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CHAPTER 6 – CHAPTER 6 – CASH CONTROL CASH CONTROL
SYSTEMSSYSTEMS
OBJECTIVES: OBJECTIVES:
Define accounting terms related to using a checking account and petty cash fund.
Identify accounting concepts and practices related to using a checking account.
Prepare business papers related to using a checking account.
Journalize dishonored checks and electronic banking transactions.
Establish and replenish a petty cash fund.
CHAPTER 6-1CHAPTER 6-1
More money… more problems!
Businesses use cash MOST often in transactions
Must be EXTREMELY careful in recording these transactions
Ch 6-1: Checking AccountsCh 6-1: Checking Accounts
Check: A business form ordering a bank to pay cash from a bank account
Checking Account: A bank account from which payments can be ordered by a depositor.
Banks may pay interest on funds deposited.
To open account, the depositor(s) must: – Sign a signature card: Authorizes person(s) that
may sign checks for the business– Use bank forms to complete transactions
Check information: Check information:
DateNameCheck Number - Magnetic Ink CharactersABA number - identifies the bank
Depositing CashDepositing Cash
Deposit slip – form prepared each time cash and/or checks are placed in account
– No universal ‘deposit slip’
– Each bank’s is similar, but different
– Deposit slips are different to fit each bank’s recording machine
DEPOSITING CASHDEPOSITING CASH
•63-108 – Bank
•$10,000 – amount
•Aug 1 20-- – D10000.00 RDS – printed verification that total was deposited and accepted by RDS (bank employee)
Deposits must be recorded in checkbook.
Deposits have already been journalized in separate entries.– Cash receipts are journalized at time cash is received
(ie: cash / sales, cash / A/R)
–Later, cash receipts are deposited
No NEW journal entry is needed
DEPOSIT RECORDED ON A CHECK STUBDEPOSIT RECORDED ON A CHECK STUB
Lesson 6-1, page 120Lesson 6-1, page 120
Balance brought forward from previous transaction
Amount Deposited
EndorsementsEndorsements
Transfer ownership of a check Contains a signature or stamp on back of check Should be signed exactly as name is stated on front of
check Are confined to back of check at the top
– Federal regulations limit amount of space at top of check Endorsing a check guarantees payment If bank does not receive payment from person who signed
the FRONT of the check, each endorser is individually responsible for payment
Should be written in ink
Three Types of EndorsementsThree Types of Endorsements
1. Blank - signature only– Should only be used when person is at the bank
ready to cash/deposit– Why?
2. Special Endorsements (AKA Full endorsements) - restricts who can cash, deposit, or transfer check.– Pay to the order of __________
Types of EndorsementsTypes of Endorsements
Restrictive Endorsements - limit the use of the check. It can no longer be transferred.– Prevents unauthorized person from cashing if lost or
stolen Most companies use restrictive endorsements.
FYI- FDIC insures up to $100,000 per depositor– Federal Deposit Insurance Corporation
BLANK ENDORSEMENT, SPECIAL ENDORSEMENT, BLANK ENDORSEMENT, SPECIAL ENDORSEMENT, AND RESTRICTIVE ENDORSEMENTAND RESTRICTIVE ENDORSEMENT
Blank Endorsement
Restrictive Endorsement
Special Endorsement
Lesson 6-1, page 121Lesson 6-1, page 121
Writing a CheckWriting a Check
Check stub is filled out first.– Business’s record of each check written for cash
payment– For = Account debited
Word and figure amount should match Checks are printed with consecutive numbers.
– Helps YOU keep track of each check– No other significant purpose
Preparing checks
7.Write the date.
Preparing check stubs
COMPLETED CHECK STUB AND CHECKCOMPLETED CHECK STUB AND CHECK
1. Write the amount of the check.
5
34
2
98
10
11 12
1
7
6
6. Calculate the new account balance.
5. Write the amount of the check.
4. Record purpose of the check.
2. Write the date of the check.
3. Write to whom the check is to be paid.
12.Sign the check.
8.Write to whom the check is to be paid.
9.Write the amount in figures.10.Write the amount in words.11.Write the purpose of the check.
Lesson 6-1, page 122-123Lesson 6-1, page 122-123
Postdated CheckPostdated Check A check with a future date on it. Most banks will not accept a
postdated check. If banks don’t accept postdated
checks, what are they used for?
Voided CheckVoided Check A check that will not be cashed at the bank. Reasons - altered check (changes in name,
date, amount), check you made a mistake in writing
VOID is written on check stub and checkbook and check is kept for records
Must be accounted for in General journal.
RECORDING A VOIDED CHECKRECORDING A VOIDED CHECK
3. Write the check number.
1. Record the date.
4. Place a check mark in the Post. Ref. column.
2. Write the word VOID in the account title.
5. Place a dash in both the Debit and Credit columns.
5
4
Lesson 6-1, page 123Lesson 6-1, page 123
1 2 3
TO DO: TO DO:
Work Together, pg 124 On Your Own, pg 124
CHAPTER 6-2 – Bank ReconciliationCHAPTER 6-2 – Bank Reconciliation
Bank Statement: – a report of deposits, withdrawals, and bank
balances sent to a depositor by a bank
Bank StatementBank Statement
Prepared once a month by bank– Can be mailed or accessed online
When banks received check amount is deducted from account
Bank stamps check to indicate it has been canceled and returns canceled checks to depositor with bank statement
Information Shown:– Canceled checks - paid by the bank and returned to
depositor– Deposits– Charges– Interest paid
TimingTiming
At times, there will be discrepancies in balances because of timing.– Outstanding check: issued by depositor, but not yet
reported on bank statement• YOU wrote the check, but according to your bank
statement, it does not yet exist• It hasn’t yet been taken out of your account on the
statement– Outstanding deposit: made at bank, but not yet
shown on statement• YOU deposited cash/checks, but it has not
appeared on your statement yet
BANK STATEMENTBANK STATEMENT
Lesson 6-2, page 125Lesson 6-2, page 125
Verifying a Bank StatementVerifying a Bank Statement
Reconciliation: You must determine if the bank statement balance is correct. SHOULD BE COMPLETED IMMEDIATELY UPON RECEIVING BANK STATEMENT.
WHY?!? Differences exist because of:1. Outstanding checks- checks not cashed 2. Outstanding deposits- not recorded yet at bank3. Charges (service charge not recorded by depositor)
1. Fees – ie: ?4. Depositor’s errors (math or recording)5. Bank errors
1. Checks/deposits might be recorded in a wrong account
2. Data entry errors
Steps to Reconcile a Bank StatementSteps to Reconcile a Bank Statement
1. Arrange returned checks in numeric order.1. Canceled check place check mark on
check stub2. Determine outstanding checks (no check
mark).3. Determine outstanding deposits.4. Determine bank charges (SC).5. Determine if interest was paid (INT).6. Prepare reconciliation
6. Outstanding Deposits
5. Bank Balance Statement
BANK STATEMENT RECONCILIATIONBANK STATEMENT RECONCILIATION
Lesson 6-2, page 126Lesson 6-2, page 126
1
3
4
2
3. Service Charge
1. Date
4. Adjusted Check Stub Balance
2. Check Stub Balance
5
78
6
7. Subtotal
8. Outstanding Checks9
10. Compare Adjusted Balances
9. Adjusted Bank Balance
10
RECORDING A BANK SERVICE CHARGE ON A CHECK RECORDING A BANK SERVICE CHARGE ON A CHECK STUBSTUB
Lesson 6-2, page 127Lesson 6-2, page 127
1
3
2
3. Calculate and record the new subtotal.
1. Write Service Charge.
2. Write the amount of the service charge.
Entries to Journalize Service Charge and/or Interest Entries to Journalize Service Charge and/or Interest IncomeIncome
MUST journalize and post service charges to the cash account so that it is up to date
No check written– amount was automatically deducted by bank Source DOC: MEMORANDUM JOURNAL:
– Service Charges• Debit Miscellaneous Expense• Credit Cash
– Interest Paid• Debit Cash• Credit Interest Income
TO DO: TO DO:
Work Together, pg 129 On Your Own, pg 129 Application Prob 6-1, 6-2 – pg 140
CHAPTER 6-3CHAPTER 6-3
Dishonored Checks and Electronic Banking
Dishonored Check: Dishonored Check:
A check the bank refuses to pay because….– Check appears to be altered
• Altering/forging is illegal in ALL states– Signature does not match signature card– Amounts do not agree (words and figures)– It is postdated– The person who wrote the check ordered a ‘stop payment’
(after the check is written, you change your mind, usually a $30 fee)
– Insufficient funds by depositor• Illegal in most states• May affect credit rating• Stores post signs with consequences
Dishonored Check: Dishonored Check:
Can try to collect directly from person/business Fee is charged to payee AND depositor When you receive a check it is deposited and ADDED
to account
NOW: Subtract check AND bank charge from checkbook Journal entry must be made
– Debit - Accounts Receivable (of payee)
– Credit - Cash
– Source Doc: Memo
RECORDING A DISHONORED CHECK ON A CHECK RECORDING A DISHONORED CHECK ON A CHECK STUBSTUB
1
3
2
3. Calculate and record the new subtotal.
1. Write Dishonored Check $50.00.
2. Write the amount of the dishonored check.
Lesson 6-3, page 130Lesson 6-3, page 130
Original check: $35
Service Fee: $15
JOURNALIZING A DISHONORED CHECK – pg 131JOURNALIZING A DISHONORED CHECK – pg 131
November 29. Received notice from the bank of a dishonored check from Learn N Play, $35.00, plus $15.00 fee; total, $50.00. Memorandum No. 55.
1. Which accounts are affected?
Accounts Receivable—Learn N Play
Cash
4. How is each amount entered in the accounts?
Assets increase on the debit side.
Assets decrease on the credit side.
3. How is each classification changed?
Assets are increased.
Assets are decreased.
2. How is each account classified?
Accounts Receivable—Learn N Play is an asset account.
Cash is an asset account. Cash
Accounts Rec.—Learn N Play
DebitNormal Balance
DebitNormal Balance
50.00
50.00
Lesson 6-3, page 131Lesson 6-3, page 131
Journalizing an EFT Transfer – pg 132Journalizing an EFT Transfer – pg 132
EFT: computerized cash payments that uses electronic impulses to transfer funds– Arrangements must be made between
business, bank, and vendor (password)– same journal entry as when check is
written for payment, but source doc is a memo
**********************************************
Journalizing an EFT Transfer – pg 132Journalizing an EFT Transfer – pg 132
Transaction: Paid cash on account to Kelson Enterprises, $350.00, EFT, Memo No. 10
Date Debit: Accounts Payable – Kelson Enterprises
– Credit: Cash Source: M10
– no check was written for source doc Recorded on Check Stub as OTHER – to keep
checkbook balanced
Identified on bank stmt by EFT instead of Check No.
Journalizing a Debit Card Transaction – pg 133Journalizing a Debit Card Transaction – pg 133
Debit card: bank card that automatically deducts amount of purchase from account– Same effect as checks– Eliminates the need to carry a checkbook
Journal: – Debit: Supplies
• Credit: Cash– Source: Memo
Recorded on Check Stub as OTHER Identified on Bank Stmt as Purchase w/date, time,
location, and amount of transaction
TO DO: TO DO:
Work Together, pg 134 On your own, pg 134
Chapter 6-4Chapter 6-4
Petty Cash: Small amount of cash kept on hand for making
small payments. Asset with DR balance
Petty Cash Slips: Vouchers used to account for money paid from the fund.– Kept in lock box– Most companies set a limit for the max. amount
allowed to be paid with petty cash per transaction– Encore $20 max payments / $200 fund
New AccountNew Account
Petty Cash – Asset To Establish fund:
– Debit Petty Cash– Credit Cash
Petty Cash Debit
Normal Balance
+
Credit
-
ESTABLISHING A PETTY CASH FUND – pg 135ESTABLISHING A PETTY CASH FUND – pg 135
August 17. Paid cash to establish a petty cash fund, $200.00. Check No. 8.
1. Which accounts are affected?
Petty Cash
Cash
4. How is each amount entered in the accounts?
Assets increase on the debit side.
Assets decrease on the credit side.
3. How is each classification changed?
Assets are increased.
Assets are decreased.
2. How is each account classified?
Petty Cash is an asset account.
Cash is an asset account. Cash
Petty Cash
DebitNormal Balance
DebitNormal Balance
200.00
200.00
Lesson 6-4, page 135Lesson 6-4, page 135
Making Payments from Petty Cash FundMaking Payments from Petty Cash Fund
Vouchers are used to account for money paid from the fund Petty cash slips
slip number date of pymt to whom paid reason for pymt amount paid account to which amount is to be recorded (at
the end of month) Signature of person approving payment NO journal entries are needed for individual
payments– will be recorded later
Control feature: slip must be approved before cash is paid out
Petty Cash Paid OutPetty Cash Paid Out
As petty cash is paid out, the amount in the box decreases
It gets replenished at the end of the month or when significantly reduced
Replenish Petty Cash – pg 137Replenish Petty Cash – pg 137
Some businesses set a minimum amount for when to replenish (or end of each month)
Determine balance of Petty Cash Fund.– Cash remaining + slips total
Determine amount needed to bring it back to original balance.
Journalize the entry.– Debit EACH Account petty cash was spent on (expenses or assets)– Credit Cash
Balance should always be the same as the original amount of the fund (unless business decides to increase/decrease fund)
Example of Replenishment entry:Example of Replenishment entry:
DR CR Supplies 13.00 Miscellaneous Expense 20.00 Advertising Expense 25.00 Cash 58.00
To journalize: Date – of replenishmentDebit – each individual accountCredit – Cash account – total amountSource doc: Check issued to replenish petty cash
ALWAYS CREDIT CASH – NOT PETTY CASH.
*EXAMPLE - Journal entry – pg 137
TO DOTO DO
Work Together, pg 138 On your own, pg 138 Application Prob 6-3, 6-4
Chapter 6 Summary: Mastery 6-5 Challenge 6-6 Ch. 6 Study Guide Extra Problem 6-1