© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Banking Procedure and Control of Cash Chapter 6

© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

Banking Procedure and Banking Procedure and Control of CashControl of Cash

Chapter 6

Learning Objective 1Learning Objective 1

Depositing, writing, and endorsing checks for a checking account


LO-1

Internal ControlInternal ControlSystem of procedures and

methods to control a firm’s assets as well as monitor its operations


LO-1

Internal Control ExamplesInternal Control ExamplesResponsibilities and duties of

employees are dividedAll cash receipts are deposited

into the bank on a daily basisAll cash payments are made by

checkEmployees are rotatedAll checks are authorized for

payment© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

LO-1

Internal Control ExamplesInternal Control ExamplesAt time of payment, all invoices

or documents are stamped “paid”All checks are pre-numberedThe monthly bank statement is

sent to and reconciled by someone other than the employees who handle, record, and/or deposit cash


LO-1

Checking Account: Getting Checking Account: Getting StartedStartedSignature Card - verifies the

authenticity of the signature on all checks

Deposit Slip - form used when making deposits◦Lists each check individually◦Lists total amount of currency, coins &

checks being depositedDebit Card - carries MasterCard/Visa

logo◦Use anywhere MasterCard/Visa are accepted◦Amount of purchase is deducted directly

from the checking account© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

LO-1

Checking Account: Check Checking Account: Check EndorsementEndorsementEndorsement – signing or

stamping of one’s name on back side of check

Payee has transferred the right to deposit or cash the check to someone else


LO-1

Checking Account: Check Checking Account: Check EndorsementEndorsementTypes

◦Blank endorsement – does not specify that a particular entity must endorse it

◦Full endorsement – entity signing the back of the check indicates the name of the entity to whom the check is to be paid

◦Restrictive endorsement – stamped for deposit only


LO-1

Checking Account: Checking Account: CheckbookCheckbookCheck – written order signed by drawer instructing a drawee to pay specific sum of money to payee

Cancelled Checks - have been processed by the bank and are no longer negotiable


LO-1

Learning Objective 2Learning Objective 2Reconciling a bank statement


LO-2

Bank ReconciliationBank ReconciliationProcess of reconciling the

checkbook balance with the bank balance given on the bank statement◦Deposits in transit◦Outstanding checks◦Service charges◦Nonsufficient funds


LO-2

Bank ReconciliationBank Reconciliation

Checkbook balance

Add:

Deduct: (Service Charges, NSF Checks)

Reconciled balance

Bank balanceAdd: Deposits in

Transit

Deduct: Outstanding Checks

Reconciled balance


LO-2

Exercise 6-1Exercise 6-1

Bank balance $1200Add: Deposits in transit 900

$2,100Deduct: Outstanding checks 678

Reconciled balance $1,422


LO-2


Checkbook balance $1,500Deduct: Bank service charge 40

NSF check 38Reconciled balance $1,422


LO-2


Bank balance $1200

Add: Deposits in transit 900 $2,100

Deduct: Outstanding checks

678

Reconciled balance

$1,422

Checkbook balance $1,500

Deduct: Bank service charge 40 NSF check 38

Reconciled balance

$1,422


LO-2


Establishing and replenishing a petty cash fund; setting up an auxiliary petty cash record


LO-3

Petty Cash FundPetty Cash FundAccount dedicated to paying

small day-to-day expensesAsset account, normal debit

balanceCustodian – oversees the fund


LO-3

Petty Cash VouchersPetty Cash VouchersPetty Cash Vouchers

◦Filled out each time a payment is made from petty cash fund

◦Sequentially numberedContains:

-Voucher # -2 signatures-Date -Account to be charged -Amount -Reason -Person/Company to whom payment is made


LO-3

Establish Petty Cash FundEstablish Petty Cash Fund


General Journal

Page 8

Date Account Titles and Description PR Dr. Cr.

May 1 Petty Cash 100

Cash 100

Petty Cash

LO-3

Establish a petty cash fund

Making PaymentsMaking Payments


Petty Cash Voucher No. 15

Date: _________________ Amount: ________________Paid to: _______________For: ___________________

Approved by: ____________Payment received by: _____________

Debit Account No.: _________

Sept. 6, 200X $10.83Foster’s Office Supply

Office Supplies

Sharon KahlCarol Miller

Office Supplies Expense – Account No. 615

615

LO-3

Making PaymentsMaking Payments


LO-3

Auxiliary Petty Cash Auxiliary Petty Cash RecordRecordSupplementary record for

summarizing petty cash information

Not required, but is helpful part of petty cash system


LO-3

Replenish Petty CashReplenish Petty CashUsing information on vouchers,

record expenses in journalA new check is cashed for total

amount of expensesCash is placed in petty cash box


LO-3

Replenish Petty Cash FundReplenish Petty Cash Fund


General Journal

Page 8


25

30

15

70

May 31 Postage Expense

Supplies Expense

Miscellaneous Expense

Cash

LO-3

Replenish petty cash fund



General JournalDate Account Titles and

DescriptionPR Dr. Cr.

July 1 Petty Cash Fund 100

Cash 100

To establish the fund

LO-3



General JournalDate Account Titles and

DescriptionPR Dr. Cr.

July 31 Donations Expense 20

Postage Expense 18

Office Supplies Expense 25

Miscellaneous Expense 25

Cash 88

To replenish petty cash

fundLO-3


Establishing and replenishing a change fund


LO-4

Change FundChange Fund

Fund made up of various denominations that are used to make change for customers

Remains the same amount one business day to the next


Date Account Titles and Description

PR Dr. Cr.

120

120

May 1 Change Fund

Cash LO-4Establish change fund

Learning Objective 5 Learning Objective 5

Handling transactions involving cash short and over


LO-5

Cash Short and OverCash Short and OverAccount that records cash

shortages and overagesIf ending balance is a debit –

recorded on income statement as miscellaneous expense

If ending balance is a credit – recorded on income statement as miscellaneous revenue


LO-5

Cash Short and OverCash Short and Over

If there is a cash shortage:


General Journal


PR Dr. Cr.

500

50

Sales 550

Record sales and

shortage

May 13 Cash

Cash Short and Over

LO-5

Cash Short and OverCash Short and OverIf there is a cash overage:


General Journal


PR Dr. Cr.

Record sales and

May 13 Cash 600

Cash Short and Over 50

Sales 550

LO-5

overage



General Journal


Record sales and

May 13 Cash 1,126


Sales 1,200

LO-5

shortage



General JournalDate Account Titles and Description PR Dr. Cr.

July 31

Donations Expense 20

Postage Expense 18




Cash 89

Replenish petty cash

LO-5



LO-5

General Journal


July 31 Donations Expense 20

Postage Expense 18




Cash 87

Replenish petty cash


End of Chapter 6

Documents

© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater Banking Procedure and Control of Cash Chapter 6