Accounting Chapter 7

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Accounting - Chapter 7

• Cash Control Systems

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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

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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

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Endorsing Checks

• Endorsement - a signature or stamp on the back of
  a check transferring ownership
• Three types
• Blank Endorsement
• endorsers 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 checks ownership
  - safe
• limits the use of the check to whatever purpose
  is stated in the endorsement - for deposit only
  (name of company/person)

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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

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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

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Verifying a Bank Statement

• The depositors records and banks records may be
  different (but still correct) for the following
  reasons
• service charge not recorded in depositors
  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

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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

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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

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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)

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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)

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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

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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

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Making Payments from the Petty Cash Fund

• A petty cash slip is filled out each time a
  payment is made
• definition
• a form showing proof of a petty cash payment
• It is kept in the locked box until petty cash is
  replenished.

• A petty cash slip contains the following
  information
• petty cash slip number
• date of petty cash payment
• to whom the money was paid to
• reason for the payment
• account in which amount is to be recorded
• signature of approval

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Replenishing a Petty Cash Fund

• There are four steps
• Prove the petty cash fund
• Prepare a petty cash report
• Write a check to replenish petty cash
• Journalize this entry
• debit accounts in which petty cash money was
  spent
• credit cash

• When petty cash is paid out, the amount left in
  the box decreases
• This money must be put back
• known as replenishing