How Businesses Use Cash

Chapter 6Cash Control Systems

Cash

Most businesses refer to money as Cash

Major Cash payments by check

Minor Cash payments may be made

EX: postage, some supplies

Read pg 119- Answer Questions

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

must have a signature on file

Checking Accounts

Deposits:

deposit slip- lists cash and checks to be placed in account

has date, name of bank, account number, totals

given a receipt after deposit is made

Record Deposit on check stub

Endorsements:Endorsement- a signature or stamp on the back of the check transferring ownership

Should be signed as it appears on front of check

Blank Endorsement- only has endorser’s signature

Special Endorsement- indicates a new owner

(Pay to the order of and signatures)

Restricative Endorsement- states restrictions

Stamps/ Deposit Only

FYI

The Federal Deposit Insurance Corporation (FDIC) protects depositors from banks that fail. Bank deposits are generally covered to $100,000 per depositor****

****Some banks have increased this

Completed Check StubWrite the amount of check in the space with the $

Write the date

Write to whom the check is to be paid

Record Purpose

Write check amount

Calculate new account balance

Completed CheckWrite the date

Future dated checks are called postdated checks. Banks will not accept these until the date on the check

Write to whom the check is to be paid

Write the amount in numerals

Write the amount in words

Write the purpose

Sign the check

Recording a Voided CheckIF you make a mistake, you must void the check and prepare a new check

Since all checks are numbered, each check must be accounted for and recorded

IN GENERAL JOURNAL

Date, VOID, Ck # in Doc No, Check in Post Ref, Dash in both Debit and Credit columns

6.1 Review

Terms Review

Audit Your Understanding #1-3

Work Together #4-7

On Your Own #8-11

6.2 Bank ReconciliationBank Statements- a report of deposits, withdrawals and bank balances that are sent to the depositor

Checks- the amount of each check is deducted from depositor’s account

*Copies of checks are sent with the statement

Outstanding Checks- issued but not yet reported

Outstanding Deposits- made to the bank but not yet shown on statement

Bank Statements, cont.When a bank statement is received- depositor should check for accuracy

Bank records may differ from depositor’s records

REASONS for the difference:

Service charge may not have been recorded

Outstanding deposits not on statement

Outstanding checks not on statement

Depositor math or recording error

Bank Statement ReconciliationTo reconcile a bank statement- verify the info on the bank statement matches that in the checkbook

Write the date on which the reconciliation is prepared, August 31, 20-

In the left column- list the balance brought forward on Check Stub, the next unused check stub

List any bank charges

Write the adjusted check stub balance

Write the ending balance shown on the bank statement

Write the date and the amount of any outstanding deposits. Add, write subtotal

List outstanding checks, add, calculate adjusted balance and compare

Recording a Service ChargeThe bank deducts service charges at the end of each month

This must be recorded as a cash payment, even though a check is not written

Write the service charge on the check stub under other

Write the amount

Calculate and record new balance

Journalizing a Bank Service ChargeService Charge is a cash payment with no check

Encore prepares a memorandum as the Source Document

These charges are small, therefore are listed as Miscellaneous Expense and is Debited, while Cash is credited

6.2 Review p. 129

Audit Your Understanding #1-2

Work Together # 3-5

On Your Own # 6-8

6.3 Dishonored Checksand Electronic BankingDishonored Check- a bank refuses to pay a check

check appears altered

signature does not math person on file

amount in figures doesn’t match words

Post dated

Stop Payment

Insufficient funds

Dishonored Checks

Checks written from accounts with insufficient funds is ILLEGAL!

Altering or Forging a Check is Illegal

May affect credit rating

Will be charged a fee plus the amount of the dishonored check

Recording the Dishonored Check

Dishonored check written under OTHER

Amount of check PLUS service fee

Calculate new balance

Journalize a Dishonored CheckNovember 29. Received notice from bank of a dishonored check from Learn N’ Play , $35.00, plus $15.00 fee; total $50.00. Memorandum No. 55

DATE

Debit A/R (Why?)

Credit Cash (Why?

Source Document

Electronic Funds TransferElectronic Funds Transfer- computerized cash payment system

Usually password protected in order to transfer funds (Why?)

Journalized the same as cash (using a Memorandum instead of a check); Recorded as OTHER on Check Stub

September 2. Paid Cash on account to Kelson Enterprises, $350.00, using EFT. Memorandum No. 10

Journalizing a Debit Card TransactionDebit Card- a bank card, that is used for making purchases, that automatically deducts amount from account

September 5. Purchased supplies, $24.00, using debit card. Memorandum No. 12.

Journalized as Cash; Memorandum used; Recorded on Stub as Other

6.3 Review p. 134

Terms Review

Audit Your Understanding #1-3

Work Together #4

Work Together #5

6.4 Petty Cash

Petty Cash- amount of cash kept on hand and used for making small payments

To establish- Journalize the following way:

Debit- Petty Cash (increase Petty Cash on hand)

Credit- Cash (decrease cash in this account)

Source Document is a check

Petty Cash Slip

Petty Cash Slip- a form showing proof of a petty cash payment

Includes: Petty Cash Slip #, Date of payment, to whom it was paid, Reason, amount, account that needs to be recorded and signature of who approved this

Slips are held until amount is replenished

No Journalizing for individual slips/payments

Replenishing Petty CashAs petty cash is paid out, amount in petty cash box decreases and eventually needs to be replenished

Before it can be replenished, proof of fund must be completed

The last line of the proof must show the same total as the original petty cash balance

August 31. Paid Cash to replenish the petty cash fund, $12.00: miscellaneous expense, $7.00; advertising, $5.00. Check No 12

6.4 Review p. 138

Terms Review

Audit Your Understanding #1-2

Work Together #3

On Your Own #4