BAF3M Accounting

1. BAF3M Accounting Chapter 10 – Cash Control and Banking

2. 10.1 Payment Systems • Def’n: a method for people to exchange one value for another Ex. You trade $20 for a T shirt at a concert You get a “Rockin’” T, the vendor gets your $20 bill

3. 10.1 Payment Systems • 5 main ones exist: • Cash • Cheques or “Checks” • Credit Cards • Debit Cards • Direct Payments

4. 10.1 Payment Systems • Cash • Dollar bills, coins • Popular, Easy • Volume of transactions large, value of each individual transaction is small • Anonymity • Security concerns

5. 10.1 Payment Systems • Cheques (“Checks” in the USA) • Written instruction to transfer an amount from one account to another • Takes longer • Could be NSF • More secure

6. 10.1 Payment Systems • Credit Cards • Limited monthly spending limit • Issuer (visa, amex, etc) pays the merchant • You pay the issuer back by the due date • If you don’t pay on time, you pay interest • Relatively safe, very convenient • Some fraud occurs • Some have annual fees

7. 10.1 Payment Systems • Debit Cards • Money goes directly from your account to the seller’s account • Need a PIN (please never say “PIN Number”) • Extremely popular, safe, convenient • Some bank accounts charge for debiting

8. 10.1 Payment Systems • Direct Transfers • Money goes from one account to another automatically on a set date • Example: My mortgage payment is deducted from my bank account every 2nd Wednesday.. I never actually hand any cash to CIBC (who holds my mortgage) • Goes the other way too – many people are paid by ‘direct deposit’ • Example: My employer (GECDSB) never actually gives me cash... Every 15th and 30th my pay is automatically deposited to my bank account

9. 10.2 Accounting for Cash Receipts • Cash Receipts are all the funds taken in from business operations, includes all items considered to be money • Three types listed • Mail receipts • Over-the-counter sales • Cash Register Receipts Read these paragraphs and understand the appropriate journal entries

10. 10.2 Accounting for Cash Receipts • Preparing Cash Proofs • Change Fund or Float  an amount of money for making change for customers • Created by the business making a cheque out to “cash” Journal Entry Cash Float $$$ Bank $$$

11. 10.2 Accounting for Cash Receipts • Cash Proof is an accounting procedure that compares cash receipts according to source documents against cash receipts according to a physical count • i.e. What SHOULD BE there VS. What IS there

12. 10.2 Accounting for Cash Receipts • Cash Short or Over • New account created to balance the source document info correctly • If a short then it is a DR • If an over then it is a CR Don’t just add/subtract the error from the sales amount, this is not accurates

13. 10.3 Accounting for Cash Payments • Businesses often pay by cheque, direct transfer, or cash • Cheques are most popular – helps clear the accounts payable • Cash payments made with “petty cash”

14. 10.3 Accounting for Cash Payments • Petty Cash • A small amount of cash kept in the office to cover small expenses • Establishing the Petty Cash fund • Journal Petty Cash $$$ Bank $$$

15. 10.3 Accounting for Cash Payments • Operating the Petty Cash Fund • As Cash is removed, bills/vouchers replace • At any time the total of all the cash, bills and vouchers should equal the initial petty cash amount

16. 10.4 Accounting Controls for Cash • An accounting system that promotes employee honesty, accuracy and efficiency is considered to have good internal control Internal Control – a set of procedures established to protect the assets from theft, waste and ensure accurate accounting data, encourage efficiency and adhere to company policies

17. 10.4 Accounting Controls for Cash • Where possible 2 people should process and prepare accounting documents independently of each other and their work must agree. • The person who records transactions or prepares accounting records should not also control or handle the physical assets. • All assets should be kept in a safe place.

18. 10.4 Accounting Controls for Cash • Only a few key employees should be allowed to approve and authorize transactions. • An independent accountant should periodically carry out an audit to ensure that the accounting system is being followed correctly. • Responsibilities should be clearly established. It should be easy to tell who is responsible for errors or missing assets.

19. 10.4 Accounting Controls for Cash • SEPARATE DUTIES – the people handling the cash should not be the people keeping the records for the cash • DEPOSIT FUNDS DAILY – cash receipts for the day should be deposited by the end of the day • DEPOSIT FUNDS INTACT – cash received during the day should not be available for making payments or for borrowing by employees.

20. 10.4 Accounting Controls for Cash • MAKE ALL PAYMENTS BY CHEQUE OR ELECTRONIC TRANSFER OF FUNDS. • ENDORSE CHEQUES “FOR DEPOSIT ONLY” – then each cheque can only be credited to the business’s bank account and cannot be cashed in any other way • RECONCILE BANK ACCOUNTS MONTHLY – this is a routine procedure to determine why the balance on deposit in the bank does not agree with the balance of cash shown by the books of the company.

21. 10.4 Accounting Controls for Cash • Bank Reconciliation • A routine procedure to determine why the balance on deposit in the bank does not agree with the balance of cash shown by the books of the company • Usually outstanding cheques or late deposits