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Chapter 5-- Cash Control Systems

Chapter 5-- Cash Control Systems. Objectives: Define accounting terms related to using a checking account and a petty cash fund Identify accounting concepts and practices related to using a checking account Prepare business papers related to using a checking account Reconcile a bank statement

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Chapter 5-- Cash Control Systems

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  1. Chapter 5--Cash Control Systems Objectives: Define accounting terms related to using a checking account and a petty cash fund Identify accounting concepts and practices related to using a checking account Prepare business papers related to using a checking account Reconcile a bank statement Journalize dishonored checks and electronic banking transactions Establish and replenish a petty cash fund

  2. Chapter 5 Vocabulary page 123 • code of conduct • checking account • endorsement • blank endorsement • special endorsement • restrictive endorsement • postdated check • bank statement • dishonored check • electronic funds transfer • debit card • petty cash • petty cash slip LESSON 5-1

  3. LESSON 5-1: Checking Accounts Cash transactions occur more frequently than other types of transactions, and cash is easy to transfer from one person to another. Because of this companies have a… Code of conduct—a statement that guides the ethical behavior of a company and its employees

  4. DEPOSITING CASH page 119 A bank account from which payments can be ordered by a depositor is called a checking account. It is so important to be accurate when recording additions to and subtractions from a bank account. When a checking account is opened, the bank customer must provide a signature on a signature card for the bank records. Each person’s signature must be on the signature card. LESSON 5-1

  5. DEPOSITING CASH A bank customer prepares a deposit slip each time cash or checks are placed in a bank account. All deposit slips contain the same information. Checks are listed on a deposit slip according to the bank routing number on each check. When a deposit slip is made, a bank gives the depositor a receipt. LESSON 5-1

  6. DEPOSIT RECORDED ON A CHECK STUB page 119 After the deposit is recorded on the check stub, a checkbook subtotal is calculated. Cash receipts are journalized at the time cash is received. Later, the cash receipts are deposited in the checking account. LESSON 5-1

  7. Blank Endorsement Special Endorsement Restrictive Endorsement ENDORSEMENTS page 120 A signature or stamp on the back of a check transferring ownership is called an endorsement. Endorsements should be written in ink exactly as it appears on the front of the check and that there are space limitations on the back of a check for an endorsement. LESSON 5-1

  8. COMPLETED CHECK STUB AND CHECK TIPS The check stub should always be completed before writing out the check. Writing the purpose of the check on the stub is good record keeping practice. Numbers should be written very close on a check so no one can change the amount. If the amounts in words and figures are not the same, a bank may pay only the amount in words. The check should be signed as the signature appears on the signature card. It is important to write the signature the same each time.

  9. COMPLETED CHECK STUB page 121 1 1. Write the amount of the check. 2 3 2. Write the date of the check. 4 3. Write to whom the check is to be paid. 4. Record the purpose of the check. 5. Write the amount of the check. 6. Calculate the new checking account balance. 5 6 LESSON 5-1

  10. 7. Write the date. COMPLETED CHECK page 121 7 8 9 10 11 12 10. Write the amount in words. 8. Write to whom the check is to be paid. 11. Write the purpose of the check. 12. Sign the check. 9. Write the amount in figures. LESSON 5-1

  11. RECORDING A VOIDED CHECK page 122 • Banks usually refuse to accept an altered check. • A check on which an error has been made should not be destroyed. • The person voiding the check should write “VOID” on the stub and check and file the check. • Because checks are prenumbered, all checks not used should be retained for the records. This practice helps account for all checks and assures that no checks have been lost or stolen. • An entry is necessary for a voided check so that the Doc. No. column of the journal will list all of the checks of the company. LESSON 5-1

  12. 5 RECORDING A VOIDED CHECK page 122 1 3 2 4 1. Record the date in the Date column. 2. Write the word VOID in the Account Title column 3. Write the check number in the Doc. No. column. 4. Place a check mark in the Post. Ref. column. 5. Place a dash in both the Debit and Credit columns. LESSON 5-1

  13. LESSON 5-1 Log on to Aplia and let’s complete Work Together 5-1 on textbook page 123 and On Your Own 5-1 on textbook page 123.

  14. LESSON 5-2: Bank Reconciliation A report of deposits, withdrawals, and bank balances sent to a depositor by a bank is called a bank statement. It is important to analyze the bank statement each time it is received.

  15. BANK STATEMENT page 124 A bank’s records and a depositor’s records may differ for several reasons: 1. A service charge may not have been recorded in the depositor’s business records. 2. Outstanding deposits may be recorded in the depositor’s records but not on a bank statement. 3. Outstanding checks may be recorded in the depositor’s records but not on a bank statement. 4. A depositor may have made math or recording errors. LESSON 5-2

  16. 10 BANK STATEMENT RECONCILIATION page 125 1. Date 1 2. Check Stub Balance 2 5 3. Service Charge 6 4. Adjusted Check Stub Balance 3 7 5. Bank Statement Balance 6. Outstanding Deposits 8 4 9 7. Subtotal 8. Outstanding Checks 9. Adjusted Bank Balance 10. Compare Adjusted Balances LESSON 5-2

  17. Bank Statement Reconciliation A bank statement is reconciled by verifying that information on a bank statement and a checkbook are in agreement. Reconciling immediately is an important aspect of cash control. When a bank statement is received, canceled checks may accompany it. Canceled checks should be compared with check stubs and a check mark should be placed on each stub for canceled checks. The bank has already taken the service charge out of the account. When the reconciliation is completed, the two adjusted balances should be the same.

  18. RECORDING A BANK SERVICE CHARGE ON A CHECK STUB page 126 1. Write Service Charge $8.00 on the check stub under the heading “Other.” 2. Write the amount of the service charge in the amount column. 3. Calculate and record the new subtotal on the Subtotal line. 1 2 3 LESSON 5-2

  19. 2 3 JOURNALIZING A BANK SERVICE CHARGE page 127 August 31. Received bank statement showing August bank service charge, $8.00. Memorandum No. 3. 1 4 1. Write the date. 2. Write the title of the account debited. Record the debit amount. 3. Write the title of the account credited. Record the credit amount. 4. Write the source document number in the Doc. No. column. LESSON 5-2

  20. LESSON 5-2 Log on to Aplia and let’s complete Work Together 5-2 on textbook page 128 and On Your Own 5-2 on textbook page 128.

  21. Lesson 5-3: Dishonored Checks and Electronic Banking A check that a bank refuses to pay is called a dishonored check. Banks dishonor a check when the account of the person who wrote the check has insufficient funds to pay the check. Issuing a check on an account with insufficient funds is illegal. Altering or forging a check is also illegal. When the check was first received, it was deposited and the amount was added to the bank account. Now, when it is dishonored, the amount must be subtracted from the bank account. Most banks charge a fee for handling dishonored checks.

  22. 1. Write Dishonoredcheck $105.00 on the line under the heading “Other.” RECORDING A DISHONORED CHECK ON A CHECK STUB page 129 2. Write the total of the dishonored check in the amount column. 3. Calculate and record the new subtotal on the Subtotal line. 1 2 3 LESSON 5-3

  23. 2 3 JOURNALIZING A DISHONORED CHECK page 130 November 29. Received notice from the bank of a dishonored check from Campus Internet Café, $70.00, plus $35.00 fee; total, $105.00. Memorandum No. 55. 4 1 1. Write the date. 2. Write the title of the account debited. Write the debit amount. 3. Write the title of the account credited. Write the amount credited. 4. Write the source document number in the Doc. No. column. LESSON 5-3

  24. JOURNALIZING AN ELECTRONIC FUNDS TRANSFER page 131 • A computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents is called electronic funds transfer (EFT). • EFT means that the business does not have to write a check for this amount. Therefore, there is no check stub for the source document. • A memorandum is often used as a source doc for EFT payments. • A cash payment made by EFT is recorded on the check stub as “other” LESSON 5-3

  25. 2 3 JOURNALIZING AN ELECTRONIC FUNDS TRANSFER page 131 September 2. Paid cash on account to Kelson Enterprises, $350.00, using EFT. Memorandum No. 10. 1 4 1. Write the date. 2. Write the title of the account debited. Record the amount debited. 3. Write the title of the account credited. Record the amount credited. 4. Write the source document number in the Doc. No. column. LESSON 5-3

  26. JOURNALIZING A DEBIT CARD TRANSACTION page 132 A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder is called a debit card. When a purchase is made with a debit card, cash is immediately deducted from the account. When using a debit card, it is important to remember to record the withdrawal both in the journal and on a check stub. A cash payment made with a debit card is recorded on the check stub as “other” LESSON 5-3

  27. 2 3 JOURNALIZING A DEBIT CARD TRANSACTION page 132 September 5. Purchased supplies, $24.00, using debit card. Memorandum No. 12. 1 4 1. Write the date. 2. Write the title of the account debited. Record the amount debited. 3. Write the title of the account credited. Record the amount credited. 4. Write the source document number in the Doc. No. column. LESSON 5-3

  28. LESSON 5-3 Log on to Aplia and let’s complete Work Together 5-3 on textbook page 133 and On Your Own 5-3 on textbook page 133.

  29. LESSON 5-4: Petty Cash An amount of cash kept on hand and used for making small payments is called petty cash. A business usually has some small payments for which writing a check is not time or cost effective. Therefore, a business may maintain a separate cash fund for making small cash payments. Very large businesses may have several petty cash funds. The petty cash account is an asset account with a normal debit balance.

  30. 2 3 ESTABLISHING A PETTY CASH FUND page 134 August 19. Paid cash to establish a petty cash fund, $100.00. Check No. 8. 1 4 1. Write the date. 2. Write the title of the account debited. Record the amount debited. 3. Write the title of the account credited. Record the amount credited. 4. Write the source document number in the Doc. No. column. LESSON 5-4

  31. MAKING PAYMENTS FROM A PETTY CASH FUND WITH A PETTY CASH SLIP page 135 A form showing proof of a petty cash payment is called a petty cash slip. When cash is paid from a petty cash fund, no formal entry is recorded in a journal. Only a petty cash slip is prepared. The entry will be made at a later date. The petty cash slip must be approved before cash can be paid out. LESSON 5-4

  32. REPLENISHING PETTY CASH page 136 The petty cash fund is replenished when the amount in the fund is low or at the end of a fiscal period. Some companies replenish the petty cash fund at the end of the month so that all expenses are recorded in the month they incurred. Before petty cash is replenished, a proof of the fund must be completed. The petty cash slips are now used to summarize payments from the fund and to record payments in the journal. To replenish the fund, debit accounts for which petty cash was used and credit the cash account. LESSON 5-4

  33. 2 3 REPLENISHING PETTY CASH page 136 August 31. Paid cash to replenish the petty cash fund, $30.00: miscellaneous expense, $20.00; advertising, $10.00. Check No. 12. 1 4 1. Write the date. 2. Write the title of the first account debited. Write the debit amount. Write the title of the second account. Record the debit amount. 3. Write the title of the account credited. Record the credit amount. 4. Write the source document number in the Doc. No. column. LESSON 5-4

  34. Lesson 5-4 Log on to Aplia and let’s complete Work Together 5-4 on textbook page 138 and On Your Own 5-4 on textbook page 138.

  35. Chapter 5 Assignments • Study Guide • Problems: 5-1 5-2 5-3 5-4 5-5 5-6 LESSON 5-1

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