CHAPTER 5 CHECKING ACCOUNTS HOW BUSINESSES USE CASH AND WHY

HOW BUSINESSES USE CASH (5-1) Money is referred to as cash. All major cash payments are made by check. Cash transactions are more frequent than other types of transactions. There are more chances to make recording errors to cash. Challenges: Challenges: Cash can be lost as it is moved. It can be easily transferred without question of ownership. safety For safety businesses keep most of their cash in a bank. They keep written evidence to support their accounting records. compare Businesses compare a bank’s records of checks paid with the company’s record of checks written. These procedures result in greater control and accuracy of cash records.

DEPOSIT SLIP PREPARED BY CUSTOMER THEN PROCESSED BY FINANCIAL INSTITUTION (date) (amount) (bank employee initials) Bank routing # from the Printed verification = Receiptcheck to be deposited

CHECK STUB ABBREVIATIONS BAL BRO’T FOR’DBALANCE BROUGHT FORWARD AMT. DEPOSITEDAMOUNT DEPOSITED AMT. THIS CHECKAMOUNT THIS CHECK BAL. CAR’D FOR’DBALANCE CARRIED FORWARD

WHY NOT JOURNALIZE CASH RECEIPTS FROM CHECK STUBS?  Cash receipts are journalized at the time cash is received. Later, the cash receipts are deposited in the checking account. No journal entry is necessary for deposits because the cash receipts have already been journalized from calculator tapes at the end of the day.

ENDORSEMENT: A SIGNATURE OR STAMP ON THE BACK OF A CHECK TRANSFERRING OWNERSHIP. Whoever holds the check is the owner. This check can be easily cashed by anyone. AKA “endorsements in full”. Includes the words “Pay to the order of” and the name of the new check owner. When a check is received it is immediately stamped to limit the use of the check.

COMPLETING THE CHECK STUB before The check stub is prepared before the check is written. Consecutive numbers on checks help us track them easily. A check should not be signed until each item on the check and its stub has been verified for accuracy.

ACCOUNTING CONCEPT: OBJECTIVE EVIDENCE A check stub is the business’s record of the check or some check styles have a duplicate check that is left in the checkbook. This becomes our source document to analyze & journalize.

ACCOUNTING CONCEPT: BUSINESS ENTITY Checks are paid to a business rather than the owner’s name. If the person to whom the check is to be paid is an individual, use that person’s name. recorded and reported separately We apply the Business Entity accounting concept when a business’s financial information is recorded and reported separately from the owner’s personal financial information.

RECORDING A VOIDED CHECK  If any kind of error is made in preparing a check, a new check should be prepared. Because checks are prenumbered, all checks not used should be retained for the records. This practice helps account for all checks and assures that no checks have been lost or stolen. A check that contains errors must be marked so that others will know that it is not to be used. The word VOID is written in large letters across both the check and its stub.

You are authorized to sign checks for Balsam Lake Accounting. 1. For each of these situations, prepare the appropriate endorsement. a. Write a blank endorsement. b. Write a special endorsement to transfer a check to Kelsey Sather. c. Write a restrictive endorsement to deposit a check in the account of Balsam Lake Accounting. 2. Record the balance brought forward on Check Stub No. 78, $1, Record a deposit of $ made on October 30 of the current year on Check Stub No Prepare check stubs and write the following checks. Use October 30 of the current year as the date. a. Check No. 78 to Corner Garage for repairs, $ b. Check No. 79 to St. Croix Supply for supplies, $92.00.