1. Banking Procedures and Control of Cash
Chapter 6 2

2. Internal Control of Cash
Internal Control Procedures
separation and rotation of duties
cash receipts deposited daily
setting up a petty cash fund
all other payments made by check
authorization required for activities
checks and other documents prenumbered 4

3. Depositing, writing, and endorsing checks for a checking account.
Learning Objective 1
Depositing, writing, and endorsing
checks for a checking account. 4

4. Opening a checking account
Learning Unit 6-1
Opening a checking account
A signature card is required for validation to protect against forgery and unauthorized signing.
Duplicate deposit tickets are used.
ATM cards and personal identification numbers are protected. 5

5. Learning Unit 6-1 Check endorsement What is a check endorsement?
It is the signing or stamping of one’s name on the back left-hand side on the check.
Checks must be signed by the person to whom the check is made out. 6

6. Restrictive endorsement
Learning Unit 6-1
Types of Endorsements
Blank endorsement
Full endorsement
Restrictive endorsement

7. Learning Unit 6-1 The checkbook A check is a written order.
The drawer is the one who writes the check.
The drawee is the one who pays the money to the payee (bank). 7

8. Learning Unit 6-1 The checkbook
The payee is the one to whom the check is payable.
Write checks properly to ensure that amounts and payee cannot be changed. 7

9. The bank reconciliation
Learning Unit 6-1
The bank reconciliation
This is a process that verifies the cash balance in the business records to the ending bank balance for the month.
Deposits in transit are deposits not recorded by the bank before the report (add to the bank balance).

10. The bank reconciliation
Learning Unit 6-1
The bank reconciliation
Outstanding checks are issued checks that have not yet cleared the bank (subtract from the bank balance).
Service charges are fees charged by a bank (subtract from the bank balance).

11. The bank reconciliation
Learning Unit 6-1
The bank reconciliation
Nonsufficient funds (NSF) checks are those which are received, deposited in the bank, and returned because the drawer did not have funds in their account (subtract from bank balance).
The check and a collection fee is charged back to the drawer.

12. Learning Unit 6-1 Terminology
Bank credits are when a bank credits the account, which is an increase to the cash balance in the business.
What are some examples?
bank errors
funds collected by the bank on behalf of the business

13. Learning Unit 6-1 Terminology
Bank debits are a deduction from the cash balance in the business.
What are some examples?
bank errors
NSFs
service charges

14. Reconciling a bank statement.
Learning Objective 2
Reconciling a bank statement. 4

15. The Bank Reconciliation Process
On August 2, Clara J. Accounting Practice received the July’s bank statement.
It indicated the following:
The bank balance was $25,225.
The bank had collected a note receivable from one of Clara’s customers in the amount of $1,000.

16. The Bank Reconciliation Process
The bank paid the electric bill of $300.
There was a $200 check returned for NSF.
Interest earned on the account was $15.
Bank service charges were $6.

17. The Bank Reconciliation Process
Clara’s books indicates a cash balance of $26,647.
A deposit of $3,250 was mailed to the bank on June 30.
Checks issued in June for $1,319 have not yet been paid by the bank.

18. The Bank Reconciliation Process
Balance per bank, June 30 $25,225
Add deposit in transit , $28,475
Less outstanding checks ,319
Adjusted bank balance $27,156

19. The Bank Reconciliation Process
Balance per books, June 30 $26,647
Add:
Note receivable
collected by the bank ,000
Interest income
$27,662
Less:
Payment of electric bill
NSF check
Service charge
Adjusted book balance $27,156

20. The Bank Reconciliation Process
Balance per books Balance per bank
$27, $27,156
Amounts are the same

21. Learning Objectives 3 and 4
Establishing and replenishing
a petty cash fund; setting up
an auxiliary petty cash record.
a change fund. 4

22. Learning Unit 6-2 Petty cash fund
This is an account used for paying small day-to-day expenses.
The only time petty cash is entered in the journal is to establish the fund (or to change the level of cash in the fund).
Expenses are debited and Cash credited to replenish the fund.

23. Learning Unit 6-2
What is the entry to record the establishment of a $150 petty cash fund?
Petty Cash Cash in bank To open the petty cash fund

24. Learning Unit 6-2
Forty dollars were taken out of the petty cash fund for coffee and other miscellaneous expenses. What is the journal entry to record the replenishment of the fund?
Miscellaneous expense Cash in bank To replenish the petty cash fund

25. Handling transactions involving
Learning Objective 5
Handling transactions involving
cash short and over. 4

26. Cash Short and Over How are small cash errors recorded?
Beginning change fund
Cash register total
Correct amount of cash
Counted cash
Shortage or overage of cash

27. End of Chapter 6