Cash Control & Banking Activities Chapter 11

What happens if a business fails to take steps to protect its assets and keep reliable records? Loss of cash Forgery Embezzlement Overdrawn accounts Inability to pay bills What do you think?

Discussion Why do businesses need cash controls? To protect cash from loss, waste, theft, forgery and embezzlement What controls do businesses use to protect its cash? Following proper banking procedures, properly endorsing checks, making all payments by check, correctly filling out the check and check stub Discussion

Internal controls are steps to protect assets and keep reliable records How a business protects cash How to use a checking account Main Idea/Objectives

Protecting Cash Internal Controls (inside the business) External Controls (outside the business) Protecting Cash

Allows a person or business to deposit cash in a bank and write checks against the bank balance Check – written order by the depositor to pay the stated amount to the payee Depositor – person or business that has cash on deposit in the bank Checking Account

Authorized signature written or stamped on the back of a check to transfer ownership Blank – transfers ownership without indicating new owners. Signature only. NOT SAFE Special – transfers ownership to a specific person or business. Pay to the order of… Restrictive – transfers ownership to a specific person or business, then limits how the check may be handled. Protects check from being cashed by anyone else. FOR DEPOSIT ONLY… Endorsements

Writing a Check Payee – person or business to which a check is written Drawer – person who signs the check Drawee – bank on which the check is written Voiding a Check – VOID – you make an error when writing the check. Write VOID across it Writing a Check

Reconciling the Bank Statement Section 2 Reconciling the Bank Statement

Objectives Why businesses prove cash How to read and reconcile a bank statement Electronic Funds Transfer Objectives

Comparing the bank statement balance to the cash in bank in the checkbook If the two amounts do not match, there is an error Common errors Bad math Forgetting to record a deposit or check A mistake in carrying the balance forward to the next stub Proving Cash

Contains an itemized record of all transactions in a depositor’s account Canceled checks – returned by the bank as an imaged check with the bank statement They are checks that have been cashed Bank Statement

Bank Reconciliation Aka reconciling the bank statement When these are received, the statement is compared to the checkbook Bank Reconciliation

Bank Reconciliation A checkbook can be out of balance due to: Outstanding checks Written but have not yet been presented to the bank for payment Outstanding deposits Deposits that have been made and recorded but have not yet cleared the bank Bank charges Small fees for maintaining the bank records Amount subtracted from the bank statement, and must be subtracted from the checkbook Bank Reconciliation

Interest is paid on some accounts and must be recorded in the checkbook, journalized and posted Bank Reconciliation

Bank Reconciliation

Journalizing Bank Charges

Special Banking Procedures Three problems may occur when checks are written or received and deposited: A business does not want the bank to pay an issued check – Stop Payment A business receives and deposits a check from a customer whose account does not have enough money to cover the check - NSF A customer presents a check that has a date in the future – Postdated Check Special Banking Procedures

Issued when a drawer instructs the drawee not to pay a check To record a stop payment order Write Stopped Payment on the check stub for the stopped check Add the amount of the stopped check on the next unused check stub Stop Payment

returned to the depositor because the drawer’s account does not have enough funds to cover the amount NSF stands for Not Sufficient Funds Check Clearing for the 21st Century, known as Check 21, allows the conversion of a paper check to an electronic image that can be processed quickly writing a check that is physically returned to you such as at the GAP or a grocery store A bank can pay a check on the same day it is written, instead of several days later NSF Checks

A check that has a future date instead of the actual date It should not be deposited until the date that appears on the check Postdated Check

Electronic Funds Transfer Systems EFTS handles large volume of funds transfers and allows banks to transfer funds among accounts quickly and accurately How EFTS impacts banking activities: direct payroll deposit automated bill paying bankcards used at automated teller machines (ATMs) bank-by-phone online banking Electronic Funds Transfer Systems