Order More Bank Checks - PowerPoint

							Accounting - Chapter 7
      Cash Control Systems
      Cash transactions are
         very frequent...
•   Occur more often
•   More chance of error
•   Can easily transfer ownership
•   Safety measure – kept in bank
•   written records/receipts are kept
•   a checking account is used
      Checking Accounts
• A bank account from which payments can be
  ordered from a depositor
• Authorizing Signature
  – signature card is filled out
  – only that person/people authorized to write checks
• Depositing Cash
  – a deposit slip is filled out (see page 136)
  – a receipt is given to prove money was deposited
  – do not journalize a bank receipt
         Endorsing Checks
• Endorsement - a signature or stamp on the back of a
  check transferring ownership
• Three types
   – Blank Endorsement
      • endorser’s signature only – very unsafe
   – Special Endorsement
      • new owner of the check - “Pay to the Order of __________”
      • only the new owner of the check is authorized to cash it
   – Restrictive Endorsement
      • Restricts further transfer of a check’s ownership - safe
      • limits the use of the check to whatever purpose is stated in the
        endorsement - “for deposit only (name of company/person)
            Writing Checks

• Printed checks with attached stubs are used
• Preparing Check Stubs
   – a check stub is the record of each cash payment
     (objective evidence)
   – write out the stub before writing the check
• Preparing Checks
   – postdated check - check with a future date
• Voiding Checks
   – Banks will not accept altered checks
   – checks are prenumbered
   – if a check contains an error, it must be marked “void”
   – record voided checks in the journal
        Bank Statement
• A report of deposits, withdrawals, and bank
  balances sent to a depositor by a bank
• Checks deducted when cleared – cancelled checks
  sent to owner
• Outstanding checks are those that have been
  issued, but have not yet cleared the bank.
• Outstanding deposits are those made at a bank,
  but have not yet shown up on the bank statement.
• Account service charges are also shown on the
  bank statement
           Verifying a Bank
              Statement
• The depositor’s records and bank’s records may be
  different (but still correct) for the following
  reasons:
   –   service charge not recorded in depositor’s records
   –   outstanding deposits not reported on the bank statement
   –   outstanding checks not recorded on the bank statement
   –   the depositor may have made a mistake
   –   the bank may have made a mistake
          Reconciling a Bank
             Statement
• Bank statement and checkbook in agreement
• Done on day statement is received
• Three steps:
  – Calculate the adjusted check stub balance
  – Calculate the adjusted bank balance
  – Compare adjusted balances
   Record Bank Service
         Charge
• Check Stub
  – Three steps:
     • Write the words “service charge” in the check stub
       under the heading “other”
     • Write the amount of the service charge
     • Calculate the new check stub balance
• Journal
  – This is a cash payment where no check was written
  – a memorandum is the source document
  – debit miscellaneous expense and credit cash
        Dishonored Checks
• A check that the bank refuses to pay
• Reasons for a check being dishonored:
   –   Check is altered
   –   Signature not on file
   –   amounts written in words and figures do not match
   –   Postdated check
   –   a “stop payment” order has been issued
   –   Insufficient funds
• Recording a dishonored check on a check stub
   – Deducted from the check stub balance
• Journalizing a Dishonored Check
   – the amount of the dishonored check plus the fee are considered a miscellaneous
     expense
   – debit miscellaneous expense/credit cash (source document: memorandum)
       Electronic Funds
           Transfer
• Computerized cash payment system using
  electronic impulses to transfer funds
• used by many businesses to pay vendors
• arrangements must be made with a bank
  and vendor
• passwords must be used for security
• transactions for cash payments are
  completed the same as usual, only the
  source document is a memorandum (a check
  is not written)
Petty Cash
       • An amount of cash
         kept on hand and
         used for making
         small payments
       • Petty cash is an
         account (on chart
         of accounts)
         – it is classified as an
           asset and has a
           normal debit
           balance
Establishing a Petty Cash
          Fund
• Journalize the transaction in the
  journal
• A check is written out for “cash” and
  money is placed in the locked petty
  cash box
• The source document for this
  transaction is a check stub
• Debit Petty Cash, Credit Cash
  Making Payments from
   the Petty Cash Fund
• A petty cash slip is         • A petty cash slip contains
  filled out each time a         the following information:
  payment is made                 – petty cash slip number
• definition:                     – date of petty cash
                                    payment
   – a form showing proof of
     a petty cash payment         – to whom the money
                                    was paid to
• It is kept in the
                                  – reason for the
  locked box until petty            payment
  cash is replenished.            – account in which
                                    amount is to be
                                    recorded
                                  – signature of approval
Replenishing a Petty Cash
          Fund
                       • There are four steps:
• When petty cash is      – Prove the petty cash fund
  paid out, the           – Prepare a petty cash report
  amount left in the      – Write a check to replenish
                            petty cash
  box decreases
                          – Journalize this entry
• This money must            • debit accounts in which
  be put back                  petty cash money was
                               spent
• known as                   • credit cash
  “replenishing”