Chapter 12 – Controls over Cash and Bank Reconciliations Learning Outcome This chapter shows how to examine the internal controls over cash and to reconcile bank statements with cash records. . Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

KEY TERMS Bank charges Bank reconciliation Bank statement Credit balance in the bank statement Debit balance in the bank statement Direct deposits (direct credits) Direct payments (direct debits) Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

KEY TERMS cont… Electronic payments Electronic receipts (including EFTPOS) Government debits tax Internal control Outstanding receipts Unpresented debits (cheques) Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

GENERAL INTERNAL CONTROLS Monies not banked kept in safe areas Segregation of duties Rotation of staff duties Pre-numbered documents used in all transactions Regular reconciliations of bank accounts, accounts payable and accounts receivable Clearly defined staff responsibilities and duties Controls exercised over investments Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

INTERNAL CONTROLS OVER CASH RECEIPTS Bank daily Record mail receipts in remittance book and stamp ‘A/c payee only’ on cheques Use pre-numbered receipts and cash register tapes Account for all documents, including those cancelled Segregation of duties Regular bank reconciliations Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

INTERNAL CONTROLS OVER CASH PAYMENTS Payment cheques stamped ‘not negotiable’ Electronic payment software secure and password protected Pre-numbered cheques and documents used Payments properly authorised Segregation of duties Regular bank reconciliations Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

BANK RECONCILIATION AS AN INTERNAL CONTROL Verifies that balance at bank agrees with cashbook balance Bank statement extracted from bank records Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

ELECTRONIC BANKING Direct deposits Direct debits (payments) Payments made directly into a bank account of client Direct debits (payments) Payments made by bank on behalf of client Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

ELECTRONIC BANKING cont… Software enables 24-hour electronic: payment of creditors and expenses payroll transactions funds transfers between accounts remittance processing Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

ELECTRONIC BANKING cont… Provides access to: bank account balances bank statements Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

BANK RECONCILIATION Internal control Helps detect errors and/or misappropriations Bank statements compared to the cash records of the business on a regular basis Ensures all receipts are properly accounted for and banked Enables recording of bank cheques, direct deposits or payments and interest Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

BANK RECONCILIATION cont… Bank statements and bank reconciliations retained as permanent records Identifies cheques in Cash payments journal not presented at bank Identifies dishonoured cheques Identifies any mathematical errors in cashbooks or bank statements Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

BANK RECONCILIATION PROCEDURES Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

DISHONOURED CHEQUES Drawer has insufficient funds Cheque unsigned Incorrect or incomplete information Appears as a debit on bank statement Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

RECONCILIATION CHECKLIST Check off items common to both bank statement and cash books. Add to cashbook items on bank statement but not in cashbooks (e.g. bank charges). Mark outstanding and unpresented items in cashbooks and not on bank statements. List all o/s deposits and unpresented cheques. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

RECONCILIATION CHECKLIST cont... Add o/s deposits to bank statement balance and subtract unpresented cheques if bank statement has a CREDIT balance. Add unpresented cheques and subtract o/s deposits if bank statement has a DEBIT balance. The balance calculated should equal cashbook balance. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson