Cash Control and Banking Activities

Chapter 11 $ Cash Control and Banking Activities $ Making Accounting Relevant Businesses deposit all cash and checks into a bank account and make payments using checks. This policy helps to protect cash from loss or theft. $ $ What other benefit does a business gain from the use of a checking account?

Chapter 11 $ Section 1 Banking Procedures • What You’ll Learn • What controls a business uses to protect cash and why these controls are needed. • To complete forms used to open a checking account. • To record information on check stubs. • To prepare a check correctly. $ $ $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Why It’s Important Cash is a valuable asset. It must be protected and processed properly. $ • Key Terms • internal controls • external controls • checking account • check • depositor • signature card • deposit slip • endorsement • restrictive endorsement • payee • drawer • drawee • voiding a check $ $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Protecting Cash It is important to protect cash from loss, waste, theft, forgery, and embezzlement. $ $ INTERNAL CONTROLS $ Steps the business itself takes to protect cash and other assets.

Section 1 Banking Procedures (con’t.) Chapter 11 $ Protecting Cash (con’t.) INTERNAL CONTROLS $ 1. Limit the number of persons handling cash. 2. Separate accounting tasks involving cash. 3. Bond (insure) employees who handle cash or cash records. 4. Use a cash register and a safe. 5. Deposit cash receipts in the bank daily. 6. Use checks to make all cash payments. $ $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Protecting Cash (con’t.) $ EXTERNAL CONTROLS Measurements and procedures provided outside the business to protect cash and other assets. $ 1. Verify signatures on checks. 2. Maintain records of transactions. $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Opening a Checking Account • Allows a person or business to deposit cash in a bank and to write checks against the account balance. • A check is a written order from a depositor telling the bank to pay a stated amount of cash to the person or business named on the check. • A signature card contains the signature(s) of the person(s) authorized to write checks on the account. • Printed checks are packaged together in checkbooks. $ $ $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Opening a Checking Account • American Bankers Association (ABA) number is the code that identifies the bank. • The number above the line and to the left of the hyphen represents the city or state where the bank is located. • The number to the right of the hyphen indicates the specific bank. • The number below the line is the code of the Federal Reserve Districtwhere the bank is located. $ $ $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Opening a Checking Account (con’t.) • The ABA #, the depositor’s account #, and the check # is in special ink and typeface at the bottom of the check. These specially printed numbers are called MICR (magnetic ink character recognition) numbers. • MICR is used for electronic sorting. $ $ $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Making Deposits to a Checking Account • Businesses make regular deposits to protect the currency, coins, and checks received. • Deposits are accompanied by a deposit slip. • List Checks separately by their ABA#’s. Only the two #’s above the line. • The checks are to be arranged in the order listed on the deposit slip. $ $ $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Endorsing Checks • To deposit the check in a checking account, the depositor endorses the check to transfer ownership to the bank. • An endorsement is an authorized signature written or stamped on the back of a check representing a promise to pay. • A restrictive endorsement limits, or restricts, how a check may be handled. $ $ $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Recording Deposits in the Checkbook $ $ Date Deposits New Balance $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Writing Checks Write checks in ink, or prepare typewritten or computer-generated checks. Fill out the check stub first. Enter amount Enter date Enter payee Enter payee Enter date Enter purpose Enter amount $ $ $ Enter new balance Sign the check Enter amount Enter dollar amount in words

Section 1 Banking Procedures (con’t.) Chapter 11 $ Drawer is the person who signs the check. The bank on which the check is written is the drawee. $ Voiding a Check $ Writing the word “Void” in large letters across the front of a check (in ink) is known as voiding a check. $

Section 1 Banking Procedures (con’t.) Chapter 11 $ Demonstration Problems $ Problems 11-1 and 11-2. $ $

698.00 23.45 April 10 ---- 44-9876 39.80 21-4682 361.90 17-4141 80.69 1,203.84

64-505 610 ABA# Payee Drawee Drawer $115.86 May 8, ---- Valley Utilities April electric bill May8, --- Valley Utilities $115.86 One hundred fifteen and 86/100--------------- Susan Y. Rucker 115.86 April electric bill 1,758.36 City or state were bank is located Code for the federal reserve district were the bank is located Identifies the specific bank

Section 1 Banking Procedures (con’t.) Chapter 11 $ Assignment: Check Your Understanding p264 Thinking Critically 1&2 Problem 2 is worth 6 points (be descriptive) Problem 11-1 $ $ $

Cash Control and Banking Activities