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. $ $

Section 1 Banking Procedures (cont'd.) Chapter 11 $ Protecting Cash It is important to protect cash from loss, waste, theft, forgery, and embezzlement. $ $ $

Section 1 Banking Procedures (cont'd.) Chapter 11 $ Protecting Cash (cont'd.) 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 (cont'd.) Chapter 11 $ Protecting Cash (cont'd.) $ EXTERNAL CONTROLS 1. Verify signatures on checks. 2. Maintain records of transactions. $ $

Section 1 Banking Procedures (cont'd.) 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 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 (cont'd.) Chapter 11 $ Making Deposits to a Checking Account Businesses make regular deposits to protect the currency, coins, and checks received. $ $ $

Section 1 Banking Procedures (cont'd.) 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. $ $ $

Endorsing Checks (continued) Endorsing a check $ $ • A check CANNOT be cashed until its been endorsed. • To endorse a check, the payee named on the face of the check simply signs the back of the check in black/blue ink. • Must be signed in the area provided! You can’t just go crazy on the back of the check. • There are three major types of endorsements. • Blank Endorsement – just sign your name • Special Endorsement – used when you are signing over the check to a third person • Restrictive Endorsement – used to limit the use of a check. For example, you can say “for deposit only” above your signature. This means that the check cannot be cashed … only deposited. • Examples of different endorsement types: • http://voc.ed.psu.edu/projects/CAPS/27CAPS.html $ $

Section 1 Banking Procedures (cont'd.) Chapter 11 $ Recording Deposits in the Checkbook $ $ Deposits New Balance $

Section 1 Banking Procedures (cont'd.) Chapter 11 $ Writing Checks Enter amount Enter payee Enter date $ Enter payee Enter date Enter purpose Enter amount $ $ Sign the check Enter new balance Enter amount Enter dollar amount in words

Section 1 Banking Procedures (cont'd.) Chapter 11 $ 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 2 Reconciling the Bank Account (cont'd.) Chapter 11 $ Proving Cash $ General Ledger Cash in Bank account Checkbook Balance = $ $

Section 2 Reconciling the Bank Account (cont'd.) Chapter 11 $ The Bank Statement A bank statement is an itemized record of all the transactions in a depositor’s account over a given period, usually a month. $ $ $

Section 2 Reconciling the Bank Account (cont'd.) Chapter 11 $ The Bank Statement (cont'd.) Ending balance Beginning balance $ $ $ Checks paid by bank (cancelled checks) Other deductions Deposits into the account

Section 2 Reconciling the Bank Account (cont'd.) Chapter 11 $ Reconciling a Bank Statement Documents the differences between the bank balance and the checkbook balance. $ $ $

Section 2 Reconciling the Bank Account (cont'd.) Chapter 11 $ Recording Bank Service Charges A bank service charge is an expense that is recorded in the accounting records. $ Business Transaction (cont’d.) On November 1, Roadrunner received the bank statement. A bank service charge of $8 appeared on the statement. $ JOURNAL ENTRY $

Cash Control and Banking Activities