Chapter 7 Appendix 7A Cash Controls Prepared by: Dragan Stojanovic, CA Rotman School of Management, University of Toronto

Using Bank Accounts Using different bank accounts for different purposes General chequing account Used for day-to-day activities Imprest bank accounts Used for specific purposes Lockbox accounts Used for collections in subsidiary locations Arrangements made with a local bank to pick-up and deposit funds received Allows for quicker collection and availability of cash

Imprest Petty Cash System Designed for disbursements where payment by cheque is impractical Control processes/procedures include the following: Designate a petty cash custodian Custodian is responsible for getting a receipt for each authorized disbursement Custodian prepares a summary of petty cash receipts and disbursements each time the fund requires reimbursement Cheque is prepared and transactions recorded by someone other than the custodian

Imprest Petty Cash System Cash Over and Short account used when the cash in the fund plus dollar amount of receipts does not equal the balance of the petty cash fund Additional control procedures include: Unscheduled fund counts to ensure fund balance is maintained Receipts are marked (after being submitted for reimbursement) in some way to ensure they cannot be used again

Imprest Petty Cash System: Example A petty cash fund is established for $300. A cheque is issued (for cash), with the following entry made: Petty Cash 300 Cash (Bank) 300 No entries are required when petty cash disbursements are made

Imprest Petty Cash System: Example Petty cash is reconciled and replenished when the fund is low enough to warrant a cheque being issued or at the end of an accounting period The following disbursements were made: Office Supplies $ 42 Postage 53 Entertainment 76 Total $171 The custodian counts the cash and finds there is $127 cash. The fund is $2 short ($300 – $171 = $129). Once the custodian has ensured that all receipts and cash have been accounted for, the $2 difference is considered Cash Over and Short.

Imprest Petty Cash System: Example A cheque is written for the required amount of $173 ($171 + $2). The entry to record the cheque is: Office Supplies Expense 42 Postage Expense 53 Entertainment Expense 76 Cash Over and Short 2 Cash (Bank) 173 What would the entry have been if it was decided to decrease the fund to $250?

Reconciliation of Bank Balances Ensures there are no errors Ensures no omissions have occurred during the month Ensures unusual transactions are properly recorded Should not be completed by the same person who writes cheques or completes the deposits

Bank Reconciliation: Reconciling Items Deposits in Transit: deposits that have been recorded in the books of account, but not yet by the bank Outstanding Cheques: cheques that have been recorded in the books of account, but have not yet cleared the bank Bank Charges: service, and other charges, made by the bank, but not yet recorded in the books of account Bank Credits: collections or deposits made by the bank, but not yet recorded in the books of account Bank or Depositor Errors: any unrecorded errors by either the bank or the company

Bank Reconciliation: Form and Content Balance per bank statement (end of period) $$$ Add: Deposits in transit $$ Undeposited receipts $$ Bank errors $$ $$ $$$ Deduct: Outstanding cheques $$ Bank errors $$ $$ Correct cash balance $$$ Balance per depositor’s books $$$ Add: Unrecorded bank credits $$ Book errors $$ $$ Deduct: Unrecorded bank charges $$ Book errors $$ $$ Correct book balance $$$

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