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McGraw-Hill Ryerson

College Accounting Second Canadian Edition Price • Haddock • Brock • Reed. McGraw-Hill Ryerson. 1. CHAPTER 11. CASH AND CASH CONTROL. 2. OBJECTIVE 1 Describe internal control routines for cash. 3. CURRENCY. COINS. CASH. CHEQUES. MONEY ORDERS. FUNDS ON DEPOSIT.

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McGraw-Hill Ryerson

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  1. College Accounting Second Canadian Edition Price • Haddock • Brock • Reed McGraw-Hill Ryerson 1

  2. CHAPTER 11 CASH AND CASH CONTROL 2

  3. OBJECTIVE 1 Describe internal control routines for cash. 3

  4. CURRENCY COINS CASH CHEQUES MONEY ORDERS FUNDS ON DEPOSIT The term cash covers cheques, money orders, and funds on deposit in a bank as well as currency and coins. 4

  5. Petty Cash Fund Small payments for items like delivery charges. Travel & Entertainment Fund To provide cash for business-related travel and entertainment expenses. 5 6

  6. BONDING Insurance against losses through employee theft or mishandling of funds. The process by which employees are investigated by an insurance company, and if their characters and backgrounds are satisfactory, their employer is given insurance against losses that may occur if they steal or mishandle the firm’s cash. 6

  7. The following 7 precautionary routines are especially important for cash receipts: How do I protect my cash receipts? 1. Only designated employees should be allowed to receive or handle the cash receipts of the business -- cheque or otherwise. In some firms these employees are bonded. The employee is investigated and then if found satisfactory, the employer is given insurance against the mishandling or stealing of cash. 2. Cash receipts should be kept in a safe, a locked box, or the cash register if kept on the premises. 3.A record should be kept of all cash receipts as they come into the business. In the case of cash sales this is the audit tape that is prepared by the register at the time of the sale. 4. Before a deposit is made, the cash should be checked against the record made when the cash was received. This should not be completed by the one who received or recorded the cash. 7

  8. How do I protect my cash receipts? 5. All cash receipts should be deposited in the bank promptly. Cash receipts should never be used to make payments. Again this should not be completed by the same one who received or recorded the cash. 6. All transactions involving cash receipts should be entered in the accounting records promptly by someone other than the person receiving the funds, or the one depositing the funds. 7. The monthly bank statement should be received and reconciled by someone other than the employees who handled, recorded, and deposited the funds. The above steps make it more difficult for funds to be mishandled in the business. The use of these steps also allows for the rapid handling of cash and allows the money to be in the bank ready to be used when needed. 8

  9. How do I protect my cash payments? The following 8 procedures are helpful in the internal control of cash payments: 1. All payments should be made by cheque except those coming from special - purpose funds such as the petty cash fund or the travel and entertainment fund. 2. No check should be issued without a proper source document identifying authorization and accounts to be charged. 3. Bills and invoices should be approved by designated personnel only. These individuals should be experienced and reliable. 4. Cheques should be prepared and recorded in the chequebook or cheque register by someone other than the person who approves the payment. 9 5. Still another person should sign and mail the cheques to creditors.

  10. How do I protect my cash payments? 6. Sequentially numbered cheques should be used. All cancelled and voided cheques should be filed for future reference. 7. The bank statement should be carefully reconciled each month by someone other than the person preparing or recording the cheques. 8. All transactions involving cash payments should be entered promptly in the accounting records by someone other then the one who issues the cheques and records them in the chequebook or cheque register. In small firms it is more difficult to divide the responsibility for handling cash in the manner identified for the cash receipts and cash payments. However, it is important to set up some effective control procedures for cash regardless of the size of the business. 10

  11. OBJECTIVE 2 Write a cheque, endorse a cheque, prepare a bank deposit slip, and maintain a chequebook balance. 11

  12. BAL. FASHION WORLD BRO’T 5001 S. Portland FOR’D 5,600 00 Hamilton, ON No.2411 No.2411January 2 20X3 11-8640 January 220 X3 1210 Bay Real Estate TO ORDER OF Pay Rent for Jan.to the order of Bay Real Estate $ 700.00/100 Seven hundred and 00/100 Dollars TOTAL 5,600 00BANK AMOUNT THIS CHECK 700 00 SAN FRANCISCO, CA 94107 Carolyn Wells BALANCE 4,900 00 :1210 8640 : 80 0042269 DEPOSITS 12

  13. Full Endorsement PAY TO THE ORDER OF BANK FASHION WORLD 80-00-42269 Blank Endorsement Restrictive Endorsement Carolyn Wells 80-00-42269 PAY TO THE ORDER OF BANK FOR DEPOSIT ONLY FASHION WORLD 80-00-42269 13

  14. DOLLARS CENTS CHEQUING ACCOUNT DEPOSITCURRENCY 675 00 COIN 54 95 DATEJanuary 7, 20X3 CHEQUES List each separately 1 11-8182 120 40 FASHION WORLD2 11-8182 215 00 5001 S. Portland 3 11-5216 85 60 Hamilton, ON 4 11-5216 140 00 5 11-7450 230 25 6 11-7450 90 00 ROYAL BANK 7 Hamilton, ON 8 9 10 11 12 TOTAL FROM OTHER SIDE OR ATTACHED LIST Cheques and other items are received forTOTAL 1,611 20 deposit subject to the terms and conditions of this bank’s collection agreement. :1210 8640 : 80 0042269 DEPOSITOR COPY ENTER ADDITIONAL CHEQUES ON OTHER SIDE 14

  15. The Procedure For Handling Postdated Cheques Accepting a postdated cheque is not an appropriate business procedure. However, if this cheque is accepted, it should never be deposited before the date of the cheque. 15

  16. OBJECTIVE 3 Operate a petty cash fund. 16

  17. PETTY CASH VOUCHER 1 NOTE: This form must be typewritten or filled out in ink. DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT Office Supplies Supplies Expense 5017 8 75 Total 8 75 RECEIVED THE SUM OF Eight DOLLARS AND 75/100 CENTS SIGNEDA. C. Abbott DATE2/3/X3 APPROVED BY D.W.P. DATE2/3/X3 Delta Office Supply Co. 284 17

  18. PETTY CASH ANALYSIS SHEET Page 1 DISTRIBUTION OF PAYMENTS PRE- OTHER ACCOUNTS DATE VOU. SUP DEL MISC PAID DEBIT NO EXPLANATION RECEIPTS PAYMENTS EXP. EXP. EXP. GST ACCOUNT AMOUNT DEBIT DEBIT DEBIT DEBIT TITLE 20X3 Feb. 1 Establish fund 100.00 3 1 Office supplies 9.36 8.75 0.61 5 2 Delivery service 13.38 12.50 0.88 10 3 Withdrawal 15.00 C. Wells, 15.00 Drawing 14 4 Postage stamps 10 .70 10.00 0.70 19 5 Delivery service 9.90 9.25 0.65 25 6 Window washing 14.98 14.00 0.98 28 7 Store supplies 8.03 7.50 0.53 18

  19. PETTY CASH ANALYSIS SHEET Page 1 DISTRIBUTION OF PAYMENTS PRE- OTHER ACCOUNTS DATE VOU. SUP DEL MISC PAID DEBIT NO EXPLANATION RECEIPTS PAYMENTS EXP. EXP. EXP. GST ACCOUNT AMOUNT DEBIT DEBIT DEBIT DEBIT TITLE 20X3 Feb. 1 Establish fund 100.00 3 1 Office supplies 9.36 8.75 0.61 5 2 Delivery service 13.38 12.50 0.88 10 3 Withdrawal 15.00 C. Wells, 15.00 Drawing 14 4 Postage stamps 10 .70 10.00 0.70 19 5 Delivery service 9.90 9.25 0.65 25 6 Window washing 14.98 14.00 0.98 28 7 Store supplies 8.03 7.50 0.53 $100.00 - $18.65 = $81.35 amount needed o replenish petty cash 19

  20. CASH PAYMENTS JOURNAL Page 5 OTHER PRE- PRE- MERCH. ACCOUNTS ACCOUNTS PAID PAID INV. CASH DATE CHQ. POST PAYABLE DEBIT GST GST CREDIT CREDIT NO EXPLANATION. REF. DEBIT ACCT. POST. DEBIT CREDIT TITLE REF. AMT. 20X3 Feb. 28 490 Replenish petty Supp. 5017 16.25 1.14 cash fund Exp. C. Wells,. 3002 15.00 Draw. Delivery. 5023 21.75 1.53 Exp Misc. 5093 24.00 1.68 81.35 Exp. Totals 77.00 4.35 81.35 20

  21. PETTY CASH ANALYSIS SHEET Page 1 DISTRIBUTION OF PAYMENTS PRE- OTHER ACCOUNTS DATE VOU. SUP DEL MISC PAID DEBIT NO EXPLANATION RECEIPTS PAYMENTS EXP. EXP. EXP. GST ACCOUNT AMOUNT DEBIT DEBIT DEBIT DEBIT TITLE 20X3 Feb. 1 Establish fund 100.00 3 1 Office supplies 9.36 8.75 0.61 5 2 Delivery service 13.38 12.50 0.88 10 3 Withdrawal 15.00 C. Wells, 15.00 Drawing 14 4 Postage stamps 10 .70 10.00 0.70 19 5 Delivery service 9.90 9.25 0.65 25 6 Window washing 14.98 14.00 0.98 28 7 Store supplies 8.03 7.50 0.53 28 Totals 100.00 81.35 16.25 21.75 24.00 4.35 15.00 Balance on Hand 18.65 100.00 100.00 28 Balance on Hand 18.65 28 Replenish Fund 81.35 28 Carried Forward 100.00 Balancing and Ruling the Petty Cash Analysis Sheet 21

  22. The following 6 principles of internal control are usually applied to petty cash: 1. The petty cash fund should be used only for payments of a minor nature that cannot conveniently be made by cheque. Protect your petty cash fund! • The amount of money set aside for the fund should not exceed an approximate amount needed to cover one month’s payments from the fund. 3. The cheque to establish the fund should be made out to the person in charge of the fund -- never to the order of Cash. 22

  23. 4. The person in charge of the fund should have sole control of the money and should be the only one authorized to make payments from the fund. 5. The money for the petty cash fund should be kept in a safe, a locked cash box, or a locked drawer. Protect your petty cash fund! 6. All payments made from the fund should be covered by petty cash vouchers signed by the persons who received the money. The vouchers should show the details of the payments and thus provide an audit trail for the fund. 23

  24. CASH If there is less cash than the amount of the petty cash fund, cash is said to be short. SHORT OR If there is more cash than the amount of the petty cash fund, cash is said to be over. OVER 24

  25. OBJECTIVE 4 Reconcile the monthly bank statement. 25

  26. ROYAL BANK FASHION WORLD ACCOUNT NO. 80-00-42269 5001 S. Portland Hamilton, ON PERIOD ENDING January 31, 20X3 CHEQUES DEPOSITS DATE BALANCE AMOUNT BROUGHT FORWARD 5,600.00 212.00 January 6 5,812.00 1,748.00 January 7 7,560.00 749.00 132.50 January 10 6,948.50 600.00 5,000.00 January 11 11,349.50 642.00 265.00 January 12 10,966.50 712.40 2,255.25 January 14 12,509.55 500.00 53.00 January 16 12,062.35 1,703.97 401.25 26.75 January 17 9,983.88 1,200/00 160.50 100.00 January 21 8,723.38 2,427.70 January 21 11,151.08 2,254.49 402.50 January 28 9,299.09 133.75 224.70 57.50 January 31 8,998.14 125.00 DM 400.00 130.00 January 31 8,609.14 200.00 209.00 January 31 8.612.14 10.00 SC January 31 8,602..14 LAST AMOUNT IN THIS COLUMN IS YOUR BALANCE Codes: CC Certified Cheque EC Error Correction CM Credit Memorandum OD Overdrawn DM Deposit Correction SC Service Charge PLEASE EXAMINE THIS STATEMENT UPON RECEIPT AND REPORT ANY ERRORS WITHIN TEN DAYS. 26

  27. DEBIT Fashion World CITY NATIONAL BANK 5001 S. Portland Hamilton, ON 80-00-42269 DATE January 31,20X3 NSF Cheque-Thomas Hunt 125 00 APPROVED H E H Debit Memorandum 27

  28. ACCOUNT CashACCOUNT NO. 1011 DATE EXPLANATION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20X3 Jan. 1 Balance  5,600.00 31 CR1 14,905.20 20,505.20 31 CP1 15,968.77 4,536.43 Book Balance 28

  29. FASHION WORLD Bank Reconciliation Statement January 31, 20X3 Balance on bank statement 8,602.14 Additions: Deposit of January 31 in transit 1,886.00 Cheque incorrectly charged to account 400.00 2,286.00 10,888.14 Deductions for outstanding cheques: Cheque 423 of January 31 1,342.21 Cheque 424 of January 31 2,100.00 Cheque 425 of January 31 1,284.00 Cheque 426 of January 31 80.25 Cheque 428 of January 31 1,580.25 Cheque 429 of January 31 100.00 6,486.71 Adjusted bank balance 4,401.43 Balance in books 4,536.43 Deductions: NSF cheque 125.00 Bank service charge 10.00 135.00 Adjusted book balance 4,401.43 29

  30. OBJECTIVE 5 Record any adjusting entries required from the bank reconciliation. 30

  31. GENERAL JOURNAL Page 7 DATE DESCRIPTION POST. DEBIT CREDIT REF. 20X3 Feb. 1 Accounts Rec./Thomas Hunt 111/ 125.00 Cash 101 125.00 To record NSF cheque returned by bank 1 Miscellaneous Expense 593 10.00 Cash 101 10.00 To record bank service charge for January Adjusting the Financial Records 31

  32. ACCOUNT CashACCOUNT NO. 1011 DATE EXPLANATION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20X3 Jan. 1 Balance  5,600.00 31 CR1 14,905.20 20,505.20 31 CP1 15,968.77 4,536.43 Feb. 1 J7 125.00 4,411.43 1 J7 10.00 4,401.43 Balance after posting adjusting entries equals adjusted book balance on reconciliation 32

  33. GENERAL JOURNAL Page 9 DATE DESCRIPTION POST. DEBIT CREDIT REF. 20X3 Mar. 1 Cash 101 5.00 Advertising Expense 514 5.00 To correct error for Cheque 521 of Feb. 21 Entry to correct error found in reconciliation process 33

  34. OBJECTIVE 6 Describe measures to achieve internal control over banking activities. 34

  35. Internal Control of Banking Activities 1. Access to the chequebook should be restricted to authorized employees. It should be kept in a locked drawer or safe when not in use. 2. Prenumbered cheques should be used and periodically checked to verify that none are missing. 3. Cheques should be examined and matched against approved invoices or other payment authorization by someone other than the person who has prepared them before being signed. 4. The person preparing the cheques and recording them in the chequebook should not be the same one who mails them to the payees. 5. The bank statement should be received and reconciled by someone other than the employees who handled, recorded, and deposited the cash receipts and issued the cheques. 6. All deposit receipts, canceled cheques, voided cheques, and bank statements should be filed for future reference. These documents provide backup information and create a strong audit trail for the chequing account. 35

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