Cash Control and Banking ActivitiesMaking Accounting RelevantBusinesses deposit all cash and checks into a bank account and make payments using checks. This policy helps to protect cash from loss or theft.

Protecting Cash

It is important to protect cash

from loss, waste, theft, forgery,

and embezzlement.

Section 1 Banking Procedures (cont'd.)

Protecting Cash (cont'd.)

1. Limit the number of persons handling cash.

2. Separate accounting tasks involving cash.

3. Bond (insure) employees who handle cash or cash records.

4. Use a cash register and a safe.5. Deposit cash receipts in the bank daily.6. Use checks to make all cash payments.

Section 1 Banking Procedures (cont'd.)

INTERNAL CONTROLS

Protecting Cash (cont'd.)

1. Verify signatures on checks.

2. Maintain records of

transactions.

Section 1 Banking Procedures (cont'd.)

EXTERNAL CONTROLS

Opening a Checking Account Allows a person or business to

deposit cash in a bank and to write checks against the account balance.

A signature card contains the signature(s) of the person(s) authorized to write checks on the account.

Printed checks are packaged together in checkbooks.

Section 1 Banking Procedures (cont'd.)

Making Deposits to a Checking Account

Businesses make regular deposits to protect the currency, coins, and checks received.

Section 1 Banking Procedures (cont'd.)

Endorsing ChecksTo deposit the check in a checking

account, the depositor endorses the check to transfer ownership to the bank. An endorsement is an authorized signature written or stamped on the back of a checkrepresenting a promise to pay.

Section 1 Banking Procedures (cont'd.)

Endorsing a check• A check CANNOT be cashed until its been endorsed. • To endorse a check, the payee named on the face of the

check simply signs the back of the check in black/blue ink.– Must be signed in the area provided! You can’t just go crazy on

the back of the check.• There are three major types of endorsements.

– Blank Endorsement – just sign your name– Special Endorsement – used when you are signing over the check

to a third person– Restrictive Endorsement – used to limit the use of a check. For

example, you can say “for deposit only” above your signature. This means that the check cannot be cashed … only deposited.

• Examples of different endorsement types:– http://voc.ed.psu.edu/projects/CAPS/27CAPS.html

Endorsing Checks (continued)

Recording Deposits in the Checkbook

Section 1 Banking Procedures (cont'd.)

Deposits

New Balance

Writing Checks

Section 1 Banking Procedures (cont'd.)

Enter amount

Enter amountEnter date

Enter payeeEnter purpose

Enter payeeEnter date

Enter amount

Enter new balance Sign the checkEnter dollar amount in words

Voiding a Check

Section 1 Banking Procedures (cont'd.)

Writing the word “Void” in

large letters across the front of a

check (in ink) is known as voiding

a check.

Proving Cash

Section 2 Reconciling the Bank Account (cont'd.)

General Ledger

Cash inBank account

CheckbookBalance=

The Bank Statement

A bank statement is an

itemized record of all the

transactions in a depositor’s

account over a given period,

usually a month.

Section 2 Reconciling the Bank Account (cont'd.)

The Bank Statement (cont'd.)

Section 2 Reconciling the Bank Account (cont'd.)

Beginning balance

Checks paid by bank (cancelled checks)

Otherdeductions

Deposits intothe account

Ending balance

Reconciling a Bank StatementDocuments the differences between

the bank balance and the checkbook balance.

Section 2 Reconciling the Bank Account (cont'd.)

Business Transaction (cont’d.)

JOURNAL ENTRY

On November 1, Roadrunner received the bank statement. A bank service charge of $8 appeared on the statement.

Section 2 Reconciling the Bank Account (cont'd.)

Recording Bank Service ChargesA bank service charge is an expense

that is recorded in the accounting records.