 Replenish petty cash

© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater End of Chapter 6