1. Cash Control & Banking Activities
Chapter 11

2. What happens if a business fails to take steps to protect its assets and keep reliable records?
Loss of cash
Forgery
Embezzlement
Overdrawn accounts
Inability to pay bills
What do you think?

3. Discussion Why do businesses need cash controls?
To protect cash from loss, waste, theft, forgery and embezzlement
What controls do businesses use to protect its cash?
Following proper banking procedures, properly endorsing checks, making all payments by check, correctly filling out the check and check stub
Discussion

4. Internal controls are steps to protect assets and keep reliable records
How a business protects cash
How to use a checking account
Main Idea/Objectives

5. Protecting Cash Internal Controls (inside the business)
External Controls (outside the business)
Protecting Cash

6. Allows a person or business to deposit cash in a bank and write checks against the bank balance
Check – written order by the depositor to pay the stated amount to the payee
Depositor – person or business that has cash on deposit in the bank
Checking Account

7. Authorized signature written or stamped on the back of a check to transfer ownership
Blank – transfers ownership without indicating new owners. Signature only. NOT SAFE
Special – transfers ownership to a specific person or business. Pay to the order of…
Restrictive – transfers ownership to a specific person or business, then limits how the check may be handled. Protects check from being cashed by anyone else. FOR DEPOSIT ONLY…
Endorsements

8. Writing a Check Payee – person or business to which a check is written
Drawer – person who signs the check
Drawee – bank on which the check is written
Voiding a Check – VOID – you make an error when writing the check. Write VOID across it
Writing a Check

9. Reconciling the Bank Statement
Section 2
Reconciling the Bank Statement

10. Objectives Why businesses prove cash
How to read and reconcile a bank statement
Electronic Funds Transfer
Objectives

11. Comparing the bank statement balance to the cash in bank in the checkbook
If the two amounts do not match, there is an error
Common errors
Bad math
Forgetting to record a deposit or check
A mistake in carrying the balance forward to the next stub
Proving Cash

12. Contains an itemized record of all transactions in a depositor’s account
Canceled checks – returned by the bank as an imaged check with the bank statement
They are checks that have been cashed
Bank Statement

13. Bank Reconciliation Aka reconciling the bank statement
When these are received, the statement is compared to the checkbook
Bank Reconciliation

14. Bank Reconciliation A checkbook can be out of balance due to:
Outstanding checks
Written but have not yet been presented to the bank for payment
Outstanding deposits
Deposits that have been made and recorded but have not yet cleared the bank
Bank charges
Small fees for maintaining the bank records
Amount subtracted from the bank statement, and must be subtracted from the checkbook
Bank Reconciliation

15. Interest is paid on some accounts and must be recorded in the checkbook, journalized and posted
Bank Reconciliation

16. Bank Reconciliation

17. Journalizing Bank Charges

18. Special Banking Procedures
Three problems may occur when checks are written or received and deposited:
A business does not want the bank to pay an issued check – Stop Payment
A business receives and deposits a check from a customer whose account does not have enough money to cover the check - NSF
A customer presents a check that has a date in the future – Postdated Check
Special Banking Procedures

19. Issued when a drawer instructs the drawee not to pay a check
To record a stop payment order
Write Stopped Payment on the check stub for the stopped check
Add the amount of the stopped check on the next unused check stub
Stop Payment

20. returned to the depositor because the drawer’s account does not have enough funds to cover the amount
NSF stands for Not Sufficient Funds
Check Clearing for the 21st Century, known as Check 21, allows the conversion of a paper check to an electronic image that can be processed quickly
writing a check that is physically returned to you such as at the GAP or a grocery store
A bank can pay a check on the same day it is written, instead of several days later
NSF Checks

21. A check that has a future date instead of the actual date
It should not be deposited until the date that appears on the check
Postdated Check

22. Electronic Funds Transfer Systems
EFTS handles large volume of funds transfers and allows banks to transfer funds among accounts quickly and accurately
How EFTS impacts banking activities:
direct payroll deposit
automated bill paying
bankcards used at automated teller machines (ATMs)
bank-by-phone
online banking
Electronic Funds Transfer Systems