© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BANK ACCOUNTS AND CASH FUNDS Chapter 6

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ________________ is the system of policies and procedures that is designed to: __________________________________ Internal Control

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Maintain ______________ between cash handling and cash recording. Designate ______________ than the bookkeeper to open mail. Make a record of ______________. ______________ checks immediately upon receipt with the stamp, “For Deposit Only.” Deposit cash ______________. ______________ cash receipts as soon as possible, preferably by someone different than the person who first received the cash. Post cash receipts to the ______________ account as soon as possible. Managing Cash Receipts

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Make certain that all checks are ______________. Make sure that all ______________ are made by ______________ (with the exception of petty cash). Keep check supplies under ______________. Assign someone different than the ______________ of the checks to ______________ the checks. Keep petty cash under lock with access limited to one person ______________ the bookkeeper. Appoint someone other than the person preparing checks to prepare the ______________. Managing Cash Payments

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 1

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. When a person opens a bank account, that person fills out a ___________________ for the bank’s files. The bank provides printed ___________________ on which customers record the amount of coins and currency they are depositing and list each individual check being deposited. The ___________________ (American Bankers Association) is the small series of numbers located in the upper right corner of a check. Using a Checking Account

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Check Clearing for the 21 st Century Act (or Check 21 Act) allows banks to create a two-sided digital version of the original check, called a ___________________ check. Included in the Check Clearing for the 21 st Century Act, it now is legal for anyone to use a computer scanner to capture images of checks and deposit them electronically, a process known as ___________________. MICR and Substitute Checks

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Deposits, withdrawals, and transfers can be made at all hours at bank with ___________________ ( ___________________ ). Each depositor uses a plastic card that contains a coded number and has a ___________________ or ___________________. Automated Teller Machines

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A transfer of funds initiated through an electronic terminal is an ___________________ ( ____). There is ___________________, such as a check or deposit slip. The monthly bank statement will list the ( ____). deposits and payments. Electronic Funds Transfers

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The ___________________ (1) __________ title to the money and (2) __________ the payment of the check. Endorsements

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The party who writes the check is called the __________. The party to whom payment is to be made is the __________. The information recorded on the check stub is the ___________________________. Checks should be written carefully so that no one can successfully alter them. ___________________ are checks that have been paid or cleared by the bank. Writing Checks

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Steps for Writing Checks Step 1. ___________________________________ Step 2. ___________________________________ Step 3. ___________________________________ ___________________________________

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The bank prepares the bank statement, which is created from the bank’s viewpoint. The following legends are found on bank statements: __________ (_________): Increases in or credits to the account. __________ (_________): Decreases in or debits to the account. __________ (_________): The withdrawal of more than the cash balance in the account. __________ (_________): Correction of errors made by the bank. Bank Statements

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The ____________________ (checks that have been paid or cleared by the bank) are listed on the bank statement. They are called canceled checks because they are canceled by _________________, indicating that they have been paid. Bank Statements

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Recording Deposits or Withdrawals _______ Memos

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 2

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Since the bank statement balance and the ledger balance of cash are not equal, a business prepares a _________ ________________. The person performing the bank reconciliation will be making sure— the dollar amount of each check __________ the check entry in the company’s _________, all of the __________, __________ and __________ transfers belong to the company, and __________ are made in a __________ manner Need for Reconciling Bank Balance and Ledger Balance

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ________________ – A deposit made after the bank statement was issued. ________________ – Checks that have been written by the company but not yet received for payment by the time the bank sends out its statements. ________________ – Money collected by the bank for the customer. ________________ Interest earned for keeping cash in the bank account. ________________ – A deposited check that the bank cannot process because the check writer’s account does not contain enough money. ________________ – A bank charge for services rendered by the bank. ________________ – Mistakes made by the customer or the bank. Reasons for Differences Between the Bank Statement Balance and the Customer’s Cash Balance

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Step 1. ___________________________ Compare the amount of each ________________ with the ________________ and note any differences. In the ________________ beside the check number, list the date of the ________________. Steps in Reconciling the Bank Statement

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Step 2. ______________________________________ Compare the ____________ in transit listed on last month’s bank reconciliation with the ____________ shown on the ____________. Compare the remaining ____________ listed on this month’s bank statement with ____________ written in the company’s ____________. Steps in Reconciling the Bank Statement

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Step 3. _____________________________________ _________ the canceled checks in order by _________. Look over the list of outstanding checks left over from last month’s bank reconciliation, and note the checks that have _______________________________________. For each canceled check, compare the amount recorded in _________ numbers with the amount recorded in the _________. Review the endorsements on the backs of the checks to verify that money has been sent to the _________. Steps in Reconciling the Bank Statement

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Step 4. ______________________________ Trace the ______________________ and ______________________ to the journal. If the memos have not been recorded, make separate entries for them. Steps in Reconciling the Bank Statement

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The bank statement indicates a balance of $6,446 as of March 31. The Cash account as of March 31 is $4,650. A deposit made on March 31 was not recorded on the bank statement, $2,174. Outstanding checks: no. 920, $1,695; no. 975, $325; no. 976, $1,279. Credit memo: Note collected by the bank from T. Landon, $700, not recorded in the journal. Debit memo: Collection charge and service charge not recorded in journal, $2. W. Carson Company Bank Reconciliation

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Activities or transactions we knew about but the bank did not know about When the reconciliation process is complete, the adjusted bank statement balance and adjusted ledger balance MUST EQUAL. Activities or transactions the bank knew about but we did not know about These require journal entries

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 3

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Must equal

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Required Journal Entries

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. After the entries have been posted, the T account for _______________ looks like this: Required Journal Entries The balance in the T account is now ______ to both the adjusted bank statement balance and the adjusted ledger balance of _______.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 4

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. To write a check for a small amount is not economically practical. For many businesses the cost of writing each check is more than $10. A business keeps a cash fund for _______ (or small) items. This cash fund is known as the _______ _______. A business will set the maximum amount of payment from the fund before a check is required. Establishing the Petty Cash Fund

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Roland’s Delivery Service decides to establish a Petty Cash Fund of $100, and put it under the control of the assistant. A check is written for $100 to establish the fund. Establishing the Petty Cash Fund

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. T accounts for the entry look like this: Establishing the Petty Cash Fund Petty Cash Fund is an ______ ; therefore, it is listed on the balance sheet immediately after ______. Once the fund is created, it is not debited again unless the original amount is not large enough to handle the necessary transactions.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The check is written to the assistant, “Sheila R. Bayes, Petty Cash Fund.” She converts it into convenient ________________ (_________, (_________,, (_____, and _____) and keeps it in a locked drawer. She will not pay out of petty cash anything larger than whatever amount is agreed upon by management. Establishing the Petty Cash Fund

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 5

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A ___________________________ must be used to account for every payment from the fund. Payments from the Petty Cash Fund

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Some businesses prefer to have a written record on one sheet of paper, so they keep a ______________ __________________. Petty cash ______________ and the ______________ that are to be ______________ are listed as well as the purpose of the expenditure. Petty Cash Payments Record

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reimbursement of the Petty Cash Fund Petty Cash Fund is not ____________.

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 6

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Like the ______________ account, ______________ is debited only once: when it is established. The ______________ account is an ______. It is recorded in the balance sheet immediately below ______, unless ______________ is larger. Establishing the Change Fund

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. At the end of each business day, Roland’s Delivery Services’ accountant deposits the cash taken in during September 1 ($1,575) but holds back the amount of the Change Fund ($150). Depositing Cash

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. On September 9, the cash count is $1,672. So, the accountant deposits $1,522 ($1,672 – $150). Depositing Cash

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 7

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Because mistakes happen, accounting records must be set up to cope with the situation. If after removing the Change Fund, the day’s receipts are ________ than the register reading, then a _____ ________ exists. When the day’s receipts are ________ than the register reading, a ________ exists. Cash Short and Over

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. On September 14, Roland’s Delivery Service has a cash count of $1,663, while the cash register tape totals $1,515. There is $150 in the Change Fund. Cash Short and Over

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. On September 15, Roland’s Delivery Service has a cash count of $1,732, while the cash register tape totals $1,578. There is $150 in the Change Fund, so the service has a $4 cash overage. Cash Short and Over

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The following entry is recorded in Roland’s Delivery Services’ journal for September 14 and 15. Cash Short and Over

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. At the end of the fiscal period, if _____________ _____________ has a ________ balance (or ____ ________ ), the accountant classifies it as an ________. _____________ is ____ and __________ _____________ is ____. If the account has a ____ balance (or ____ ________), the accountant classifies it as ________. __________ _____________ is debit ____ and _____________ _____________ (an income statement account) is ____. Cash Short and Over

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The T account would look like this: Cash Short and Over

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 8

© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.