1. Prepared by: Gabriela H. Schneider, CMA; Grant MacEwan College INTERMEDIATE ACCOUNTING INTERMEDIATE ACCOUNTING Sixth Canadian Edition KIESO, WEYGANDT, WARFIELD, IRVINE, SILVESTER, YOUNG, WIECEK

2. C H A P T E R 7 Appendix 7A Cash Controls

3. Learning Objectives 1.Explain common techniques employed to control cash.

4. Using Bank Accounts Using different bank accounts for different purposes –General account Used for day-to-day activities –Imprest bank accounts Used for specific purposes –Lockbox accounts Used for collections in subsidiary locations Arrangements made with a local bank to pick-up and deposit funds received Allows for quicker collection, and availability of cash

5. Imprest Petty Cash System Designed for disbursements where payment by cheque is impractical Control processes/procedures include the following –Designate a petty cash custodian –Custodian is responsible to get a receipt for each authorized disbursement –Custodian prepares a summary of petty cash receipts and disbursements each time the fund requires reimbursement –Cheque is prepared, and transactions recorded, by someone other than the custodian

6. Imprest Petty Cash System Cash Over and Short account used when the Petty Cash fund summary does not balance Additional control procedures include: 1.Unscheduled fund counts made to ensure fund balance is maintained 2.Receipts are destroyed or marked (after being submitted for reimbursement) in some way to ensure they cannot be used again At any given time, the balance in the fund should equal the receipts plus the cash on hand

7. Imprest Petty Cash System A petty cash fund is established for $300.00. A cheque is issued (for cash), with the following entry made: Petty Cash300 Cash (Bank)300 No entries are required when petty cash disbursements are made.

8. Imprest Petty Cash System This is used when the fund is low enough to warrant a cheque being issued, or it is the end of an accounting period. The following disbursements were made: Office Supplies$ 42 Postage 53 Entertainment 76$171 Total The custodian counts the cash and finds there is $127.00. $300.00 - $171.00 = $129.00 The fund is $2.00 short. The $2.00 difference is considered Cash Over and Short, after the custodian has ensured that all receipts and cash have been accounted for.

9. Imprest Petty Cash System A cheque is written for the required amount of $173.00 ($171.00 + $2.00). The entry to record the cheque: Office Supplies Expense42 Postage Expense53 Entertainment Expense76 Cash Over and Short 2 Cash (Bank)173 What would the entry have been if it was decided to increase the fund to $350.00?

10. Reconciliation of Bank Balances Ensures that there are no errors Ensures no omissions have occurred during the month Ensures unusual transactions are properly recorded Should not be completed by the same person who writes cheques or completes the deposits

11. Bank Reconciliation – Reconciling Items 1.Deposits in Transit: deposits that have been recorded in the books of account, but not yet by the bank 2.Outstanding Cheques: cheques that have been recorded in the books of account, but have not yet cleared the bank 3.Bank Charges: service, and other charges, made by the bank, but not yet recorded in the books of account 4.Bank Credits: collections or deposits made by the bank, but not yet recorded in the books of account 5.Bank or Depositor Errors: any unrecorded errors, by either the bank or the company

12. Bank Reconciliation – Form and Content Balance per bank statement (end of period)$$$ Add:Deposits in transit$$ Undeposited receipts$$ Bank errors$$ $$ $$$ Deduct:Outstanding cheques$$ Bank errors$$ $$ Correct cash balance$$$ Balance per depositor’s books$$$ Add:Unrecorded bank credits$$ Book errors$$ $$ $$$ Deduct:Unrecorded bank charges$$ Book errors$$ $$ Correct book balance$$$

13. Bank Reconciliation Adjusting journal entries prepared for all items appearing in the depositor’s book section Any bank errors should be raised with the bank immediately

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