1. Chapter 12 – Controls over Cash and Bank Reconciliations
Learning Outcome
This chapter shows how to examine the internal controls over cash and to reconcile bank statements with cash records. .
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

2. KEY TERMS Bank charges Bank reconciliation Bank statement
Credit balance in the bank statement
Debit balance in the bank statement
Direct deposits (direct credits)
Direct payments (direct debits)
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

3. KEY TERMS cont… Electronic payments
Electronic receipts (including EFTPOS)
Government debits tax
Internal control
Outstanding receipts
Unpresented debits (cheques)
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

4. GENERAL INTERNAL CONTROLS
Monies not banked kept in safe areas
Segregation of duties
Rotation of staff duties
Pre-numbered documents used in all transactions
Regular reconciliations of bank accounts, accounts payable and accounts receivable
Clearly defined staff responsibilities and duties
Controls exercised over investments
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

5. INTERNAL CONTROLS OVER CASH RECEIPTS
Bank daily
Record mail receipts in remittance book and stamp ‘A/c payee only’ on cheques
Use pre-numbered receipts and cash register tapes
Account for all documents, including those cancelled
Segregation of duties
Regular bank reconciliations
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

6. INTERNAL CONTROLS OVER CASH PAYMENTS
Payment cheques stamped ‘not negotiable’
Electronic payment software secure and password protected
Pre-numbered cheques and documents used
Payments properly authorised
Segregation of duties
Regular bank reconciliations
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

7. BANK RECONCILIATION AS AN INTERNAL CONTROL
Verifies that balance at bank agrees with cashbook balance
Bank statement extracted from bank records
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

8. ELECTRONIC BANKING Direct deposits Direct debits (payments)
Payments made directly into a bank account of client
Direct debits (payments)
Payments made by bank on behalf of client
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

9. ELECTRONIC BANKING cont…
Software enables 24-hour electronic:
payment of creditors and expenses
payroll transactions
funds transfers between accounts
remittance processing
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

10. ELECTRONIC BANKING cont…
Provides access to:
bank account balances
bank statements
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

11. BANK RECONCILIATION Internal control
Helps detect errors and/or misappropriations
Bank statements compared to the cash records of the business on a regular basis
Ensures all receipts are properly accounted for and banked
Enables recording of bank cheques, direct deposits or payments and interest
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

12. BANK RECONCILIATION cont…
Bank statements and bank reconciliations retained as permanent records
Identifies cheques in Cash payments journal not presented at bank
Identifies dishonoured cheques
Identifies any mathematical errors in cashbooks or bank statements
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

13. BANK RECONCILIATION PROCEDURES
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

14. DISHONOURED CHEQUES Drawer has insufficient funds Cheque unsigned
Incorrect or incomplete information
Appears as a debit on bank statement
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

15. RECONCILIATION CHECKLIST
Check off items common to both bank statement and cash books.
Add to cashbook items on bank statement but not in cashbooks (e.g. bank charges).
Mark outstanding and unpresented items in cashbooks and not on bank statements.
List all o/s deposits and unpresented cheques.
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson

16. RECONCILIATION CHECKLIST cont...
Add o/s deposits to bank statement balance and subtract unpresented cheques if bank statement has a CREDIT balance.
Add unpresented cheques and subtract o/s deposits if bank statement has a DEBIT balance.
The balance calculated should equal cashbook balance.
Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis
By Kaye Watson