1. CHAPTER 6 – CASH CONTROL SYSTEMS

2. OBJECTIVES:
Define accounting terms related to using a checking account and petty cash fund.
Identify accounting concepts and practices related to using a checking account.
Prepare business papers related to using a checking account.
Journalize dishonored checks and electronic banking transactions.
Establish and replenish a petty cash fund.

3. More money… more problems!
CHAPTER 6-1
More money… more problems!
Businesses use cash MOST often in transactions
Must be EXTREMELY careful in recording these transactions

4. Ch 6-1: Checking Accounts
Check: A business form ordering a bank to pay cash from a bank account
Checking Account: A bank account from which payments can be ordered by a depositor.
Banks may pay interest on funds deposited.
To open account, the depositor(s) must:
Sign a signature card: Authorizes person(s) that may sign checks for the business
Use bank forms to complete transactions

5. Check information:
Date
Name
Check Number - Magnetic Ink Characters
ABA number - identifies the bank

6. No universal ‘deposit slip’ Each bank’s is similar, but different
Depositing Cash
Deposit slip – form prepared each time cash and/or checks are placed in account
No universal ‘deposit slip’
Each bank’s is similar, but different
Deposit slips are different to fit each bank’s recording machine

7. DEPOSITING CASH 63-108 – Bank $10,000 – amount
Lesson 6-1 (GJ)
DEPOSITING CASH
– Bank
$10,000 – amount
Aug – D RDS – printed verification that total was deposited and accepted by RDS (bank employee)

8. Later, cash receipts are deposited No NEW journal entry is needed
Deposits must be recorded in checkbook.
Deposits have already been journalized in separate entries.
Cash receipts are journalized at time cash is received (ie: cash / sales, cash / A/R)
Later, cash receipts are deposited
No NEW journal entry is needed

9. DEPOSIT RECORDED ON A CHECK STUB
Balance brought forward from previous transaction
Amount Deposited
Lesson 6-1, page 120

10. Endorsements
Transfer ownership of a check
Contains a signature or stamp on back of check
Should be signed exactly as name is stated on front of check
Are confined to back of check at the top
Federal regulations limit amount of space at top of check
Endorsing a check guarantees payment
If bank does not receive payment from person who signed the FRONT of the check, each endorser is individually responsible for payment
Should be written in ink

11. Three Types of Endorsements
1. Blank - signature only
Should only be used when person is at the bank ready to cash/deposit
Why?
2. Special Endorsements (AKA Full endorsements) - restricts who can cash, deposit, or transfer check.
Pay to the order of __________

12. Types of Endorsements
Restrictive Endorsements - limit the use of the check. It can no longer be transferred.
Prevents unauthorized person from cashing if lost or stolen
Most companies use restrictive endorsements.
FYI- FDIC insures up to $100,000 per depositor
Federal Deposit Insurance Corporation

13. BLANK ENDORSEMENT, SPECIAL ENDORSEMENT, AND RESTRICTIVE ENDORSEMENT
Lesson 6-1, page 121

14. Writing a Check
Check stub is filled out first.
Business’s record of each check written for cash payment
For = Account debited
Word and figure amount should match
Checks are printed with consecutive numbers.
Helps YOU keep track of each check
No other significant purpose

15. COMPLETED CHECK STUB AND CHECK1 2 7 3 4 8 9 10 11 12 5 6
Preparing check stubs
Preparing checks
1. Write the amount of the check.
7. Write the date.
2. Write the date of the check.
8. Write to whom the check is to be paid.
3. Write to whom the check is to be paid.
9. Write the amount in figures.
4. Record purpose of the check.
10. Write the amount in words.
5. Write the amount of the check.
11. Write the purpose of the check.
6. Calculate the new account balance.
12. Sign the check.
Lesson 6-1, page

16. Postdated Check A check with a future date on it.
Most banks will not accept a postdated check.
If banks don’t accept postdated checks, what are they used for?

17. Voided Check A check that will not be cashed at the bank.
Reasons - altered check (changes in name, date, amount), check you made a mistake in writing
VOID is written on check stub and checkbook and check is kept for records
Must be accounted for in General journal.

18. RECORDING A VOIDED CHECK4 1 2 3 5
1. Record the date.
2. Write the word VOID in the account title.
3. Write the check number.
4. Place a check mark in the Post. Ref. column.
5. Place a dash in both the Debit and Credit columns.
Lesson 6-1, page 123

19. TO DO:
Work Together, pg 124
On Your Own, pg 124

20. CHAPTER 6-2 – Bank Reconciliation
Bank Statement:
a report of deposits, withdrawals, and bank balances sent to a depositor by a bank

21. OUTDATED Bank Statement Prepared once a month by bank
Can be mailed or accessed online
When banks received check amount is deducted from account
Bank stamps check to indicate it has been canceled and returns canceled checks to depositor with bank statement
Information Shown:
Canceled checks - paid by the bank and returned to depositor
Deposits
Charges
Interest paid
OUTDATED

22. Timing
At times, there will be discrepancies in balances because of timing.
Outstanding check: issued by depositor, but not yet reported on bank statement
YOU wrote the check, but according to your bank statement, it does not yet exist
It hasn’t yet been taken out of your account on the statement
Outstanding deposit: made at bank, but not yet shown on statement
YOU deposited cash/checks, but it has not appeared on your statement yet

23. Lesson 6-1 (GJ)
BANK STATEMENT
Lesson 6-2, page 125

24. Verifying a Bank Statement
Reconciliation: You must determine if the bank statement balance is correct. SHOULD BE COMPLETED IMMEDIATELY UPON RECEIVING BANK STATEMENT.
WHY?!? Differences exist because of:
Outstanding checks- checks not cashed
Outstanding deposits- not recorded yet at bank
Charges (service charge not recorded by depositor)
Fees – ie: ?
Depositor’s errors (math or recording)
Bank errors
Checks/deposits might be recorded in a wrong account
Data entry errors

25. Steps to Reconcile a Bank Statement
Arrange returned checks in numeric order.
Canceled check place check mark on check stub
Determine outstanding checks (no check mark).
Determine outstanding deposits.
Determine bank charges (SC).
Determine if interest was paid (INT).
Prepare reconciliation

26. BANK STATEMENT RECONCILIATION
1. Date 1
2. Check Stub Balance 2 5
3. Service Charge 3 6
4. Adjusted Check Stub Balance 7 8
5. Bank Balance Statement
6. Outstanding Deposits 4 10
7. Subtotal 9
8. Outstanding Checks
9. Adjusted Bank Balance
Lesson 6-2, page 126
10. Compare Adjusted Balances

27. RECORDING A BANK SERVICE CHARGE ON A CHECK STUB
1. Write Service Charge.
2. Write the amount of the service charge.
3. Calculate and record the new subtotal. 2 1 3
Lesson 6-2, page 127

28. Entries to Journalize Service Charge and/or Interest Income
MUST journalize and post service charges to the cash account so that it is up to date
No check written– amount was automatically deducted by bank
Source DOC: MEMORANDUM
JOURNAL:
Service Charges
Debit Miscellaneous Expense
Credit Cash
Interest Paid
Debit Cash
Credit Interest Income

29. Application Prob 6-1, 6-2 – pg 140
TO DO:
Work Together, pg 129
On Your Own, pg 129
Application Prob 6-1, 6-2 – pg 140

30. Dishonored Checks and Electronic Banking
CHAPTER 6-3
Dishonored Checks and Electronic Banking

31. Dishonored Check:
A check the bank refuses to pay because….
Check appears to be altered
Altering/forging is illegal in ALL states
Signature does not match signature card
Amounts do not agree (words and figures)
It is postdated
The person who wrote the check ordered a ‘stop payment’ (after the check is written, you change your mind, usually a $30 fee)
Insufficient funds by depositor
Illegal in most states
May affect credit rating
Stores post signs with consequences

32. NOW: Can try to collect directly from person/business
Dishonored Check:
Can try to collect directly from person/business
Fee is charged to payee AND depositor
When you receive a check it is deposited and ADDED to account
NOW:
Subtract check AND bank charge from checkbook
Journal entry must be made
Debit - Accounts Receivable (of payee)
Credit - Cash
Source Doc: Memo

33. RECORDING A DISHONORED CHECK ON A CHECK STUB
Lesson 6-1 (GJ)
RECORDING A DISHONORED CHECK ON A CHECK STUB
1. Write Dishonored Check $50.00.
2. Write the amount of the dishonored check.
3. Calculate and record the new subtotal.
Original check: $35
Service Fee: $15 2 1 3
Lesson 6-3, page 130

34. JOURNALIZING A DISHONORED CHECK – pg 131
November 29. Received notice from the bank of a dishonored check from Learn N Play, $35.00, plus $15.00 fee; total, $ Memorandum No. 55.
Cash
Accounts Rec.—Learn N Play
1. Which accounts are affected?
Accounts Receivable—Learn N Play
Cash
Debit
Normal Balance
50.00
2. How is each account classified?
Accounts Receivable—Learn N Play is an asset account.
Cash is an asset account. 
Debit
Normal Balance
3. How is each classification changed?
Assets are increased.
Assets are decreased.
50.00 
4. How is each amount entered in the accounts?
Assets increase on the debit side.
Assets decrease on the credit side.
Lesson 6-3, page 131

35. Journalizing an EFT Transfer – pg 132
EFT: computerized cash payments that uses electronic impulses to transfer funds
Arrangements must be made between business, bank, and vendor (password)
same journal entry as when check is written for payment, but source doc is a memo
**********************************************

36. Journalizing an EFT Transfer – pg 132
Transaction: Paid cash on account to Kelson Enterprises, $350.00, EFT, Memo No. 10
Date
Debit: Accounts Payable – Kelson Enterprises
Credit: Cash
Source: M10
no check was written for source doc
Recorded on Check Stub as OTHER – to keep checkbook balanced
Identified on bank stmt by EFT instead of Check No.

37. Journalizing a Debit Card Transaction – pg 133
Debit card: bank card that automatically deducts amount of purchase from account
Same effect as checks
Eliminates the need to carry a checkbook
Journal:
Debit: Supplies
Credit: Cash
Source: Memo
Recorded on Check Stub as OTHER
Identified on Bank Stmt as Purchase w/date, time, location, and amount of transaction

38. TO DO:
Work Together, pg 134
On your own, pg 134

39. Chapter 6-4
Petty Cash:
Small amount of cash kept on hand for making small payments.
Asset with DR balance
Petty Cash Slips: Vouchers used to account for money paid from the fund.
Kept in lock box
Most companies set a limit for the max. amount allowed to be paid with petty cash per transaction
Encore $20 max payments / $200 fund

40. Petty Cash New Account Petty Cash – Asset To Establish fund:
Debit Petty Cash
Credit Cash
Petty Cash
Debit
Normal Balance +
Credit -

41. ESTABLISHING A PETTY CASH FUND – pg 135
Lesson 6-1 (GJ)
ESTABLISHING A PETTY CASH FUND – pg 135
August 17. Paid cash to establish a petty cash fund, $ Check No. 8.
Cash
Petty Cash
1. Which accounts are affected?
Petty Cash
Cash
Debit
Normal Balance
200.00 
2. How is each account classified?
Petty Cash is an asset account.
Cash is an asset account.
Debit
Normal Balance
3. How is each classification changed?
Assets are increased.
Assets are decreased.
200.00 
4. How is each amount entered in the accounts?
Assets increase on the debit side.
Assets decrease on the credit side.
Lesson 6-4, page 135

42. Making Payments from Petty Cash Fund
Vouchers are used to account for money paid from the fund Petty cash slips
slip number
date of pymt
to whom paid
reason for pymt
amount paid
account to which amount is to be recorded (at the end of month)
Signature of person approving payment
NO journal entries are needed for individual payments
will be recorded later
Control feature: slip must be approved before cash is paid out

43. Petty Cash Paid Out
As petty cash is paid out, the amount in the box decreases
It gets replenished at the end of the month or when significantly reduced

44. Replenish Petty Cash – pg 137
Some businesses set a minimum amount for when to replenish (or end of each month)
Determine balance of Petty Cash Fund.
Cash remaining + slips total
Determine amount needed to bring it back to original balance.
Journalize the entry.
Debit EACH Account petty
cash was spent on (expenses
or assets)
Credit Cash
Balance should always be the same as the original amount of the fund (unless business decides to increase/decrease fund)

45. Example of Replenishment entry:
DR CR
Supplies
Miscellaneous Expense
Advertising Expense
Cash
To journalize:
Date – of replenishment
Debit – each individual account
Credit – Cash account – total amount
Source doc: Check issued to replenish petty cash
ALWAYS CREDIT CASH – NOT PETTY CASH.
*EXAMPLE - Journal entry – pg 137

46. TO DO Work Together, pg 138 On your own, pg 138
Application Prob 6-3, 6-4
Chapter 6 Summary:
Mastery 6-5
Challenge 6-6
Ch. 6 Study Guide
Extra Problem 6-1