Lecture 30 Chapter 07 Cash Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

1. Describe the nature of cash and the importance of internal control over cash. 2. Summarize basic procedures for achieving internal control over cash receipts. 3. Summarize basic procedures for achieving internal control over cash payments, including the use of a voucher system. 4. Describe the nature of a bank account and its use in controlling cash. 5. Prepare a bank reconciliation

Control Over Cash Many companies need several cash accounts to account for different cash categories and funds. Most companies have multiple bank accounts. The title for each bank account should be: Cash in Bank—(Name of Bank) Preventive controls protect cash from theft and misuse of cash. Detective controls are designed to detect theft or misuse of cash and are also preventive in nature.

Cash Receipts CASHIER’S DEPARTMENT ACCOUNTING DEPARTMENT Register records Mail Receipts Remittance advices

1 ACCOUNTING DEPARTMENT Deposit ticket Bank CASHIER’S DEPARTMENT Deposit receipt

1.The employee who opens the mail should initially compare the amount received with the amount on the remittance advice. 2.The employee opening the mail stamps checks and money orders “For Deposit Only” in the bank account of the business. 3.All cash is sent to the Cashier’s Department where checks and money orders are combined with receipts from cash sales and a bank deposit ticket is prepared.

4.The remittance advices and their summary totals are delivered to the Accounting Department where a clerk prepares the records of the transactions and posts them to the customer account. 5.The stamped duplicate copy of the deposit ticket is returned to the Accounting Department where a clerk compares the receipt with the total amount that should have been deposited.

1.Cash controls must provide assurance that payments are made for only authorized transactions. 2.Cash controls should ensure that cash is used efficiently. 3. A voucher system provides assurance that what is being paid for was properly ordered, received, and billed by the supplier. Internal Control of Cash Payments

Basic Features of the Voucher System

A voucher system normally uses vouchers. The system normally has a file for unpaid vouchers and a file for paid vouchers. Usually prepared by the Accounting Department after all necessary supporting documents are received (purchase order, supplier’s invoice, and a receiving report). In preparing the voucher, the accounts payable clerk verifies the quantity, price, and mathematical accuracy of the supporting documents and files the paid voucher.

1.Compare each deposit listed on the bank statement with unrecorded deposits appearing on the preceding period’s reconciliation and with deposit receipts.

2.Compare paid checks with outstanding cheques appearing on the preceding period’s reconciliation and with recorded checks.

3.Compare bank credit memorandums to entries in the journal.

4.Compare bank debit memorandums to entries recording cash payments. 5.List any errors discovered during the preceding steps.

BANK Bank’s books Beginning balanceRs. 3, Depositor’s records Beginning balanceRs. 2, Power Network Inc. prepares to reconcile the monthly bank statement as of July 31, 2011

A deposit of Rs did not appear on the bank statement. BANK Bank’s books Beginning balance Rs. 3, Add deposit not recorded by bank Rs. 4, Depositor’s records Beginning balance Rs. 2,549.99

BANK Bank’s books Beginning balance Rs. 3, Add deposit not recorded by bank Rs. 4, Depositor’s records Beginning balance Rs. 2, Add note and interest collected by bank Rs. 2, The bank collected a note in the amount of Rs.400 and the related interest of Rs.8 for Power Networking

A deposit of $ did not appear on the bank statement. Three cheques that were written during the period did not appear on the bank statement: #812, Rs.1,061; #878, Rs , #883, Rs BANK Bank’s books Beginning balance Rs. 3, Add deposit not recorded by bank Deduct outstanding Cheques: No , No No , Rs. 4, Depositor’s records Beginning balance Rs. 2, Add note and interest collected by bank Rs. 2,957.99

BANK Bank’s books Deduct outstanding cheques: No. 8121, No No , Depositor’s records Deduct cheques returned because of insufficient funds Rs Beginning balance Rs. 3, Add deposit not recorded by bank Rs. 4, Beginning balance Rs. 2, Add note and interest collected by bank Rs. 2, The bank returned an NSF check from one of the firm’s customers, Thomas, in the amount of Rs This was a payment on account.

Deduct outstanding cheques: No. 8121, No No , Deduct cheque return because of insufficient funds Rs Bank service charges18.00 BANK Bank’s books Beginning balance Rs. 3, Add deposit not recorded by bank Rs. 4, Depositor’s records Beginning balance Rs. 2, Add note and interest collected by bank Rs. 2, The bank service charges totaled Rs

BANK Bank’s books Depositor’s records Beginning balance Rs. 3, Add deposit not recorded by bank Deduct outstanding cheques: No. 8121, No No , Rs. 4, Beginning balance Rs. 2, Add note and interest collected by bank Deduct cheques return because of insufficient funds Rs Bank service charges18.00 Rs. 2, Error recording Cheque Cheque No. 879 for Rs to Taylor Co. on account, erroneously recorded in journal as Rs

BANK Bank’s books Beginning balance Rs. 3, Add deposit not recorded by bank Deduct outstanding cheque: No. 8121, No No , Rs. 4, Adjusted balance Rs. 2, Depositor’s records Beginning balance Rs. 2, Add note and interest collected by bank Deduct cheque return because of insufficient funds Bank service charges18.00 Rs. 2, Adjusted balance Rs. 2, Error recording Cheque No

Power Networking Bank Reconciliation July 31, 2011 Balance per bank statement 3, Add: Deposit not recorded by bank , Deduct: Outstanding checks No , No No , Adjusted balance 2, Balance per depositor’s records2, Add: Note and interest collected by bank , Deduct: NSF check (Thomas ) returned Bank service charges Error in recording Check No Adjusted balance2,630.99

Lecture Overview

End of Lecture 30