1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 5--Cash Control Systems Objectives: Define accounting terms related to using a checking account and a petty cash fund Identify accounting concepts and practices related to using a checking account Prepare business papers related to using a checking account Reconcile a bank statement Journalize dishonored checks and electronic banking transactions Establish and replenish a petty cash fund

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 5 Vocabulary code of conduct checking account endorsement blank endorsement special endorsement restrictive endorsement postdated check bank statement dishonored check electronic funds transfer debit card petty cash petty cash slip 2 LESSON 5-1 page 123

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 5-1: Checking Accounts Cash transactions occur more frequently than other types of transactions, and cash is easy to transfer from one person to another. Because of this companies have a… Code of conduct—a statement that guides the ethical behavior of a company and its employees

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 5-1 DEPOSITING CASH page 119 A bank account from which payments can be ordered by a depositor is called a checking account. It is so important to be accurate when recording additions to and subtractions from a bank account. When a checking account is opened, the bank customer must provide a signature on a signature card for the bank records. Each person’s signature must be on the signature card.

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning DEPOSITING CASH 5 LESSON 5-1 A bank customer prepares a deposit slip each time cash or checks are placed in a bank account. All deposit slips contain the same information. Checks are listed on a deposit slip according to the bank routing number on each check. When a deposit slip is made, a bank gives the depositor a receipt.

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 5-1 DEPOSIT RECORDED ON A CHECK STUB page 119 After the deposit is recorded on the check stub, a checkbook subtotal is calculated. Cash receipts are journalized at the time cash is received. Later, the cash receipts are deposited in the checking account.

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 5-1 ENDORSEMENTS page 120 Blank Endorsement Special Endorsement Restrictive Endorsement A signature or stamp on the back of a check transferring ownership is called an endorsement. Endorsements should be written in ink exactly as it appears on the front of the check and that there are space limitations on the back of a check for an endorsement.

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning COMPLETED CHECK STUB AND CHECK TIPS The check stub should always be completed before writing out the check. Writing the purpose of the check on the stub is good record keeping practice. Numbers should be written very close on a check so no one can change the amount. If the amounts in words and figures are not the same, a bank may pay only the amount in words. The check should be signed as the signature appears on the signature card. It is important to write the signature the same each time.

9. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 5-1 5.Write the amount of the check. 2.Write the date of the check. 3.Write to whom the check is to be paid. 4.Record the purpose of the check. 1.Write the amount of the check. 6.Calculate the new checking account balance. COMPLETED CHECK STUB page 121 1 2 3 4 5 6

10. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 10 LESSON 5-1 COMPLETED CHECK 7.Write the date. page 121 1112 10 98 7 10.Write the amount in words. 8.Write to whom the check is to be paid. 9.Write the amount in figures. 11.Write the purpose of the check. 12.Sign the check.

11. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 11 LESSON 5-1 RECORDING A VOIDED CHECK page 122 Banks usually refuse to accept an altered check. A check on which an error has been made should not be destroyed. The person voiding the check should write “VOID” on the stub and check and file the check. 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. An entry is necessary for a voided check so that the Doc. No. column of the journal will list all of the checks of the company.

12. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 12 LESSON 5-1 1.Record the date in the Date column. 2.Write the word VOID in the Account Title column 3.Write the check number in the Doc. No. column. 4.Place a check mark in the Post. Ref. column. 5.Place a dash in both the Debit and Credit columns. RECORDING A VOIDED CHECK page 122 1 2 3 4 5

13. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 5-1 Log on to Aplia and let’s complete Work Together 5-1 on textbook page 123 and On Your Own 5-1 on textbook page 123.

14. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 5-2: Bank Reconciliation A report of deposits, withdrawals, and bank balances sent to a depositor by a bank is called a bank statement. It is important to analyze the bank statement each time it is received.

15. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 15 LESSON 5-2 BANK STATEMENT page 124 A bank’s records and a depositor’s records may differ for several reasons: 1. A service charge may not have been recorded in the depositor’s business records. 2. Outstanding deposits may be recorded in the depositor’s records but not on a bank statement. 3. Outstanding checks may be recorded in the depositor’s records but not on a bank statement. 4. A depositor may have made math or recording errors.

16. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 16 LESSON 5-2 5.Bank Statement Balance BANK STATEMENT RECONCILIATION 1 2 3 4 5 6 7 8 9 9.Adjusted Bank Balance page 125 2.Check Stub Balance 10.Compare Adjusted Balances 1.Date 3.Service Charge 4.Adjusted Check Stub Balance 6.Outstanding Deposits 7.Subtotal 8.Outstanding Checks 10

17. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Bank Statement Reconciliation A bank statement is reconciled by verifying that information on a bank statement and a checkbook are in agreement. Reconciling immediately is an important aspect of cash control. When a bank statement is received, canceled checks may accompany it. Canceled checks should be compared with check stubs and a check mark should be placed on each stub for canceled checks. The bank has already taken the service charge out of the account. When the reconciliation is completed, the two adjusted balances should be the same.

18. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 18 LESSON 5-2 1.Write Service Charge $8.00 on the check stub under the heading “Other.” RECORDING A BANK SERVICE CHARGE ON A CHECK STUB page 126 12 3 2.Write the amount of the service charge in the amount column. 3.Calculate and record the new subtotal on the Subtotal line.

19. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 19 LESSON 5-2 1.Write the date. JOURNALIZING A BANK SERVICE CHARGE page 127 14 August 31. Received bank statement showing August bank service charge, $8.00. Memorandum No. 3. 2.Write the title of the account debited. Record the debit amount. 3.Write the title of the account credited. Record the credit amount. 4.Write the source document number in the Doc. No. column. 2 3

20. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 5-2 Log on to Aplia and let’s complete Work Together 5-2 on textbook page 128 and On Your Own 5-2 on textbook page 128.

21. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Lesson 5-3: Dishonored Checks and Electronic Banking A check that a bank refuses to pay is called a dishonored check. Banks dishonor a check when the account of the person who wrote the check has insufficient funds to pay the check. Issuing a check on an account with insufficient funds is illegal. Altering or forging a check is also illegal. When the check was first received, it was deposited and the amount was added to the bank account. Now, when it is dishonored, the amount must be subtracted from the bank account. Most banks charge a fee for handling dishonored checks.

22. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 22 LESSON 5-3 RECORDING A DISHONORED CHECK ON A CHECK STUB 1.Write Dishonored check $105.00 on the line under the heading “Other.” page 129 12 3 2.Write the total of the dishonored check in the amount column. 3.Calculate and record the new subtotal on the Subtotal line.

23. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 23 LESSON 5-3 JOURNALIZING A DISHONORED CHECK page 130 1 4 November 29. Received notice from the bank of a dishonored check from Campus Internet Café, $70.00, plus $35.00 fee; total, $105.00. Memorandum No. 55. 2. Write the title of the account debited. Write the debit amount. 3.Write the title of the account credited. Write the amount credited. 4. Write the source document number in the Doc. No. column. 2 3 1. Write the date.

24. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 24 LESSON 5-3 JOURNALIZING AN ELECTRONIC FUNDS TRANSFER page 131 A computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents is called electronic funds transfer (EFT). EFT means that the business does not have to write a check for this amount. Therefore, there is no check stub for the source document. A memorandum is often used as a source doc for EFT payments. A cash payment made by EFT is recorded on the check stub as “other”

25. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 25 LESSON 5-3 JOURNALIZING AN ELECTRONIC FUNDS TRANSFER page 131 September 2. Paid cash on account to Kelson Enterprises, $350.00, using EFT. Memorandum No. 10. 2.Write the title of the account debited. Record the amount debited. 3.Write the title of the account credited. Record the amount credited. 4. Write the source document number in the Doc. No. column. 14 2 3 1. Write the date.

26. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 26 LESSON 5-3 JOURNALIZING A DEBIT CARD TRANSACTION page 132 A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder is called a debit card. When a purchase is made with a debit card, cash is immediately deducted from the account. When using a debit card, it is important to remember to record the withdrawal both in the journal and on a check stub. A cash payment made with a debit card is recorded on the check stub as “other”

27. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 27 LESSON 5-3 JOURNALIZING A DEBIT CARD TRANSACTION page 132 September 5. Purchased supplies, $24.00, using debit card. Memorandum No. 12. 2.Write the title of the account debited. Record the amount debited. 3.Write the title of the account credited. Record the amount credited. 4.Write the source document number in the Doc. No. column. 14 2 3 1. Write the date.

28. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 5-3 Log on to Aplia and let’s complete Work Together 5-3 on textbook page 133 and On Your Own 5-3 on textbook page 133.

29. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 5-4: Petty Cash An amount of cash kept on hand and used for making small payments is called petty cash. A business usually has some small payments for which writing a check is not time or cost effective. Therefore, a business may maintain a separate cash fund for making small cash payments. Very large businesses may have several petty cash funds. The petty cash account is an asset account with a normal debit balance.

30. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 30 LESSON 5-4 1.Write the date. ESTABLISHING A PETTY CASH FUND page 134 August 19. Paid cash to establish a petty cash fund, $100.00. Check No. 8. 2.Write the title of the account debited. Record the amount debited. 3.Write the title of the account credited. Record the amount credited. 4.Write the source document number in the Doc. No. column. 14 2 3

31. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 31 LESSON 5-4 MAKING PAYMENTS FROM A PETTY CASH FUND WITH A PETTY CASH SLIP page 135 A form showing proof of a petty cash payment is called a petty cash slip. When cash is paid from a petty cash fund, no formal entry is recorded in a journal. Only a petty cash slip is prepared. The entry will be made at a later date. The petty cash slip must be approved before cash can be paid out.

32. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 32 LESSON 5-4 REPLENISHING PETTY CASH page 136 The petty cash fund is replenished when the amount in the fund is low or at the end of a fiscal period. Some companies replenish the petty cash fund at the end of the month so that all expenses are recorded in the month they incurred. Before petty cash is replenished, a proof of the fund must be completed. The petty cash slips are now used to summarize payments from the fund and to record payments in the journal. To replenish the fund, debit accounts for which petty cash was used and credit the cash account.

33. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 33 LESSON 5-4 1.Write the date. REPLENISHING PETTY CASH page 136 14 August 31. Paid cash to replenish the petty cash fund, $30.00: miscellaneous expense, $20.00; advertising, $10.00. Check No. 12. 4.Write the source document number in the Doc. No. column. 3.Write the title of the account credited. Record the credit amount. 2.Write the title of the first account debited. Write the debit amount. Write the title of the second account. Record the debit amount. 2 3

34. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Lesson 5-4 Log on to Aplia and let’s complete Work Together 5-4 on textbook page 138 and On Your Own 5-4 on textbook page 138.

35. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 5 Assignments Study Guide Problems: 5-1 5-2 5-3 5-4 5-5 5-6 35 LESSON 5-1