Heintz & Parry 20 th Edition College Accounting 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Accounting for Cash
Includes: Currency, coins, and checking accounts Checks received from customers Money orders Bank cashier s checks Because cash plays such a central role in operating a business, it must be carefully managed and controlled.
A set of procedures designed to ensure proper accounting for transactions Good internal control for cash transactions: All cash received should be deposited DAILY in a bank All disbursements, except for payments from petty cash, should be made by CHECK
1 Describe how to open and use a checking account.
Each person authorized to sign checks must complete and sign a signature card. This card is used to verify the depositor s signature on any banking transactions.
A deposit ticket is a form showing a detailed listing of items being deposited Currency, coins, and checks are listed separately Each check should be identified by its ABA (American Bankers Association) number Found in upper right-hand corner of each check Also shown in magnetic ink character recognition (MICR) code on the lower left side of the front of each check The code is used to sort and route checks
Each check being deposited must be endorsed by the depositor Consist of stamping or writing the depositor s name and sometimes other information on the back of the check Blank endorsement The depositor simply signs the back of the check This makes the check payable to any bearer Restrictive endorsement The depositor adds words such as For deposit, Pay to any bank, or Pay to Daryl Beck only for payment restriction
Each depositor has a plastic card and a personal identification number (PIN). Most automated teller machines (ATMs) are on a system that allows noncustomers to use their ATMs. It is important for the depositor to keep an accounting record of ATM withdrawals and deposits.
A check is a document ordering a bank to pay cash from a depositor s account. There are three parties to every check: Drawer the depositor who orders the bank to pay the cash Drawee the bank on which the check is drawn Payee the person being paid the cash Business checks often have a check stub.
Complete the check stub or register. Enter the date, payee name, and amount on the check. Sign the check. The check should not be signed until the check signer has verified that all aspects of the check are correct.
The statement shows: The balance at the BEGINNING of the period Deposits and other amounts ADDED during the period Checks and other amounts SUBTRACTED during the period The balance at the END of the period
Sent with bank statement Canceled checks, imaged sheets of check faces, or a listing of checks Any other forms representing items added to or subtracted from the account
2 Prepare a bank reconciliation and related journal entries.
Bank statement shows a balance of $1,748.09. But the general ledger account has a balance of $2,393.23. We need to prepare a BANK RECONCILIATION.
Maple Consulting Bank Reconciliation November 21, 20-- Heading includes: Name of Company Bank Reconciliation Date 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 $1,748.09 The bank reconciliation begins with the balance according to the bank statement. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 $1,748.09 Add: Deduct: Reconciling items are listed as additions or subtractions from the bank balance. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 Add: $1,748.09 Deduct: Adjusted bank balance Once all reconciling items are listed, the adjusted bank balance is computed. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 Add: $1,748.09 Deduct: Adjusted bank balance Book balance, November 21 $2,393.23 Now the reconciliation turns to adjusting the BOOK balance. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 $1,748.09 Add: Deduct: Adjusted bank balance Book balance, November 21 Add: $2,393.23 Deduct: Additions and subtractions will be made to the book balance. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 Add: $1,748.09 Deduct: Adjusted bank balance Book balance, November 21 Add: Deduct: The adjusted book balance is computed. $2,393.23 Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 Add: Deduct: Adjusted bank balance Book balance, November 21 Add: We say it is reconciled when the adjusted BANK and adjusted BOOK balances agree. $1,748.09 $2,393.23 Deduct: Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Deposits in transit Deposits that have not reached the bank or been recorded by the bank before the statement is prepared Outstanding checks Checks that have not been presented to the bank for payment before the statement is prepared Service charges Bank charges for services such as check printing and processing
Collections Collections of promissory notes or charge accounts made by the bank on behalf of the depositor Not sufficient funds (NSF) checks Checks deposited but not paid because the drawer did not have sufficient funds Errors Errors made by the bank or by the depositor in recording cash transactions
THREE STEPS:
Compare the bank statement with: Last month s deposits in transit They should all be on the bank statement Deposits listed in the accounting records If not found on the bank statement, the deposit is considered a deposit in transit $ amounts for deposits in the accounting records If they differ, the error needs to be corrected.
A deposit in the accounting records of $637.02, dated November 21, had not been received by the bank. DEPOSIT IN TRANSIT
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 $1,748.09 Add deposit in transit 637.02 Deduct: Adjusted bank balance Book balance, November 21 Add: DEPOSITS IN TRANSIT are added to the bank balance. $2,393.23 Deduct: Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Compare canceled checks with the bank statement and accounting records. If they differ, the error needs to be corrected.
Check no. 214 was written for $18.98 but was entered on the check stub and on the books as $19.88. $0.90 ERROR
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 Add deposit in transit Deduct: $0.90 is added back to the book balance. $1,748.09 637.02 Adjusted bank balance Book balance, November 21 $2,393.23 Add error on check no. 214 0.90 Deduct: Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Compare canceled checks with the bank statement and accounting records. If they differ, the error needs to be corrected. Check mark the stub or accounting records to indicate that the check has cleared. Checks written but not cleared are OUSTANDING CHECKS. These are subtracted from the bank balance on the reconciliation.
Check numbers 219, 224, and 227 do not appear on the bank statement. OUTSTANDING CHECKS
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 $1,748.09 Add deposit in transit 637.02 Deduct outstanding checks: No. 219 No. 224 No. 227 Adjusted bank balance Book balance, November 21 Add error on check no. 214 $200.00 25.00 67.78 292.78 $2,393.23 0.90 Deduct: Outstanding checks are deducted from the bank balance. Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Compare any additions and deductions on the bank statement that are not deposits or checks with the accounting records. Items ADDED to the account by the bank are credit memos. Items DEDUCTED from the account by the bank are debit memos.
Maple used an ATM machine to make a withdrawal from his account of $100.00 for personal use. However, he forgot to record this withdrawal on the books. Deduct $100.00 from the book balance.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 $1,748.09 Add deposit in transit 637.02 Deduct outstanding checks: No. 219 $200.00 No. 224 25.00 No. 227 67.78 292.78 Adjusted bank balance Book balance, November 21 Add error on check no. 214 $2,393.23 0.90 Deduct: Unrecorded ATM withdrawal $100.00 Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The bank returned an NSF check of $200.00 written by one of Maple s clients. Deduct $200.00 from the book balance.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 $1,748.09 Add deposit in transit 637.02 Deduct outstanding checks: No. 219 $200.00 No. 224 25.00 No. 227 67.78 292.78 Adjusted bank balance Book balance, November 21 Add error on check no. 214 $2,393.23 0.90 Deduct: Unrecorded ATM withdrawal $100.00 NSF check 200.00 Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The bank deducted $1.80 from Maple s account for service charges. Deduct $1.80 from the book balance.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 $1,748.09 Add deposit in transit 637.02 Deduct outstanding checks: No. 219 $200.00 No. 224 25.00 No. 227 67.78 292.78 Adjusted bank balance Book balance, November 21 Add error on check no. 214 $2,393.23 0.90 Deduct: Unrecorded ATM withdrawal $100.00 NSF check 200.00 Bank service charge 1.80 Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 Add deposit in transit $1,748.09 637.02 $2,385.11 Deduct outstanding checks: No. 219 $200.00 No. 224 25.00 No. 227 67.78 292.78 Adjusted bank balance Book balance, November 21 Add error on check no. 214 $2,092.33 $2,393.23 0.90 The bank balance section of Deduct: the reconciliation is totaled. Unrecorded ATM withdrawal $100.00 NSF check 200.00 Bank service charge 1.80 Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 $1,748.09 Add deposit in transit 637.02 $2,385.11 Deduct outstanding checks: No. 219 $200.00 No. 224 Then the book balance 25.00 No. 227 section is totaled. 67.78 292.78 Adjusted bank balance $2,092.33 Book balance, November 21 $2,393.23 Add error on check no. 214 0.90 $2,394.13 Deduct: Unrecorded ATM withdrawal $100.00 NSF check 200.00 Bank service charge 1.80 Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 301.80 $2,092.33
We now know that the actual amount of cash is $2,092.33, but the general ledger cash account still shows $2,393.23. JOURNAL ENTRIES ARE NEEDED!!!
Only two kinds of items appearing on a bank reconciliation require journal entries: Errors in the depositor s books Bank additions and deductions that do not already appear in the books ALL items in the book balance section of the reconciliation require a journal entry.
Maple Consulting Bank Reconciliation November 21, 20-- Bank statement balance, November 21 Add deposit in transit $1,748.09 637.02 $2,385.11 Deduct outstanding checks: No. 219 These 4 items will $200.00 No. 224 require journal entries. 25.00 No. 227 67.78 292.78 Adjusted bank balance Book balance, November 21 Add error on check no. 214 $2,092.33 $2,393.23 0.90 $2,394.13 Deduct: Unrecorded ATM withdrawal $100.00 NSF check 200.00 Bank service charge 1.80 Adjusted book balance 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 301.80 $2,092.33
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- Nov. 21 Cash 0 90 When check no. 214 was written, the cash account was credited for $0.90 more than the check amount of $18.98. This entry puts $0.90 back in the Cash account. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- Nov. 21 Cash 0 90 Accounts Payable Error in recording check Accounts Payable was originally debited for $19.88. This was $0.90 more than the actual telephone bill of $18.98. This entry removes the extra $0.90. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 0 90
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- Nov. 21 Cash 0 90 0 90 21 Accounts Payable Error in recording check J. M., Drawing 100 00 Since the ATM withdrawal was for personal expenses, the drawing account should be debited. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- Nov. 21 0 90 21 Cash Accounts Payable Error in recording check J. M., Drawing 100 00 The $100 withdrawal was never recorded. This entry will remove the $100.00 from the cash account. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 0 90 Cash 100 00
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- Nov. 21 Cash 0 90 0 90 21 Accounts Payable Error in recording check J. M., Drawing 100 00 Cash 100 00 Unrecorded ATM withdrawal 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
10 11 12 13 14 15 16 17 18 19 20 DATE DESCRIPTION PR DEBIT CREDIT 21 Accounts Receivable Cash Unrecorded NSF check 200 00 The amount of the bounced check is placed into Accounts Receivable and Cash is reduced. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 200 00
10 11 12 13 14 15 16 17 18 19 20 DATE DESCRIPTION PR DEBIT CREDIT 21 21 Accounts Receivable Cash Unrecorded NSF check 200 00 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 200 00 Miscellaneous Expense 1 80 Cash 1 80 Bank service charge Service charges are usually small; often they are put into Misc. Expense.
3 Establish and use a petty cash fund.
A fund set up to pay for small items with cash Checks for very small amounts are cumbersome To establish the fund: A check is written to the petty cash custodian for the amount to be set aside in the fund The custodian cashes the check and places the money in a petty cash box The custodian should be the only person authorized to make payments from the fund.
Maple wants to establish a $200 petty cash fund to be used to make small purchases. CASH 200 $200 is withdrawn (by check) from the cash account.
Maple wants to establish a $200 petty cash fund to be used to make small purchases. CASH 200 200 PETTY CASH Petty Cash is an ASSET account.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- Dec. 1 Petty Cash 200 00 Cash 200 00 Establish petty cash fund 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
A receipt prepared for every payment from the petty cash fund. Voucher shows the: Name of the payee Purpose of the payment Account to be charged for the payment (e.g., Postage Expense) Signatures of the custodian and payee
A special multi-column record that supplements the regular accounting records Provides a record of each petty cash payment Broken down by account e.g.: Travel/Entertainment Expense, Postage Expense, etc. Used to prepare the replenishment journal entry
The petty cash fund should be replenished whenever the fund runs low and at the end of each accounting period. Once the fund is established by debiting Petty Cash and crediting Cash, no further entries are made to Petty Cash. To replenish the fund, debits are made to appropriate expense accounts and Cash is credited. Only if the amount of the fund itself is being changed would there be a debit or credit to Petty Cash.
. At the end of the month, the petty cash fund contains eight vouchers and only $21.20 in cash. The fund needs to be replenished. To replenish the fund: A check is written for $178.80, which is the total of the eight vouchers A journal entry is made to recognize: The expenses shown on the vouchers The outflow of cash via the check
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- Dec. 31 40 80 Automobile Expense Postage Expense 39 50 Travel & Entertain. Exp. 30 25 Miscellaneous Expense 38 25 James Maple, Drawing 30 00 Cash 178 80 Cash should be credited for the amount needed to restore the fund to its established amount. ($200.00 fund $21.20 in box = $178.80 needed) 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- Dec. 31 40 80 Automobile Expense Postage Expense 39 50 Travel & Entertain. Exp. 30 25 Miscellaneous Expense 38 25 James Maple, Drawing 30 00 Cash 178 80 The journal entry balances!!! Vouchers (amounts debited) equal the amount needed to replenish the fund (credit). 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- Dec. 31 40 80 Automobile Expense Postage Expense 39 50 Travel & Entertain. Exp. 30 25 Miscellaneous Expense 38 25 James Maple, Drawing 30 00 Cash 178 80 Replenishment of petty cash fund 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4 Establish a change fund and use the cash short and over account.
A supply of currency and coins kept in the cash register or cash drawer Allows businesses to make change when customers pay in cash At the end of the day, cash received during the day is deposited But the change fund is held back for use on the following day
Sporty s Cleaners is opening for business on June 1. Sporty needs to establish a $200 change fund. CASH 200 Just like the petty cash fund, a change fund starts by withdrawing from the cash account.
Sporty s Cleaners is opening for business on June 1. Sporty needs to establish a $200 change fund. CASH 200 200 CHANGE FUND Change Fund is an ASSET.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 1 Change Fund 200 00 Cash 200 00 Establish change fund 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
At the close of its first day of business, Sporty s had $1,450.00 in the cash register. CASH IN DRAWER $1,450.00 Less:CHANGE FUND 200.00 CASH FROM SALES $1,250.00 The CASH from sales should agree with the sales recorded on the cash REGISTER TAPE.
At the close of its first day of business, Sporty s had $1,450.00 in the cash register. CASH IN DRAWER $1,450.00 Less: CHANGE FUND 200.00 CASH FROM SALES $1,250.00 Sales from the cash register tape are also $1,250.00!!!
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 1 Cash 1,250 00 Only the $1,250.00 is debited to Cash and deposited. The change fund is not deposited. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 1 Cash 1,250 00 Sales 1,250 00 Cash received from sales What would have happened if the cash register tape didn t agree with the cash from sales? 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
At the close of its first day of business, Sporty s had $1,450.00 in the cash register. CASH IN DRAWER $1,450.00 Less:CHANGE FUND 200.00 CASH FROM SALES $1,250.00 What if the cash register tape had shown sales of $1,252.00?
CASH IN DRAWER $1,450.00 Less: CHANGE FUND 200.00 CASH FROM SALES $1,250.00 $1,252.00 CASH REGISTER TAPE SHORTAGE $ 2.00 Overages and shortages are recorded in an account called CASH SHORT AND OVER.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 1 Cash 1,250 00 Cash is debited for the amount deposited. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 1 Cash 1,250 00 Cash Short and Over 2 00 Cash Short and Over is debited for shortages and credited for overages. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 1 Cash 1,250 00 Cash Short and Over 2 00 Sales 1,252 00 Sales is credited for the amount on the cash register tape even though this was not the amount collected. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
At the close of its first day of business, Sporty s had $1,450.00 in the cash register. CASH IN DRAWER $1,450.00 Less:CHANGE FUND 200.00 CASH FROM SALES $1,250.00 What if the cash register tape had shown sales of $1,247.00?
At the close of its first day of business, Sporty s had $1,450.00 in the cash register But the cash register tape showed $1,247.00 CASH IN DRAWER $1,450.00 Less: CHANGE FUND 200.00 CASH FROM SALES $1,250.00 $1,247.00 CASH REGISTER TAPE OVERAGE $ 3.00
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 1 Cash 1,250 00 Cash Short and Over 3 00 Cash Short and Over is debited for shortages and credited for overages. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1 2 3 4 5 6 7 8 9 10 11 DATE DESCRIPTION PR DEBIT CREDIT 20-- June 1 Cash 1,250 00 Cash Short and Over 3 00 Sales 1,247 00 Sales is credited for the amount on the cash register tape even though this was not the amount collected. 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.