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How Businesses Use Cash Chapter 6 Cash Control Systems.
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Transcript of How Businesses Use Cash Chapter 6 Cash Control Systems.
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