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Checking Accounts: Cash Management and Reconciliations

Learn how to manage cash effectively through checking accounts, including depositing, writing checks, reconciling bank statements, and handling dishonored checks and electronic banking. Complete with examples and journal entries.

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Checking Accounts: Cash Management and Reconciliations

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  1. CHAPTER 5 Checking Accounts

  2. 5-1 CHECKING ACCOUNTS In accounting money is usually referred to as cash. -Most businesses make cash payments by check. -Small cash payments may be made from petty cash. -Can make errors when dealing with cash. -Cash carries no “ownership” and can be lost easily. For safety reasons most of a company’s cash is kept in the bank in a checking account A checking account is an account from which payments can be ordered by a depositor.

  3. DEPOSIT RECORDED ON A CHECK STUB page 119 To put money into a bank you use a deposit slip. -Cash receipts are journalized at the time cash is received. -Later, the cash is deposited - will not journalize entry for deposit. -Make sure to record the deposit on the check stub. Deposit Slip

  4. Blank Endorsement Special Endorsement Restrictive Endorsement ENDORSEMENTS page 120 Endorsing a check - a signature/stamp on the back of a check transferring ownership. -Needs to be signed exactly as written -Ownership can be transferred several times. Endorser’s Signature Pay to the order of (new owner) For Deposit Only to Acct #

  5. COMPLETED CHECK STUB page 121 1 1. Write the amount of the check. 2 3 2. Write the date of the check. 4 3. Write to whom the check is to be paid. 4. Record the purpose of the check. 5. Write the amount of the check. 6. Calculate the new checking account balance. 5 6

  6. 7. Write the date. COMPLETED CHECK page 121 To take money out of the bank you write a check - a form ordering the bank to pay cash from your account. 7 8 9 10 11 12 10. Write the amount in words. 11. Write the purpose of the check. 8. Write to whom the check is to be paid. 12. Sign the check. 9. Write the amount in figures.

  7. RECORDING A VOIDED CHECK page 122 2 4 1 3 5 1. Record the date. 2. Write the word VOID in the Account Title column 3. Write the check number. 4. Place a check mark in the Post. Ref. column. 5. Place a dash in the Cash Credit column.

  8. 5-2 BANK RECONCILIATION Reconciling is verifying that the information on the bank statement = your checkbook balance. -Cancelled Checks: Checks that have been processed by the bank. (deducted from you account) -Outstanding Checks: Checks you’ve written that have not been processed. -Outstanding Deposits: Deposits you‘ve made that the bank has not processed. -Bank Service Charge - $ a bank charges for account each month. (deducted electronically from your account) ALWAYS Reconcile - Banks DO make mistakes!

  9. BANK STATEMENT page 124 Bank Statement - a report with deposits, withdrawals, and a bank balances sent to the depositor.

  10. 10 BANK STATEMENT RECONCILIATION page 125 1. Date 1 2. Check Stub Balance 2 5 3. Service Charge 4. Adjusted Check Stub Balance 6 3 5. Bank Statement Balance 7 6. Outstanding Deposits 8 4 9 7. Subtotal 8. Outstanding Checks 9. Adjusted Bank Balance 10. Compare Adjusted Balances

  11. RECORDING A BANK SERVICE CHARGE ON A CHECK STUB page 126 1. Write Service Charge $8.00 on the check stub under the heading “Other.” 2. Write the amount of the service charge in the amount column. 3. Calculate and record the new subtotal on the Subtotal line. 1 2 3

  12. 1. Date. Write the date. 2 JOURNALIZING A BANK SERVICE CHARGE page 127 August 31. Received bank statement showing August bank service charge, $8.00. Memorandum No. 3. 4 1 3 2. Debit. Write the title of the account to be debited. Record the amount debited. 3. Credit. Record the amount credited. 4. Source document. Write the source document number.

  13. 5-3 DISHONORED CHECKS AND ELECTRONIC BANKING Dishonored Check - A check that the bank refuses to pay. NSF or other reasons pg. 129 Electronic Funds Transfer (EFT) - Computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents. Usually used for vendors Memos are the source document (not a check) Debit Card - A bank card that automatically deducts the amount of a purchase from the checking acct of the card holder. Used to make purchases Memos are the source document (not a check) Biggest mistake is forgetting to record on check stub

  14. 1. Write Dishonoredcheck $105.00 on the line under the heading “Other.” RECORDING A DISHONORED CHECK ON A CHECK STUB page 129 2. Write the total of the dishonored check in the amount column. 1 2 3 3. Calculate and record the new subtotal on the Subtotal line.

  15. 1. Date. Write the date. 2 JOURNALIZING A DISHONORED CHECK page 130 November 29. Received notice from the bank of a dishonored check from Campus Internet Café, $70.00, plus $35.00 fee; total, $105.00. Memorandum No. 55. 1 4 3 2. Debit. Write the title of the account to be debited. 3. Credit. Write the amount credited. 4. Source document. Write the source document number.

  16. 1. Date. Write the date. 2 JOURNALIZING AN ELECTRONIC FUNDS TRANSFER page 131 September 2. Paid cash on account to Kelson Enterprises, $350.00, using EFT. Memorandum No. 10. 4 1 3 2. Debit. Write the title of the account to be debited. Record the amount debited. 3. Credit. Record the amount credited. 4. Source document. Write the source document number.

  17. 1. Date. Write the date. 2 JOURNALIZING A DEBIT CARD TRANSACTION page 132 September 5. Purchased supplies, $24.00, using debit card. Memorandum No. 12. 4 1 3 2. Debit. Write the title of the account to be debited. Record the amount debited. 3. Credit. Record the amount credited. 4. Source document. Write the source document number.

  18. 5-4 PETTY CASH Petty Cash: Cash kept on hand that is used for making small payments. -Petty cash has a normal debit balance (asset) -The only time you will use the account name “Petty Cash” is when you establish the fund. Petty Cash Slip - A form used showing the purpose of the payment (proof). They are kept in the box until it is replenished. -Will write a check to replenish petty cash and journalize to the accounts where the money was spent.

  19. 1. Date. Write the date. 2 ESTABLISHING A PETTY CASH FUND page 134 August 19. Paid cash to establish a petty cash fund, $100.00. Check No. 8. 4 1 3 2. Debit. Write the title of the account to be debited. Record the amount debited. 3. Credit. Record the amount credited. 4. Source document. Write the source document number.

  20. MAKING PAYMENTS FROM A PETTY CASH FUND WITH A PETTY CASH SLIP page 135

  21. 1. Date. Write the date. 2 REPLENISHING PETTY CASH page 136 August 31. Paid cash to replenish the petty cash fund, $30.00: miscellaneous expense, $20.00; advertising, $10.00. Check No. 12. 4 1 3 2. Debit. Write the title of the first account to be debited. Write the amount to be debited. Write the title of the second account to be debited. Record the amount to be debited. 3. Credit. Record the amount credited. 4. Source document. Write the source document number.

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