Download Controlling Cash

Principles of Accounting
Asst.Prof.Dr. Panchat Akarak
[email protected]
School of Accounting
Chiang Rai Rajabhat University
Principles of Accounting
1
Control of Cash
Outline
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3.
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Internal Control
Controlling Cash
The bank Checking Account
Bank Reconciliation Statement
Petty Cash Funds
The Voucher System
Internal Control
• An internal control system is the plan of
organization and all the procedures and actions
taken by an entity to
• (a) protect its assets against theft and waste,
• (b) ensure compliance with company policies and
Federal law,
• (c) evaluate the performance of all personnel in
the company so as to promote efficiency of
operations, and
• (d) ensure accurate and reliable operating data
and accounting reports.
Internal Control
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•
•
•
a. Assets can be protected by
(1) segregation of employee duties,
(2) separation of employee function,
(3) rotation of employee job assignments, and
(4) use of mechanical devices.
Internal Control
• b. Internal control policies must be followed
by employees, and those policies must satisfy
the requirements of the Foreign Corrupt
Practices Act.
• C. Internal auditing can assists in evaluating
how well company employees are doing their
jobs.
Internal Control
• D. Since source documents serve as
documentation of business transactions, from
time to time the validity of these documents
should be checked.
• E. For added protection, a company should
carry both casualty insurance on assets and
fidelity bonds on employees.
Controlling Cash
• Many business transactions involve cash
utilizing a checking account.
• A. By definition each includes currency, coins,
amounts in checking and savings accounts,
and money orders,
• B. Cash also includes certificates of deposit
which are interest-bearing deposits at a bank
which can be withdrawn at will or at a fixed
maturity date.
Controlling Cash
• C. Cash does not include IOUs, notes
receivable, or postage stamps.
• D. Petty Cash and Cash are the typical cash
accounts.
• E. Management has the following objectives in
regard to cash.
• (1) Account for all cash transactions
accurately, so that correct information will be
available regarding cash flows and balances.
Controlling Cash
• (2) Make certain there is enough cash
available to pay bills as they come due.
• (3) Avoid holding too much idle cash because
excess cash could be invested to generate
income, such as interest.
• (4) Prevent loss of cash due to theft or fraud.
Controlling Cash Receipts
• All assets owned by the company must be
protected from theft of mishandling, but cash
requires additional care.
• A. Cash is more likely to be the object of theft
because it is easily concealed.
• B. Cash is not readily identifiable and this makes
it a likely target for thieves.
• C. Cash may be more desirable than other
company assets because it can be quickly spent
to acquire other things of value.
Controlling Cash Receipts
• The are several basic principles for controlling
cash receipts even though these may vary with
each business.
• 1. Records of all cash receipts should be prepared
soon after cash is received.
• 2. All cash receipts should be deposited intact on
the day received or the next business day.
• A. Cash disbursements should not be made from
cash receipts but only by check or from petty
cash funds.
Controlling Cash Receipts
• B. If refunds for returned merchandise are
made from the cash register, refund tickets
should be prepared and approved by a
supervisor.
• 3. The person who handles cash receipts
should not record them in the accounting
system.
• 4. The person receiving cash should not also
disburse cash.
Controlling Cash Disbursements
• There are basic control procedures for cash
disbursements because most of the firm’s
cash is
• A. All disbursements should be made by check
or from petty cash.
• B. All checks should be serially numbered and
access to checks should be limited.
• C. Preferable, two signatures should be
required on each check.
Controlling Cash Disbursements
• D. If possible, the person who authorizes
payment of a bill should not be allowed to
sign checks.
• E. Approved invoices or vouchers should be
required to support checks issued.
• F. The person authorizing disbursements
should be certain that payment is in order and
is made to the proper payee.
Controlling Cash Disbursements
• G. When invoices and vouchers are paid, they
should be stamped “Paid” with the date and
number of the check issued indicated.
• H. The person(s) who signed the checks should
not have access to cancelled checks and should
not prepare the bank reconciliation.
• i. A bank reconciliation should be prepared each
month, preferably by a person who has no other
cash duties.
Controlling Cash Disbursements
• J. All voided and spoiled checks should be
retained and defaced to prevent their
unauthorized use.
• K. A voucher system may be needed in large
firms for close cash control.
• L. Use of the net price method of recording
purchases helps avoid loss of purchase
discounts through planned timing of cash
payments.
The Bank Checking Account
• One of the services provided by a bank is a
checking account, which is a balance
maintained in a bank that is subject to
withdrawal by the depositor on demand.
Signature Card
• A new depositor completes a signature card
which provides the signatures of persons
authorized to sign checks drawn upon an
account.
Deposit Tickets
• In making a bank deposit, the depositor
prepares a deposit ticket which is a form
showing the date and the items comprising
the deposit; in addition, the depositor’s name,
address and bank accounts number is shown.
Check
• A check is a written order on a bank to pay a
specific sum of money to the party designated
a the payee by the party issuing the check.
• A. There are three parties to every bank check
transaction:
• 1. The party issuing the check.
• 2. The bank on which the check is drawn
• 3. The party to whose order the check is made
payable.
Check
• B. A remittance advice may be attached to a
check informing the payee why the drawer of
the check is making this payment.
Bank Statement
• A bank statement is used by a bank describing
the deposits and checks cleared during the
period.
• A. Cancelled checks and original deposit
tickets generally are returned with the bank
statement.
Bank Statement
• B. Debit memos and credit memos may also be
returned with the bank statement.
• 1. Debit memos are forms used by banks to
explain a deduction from the depositor’s account.
Note that the company’s cash account is a liability
to the bank and if it wants to reduce that liability,
a debit memo is used.
• 2. Credit memos explain additions to the account.
Note that increases to the bank’s liability
accounts require credits.
Bank Statement
• The balance shown in the bank statement usually
differs from the balance in the depositor’s Cash in Bank
ledger account.
• 1. Outstanding checks have not yet been deducted
from the bank balance.
• 2. Deposits in transit have not yet been added to the
bank balance.
• 3.Bank errors can occur in a depositor’s account caused
by scanners misreading the account number printed in
magnetic ink or bank employees encoding on the check
the wrong amount.
Bank Statement
• 4. Service charges have not yet been recognized by the
depositor and deducted from the Cash account
balance.
• 5. “Not sufficient funds” checks have not yet been
deducted from the depositor’s Cash account balance.
• 6. The bank may have collected a customer’s note or
received a wire transfer of funds which is an inter-bank
transfer of funds by telephone.
• 7. The depositor may have made errors by recording a
check in the accounting records for a different amount
from the actual figure.
The bank statement usually differs
•
•
•
•
•
•
1. Outstanding checks
2. Deposits in transit
3.Bank errors
4. Service charges
5. Checks returned “Not sufficient funds”
6. collected a customer’s note or received a wire
transfer
• 7. The depositor different amount from the
actual figure.
Bank Reconciliation Statement
Reed Company
Bank Reconciliation,
June 30, 2016
Book balance of Cash
Add:
()
xxxx Bank statement balance
Add:
()
()
()
()
()
()
()
Deduct:
xxxx
Deduct:
()
()
()
()
()
()
()
()
Reconciled balance
xxxx Reconciled balance
xxxx
Bank Reconciliation Statement
• A bank reconciliation statement is prepared in
order to accounts for the difference between the
two balances.
• A. Both the balance per the bank statement and
the balance per the ledger account are adjusted
to the true balance of expendable cash.
• B. The documents used are the bank statement
and any accompanying debit and credit
memoranda, returned checks, a list of checks
issued, and a record of deposits made.
Bank Reconciliation Statement
• c. After the reconciliation has been prepared,
an adjusting entry is prepared to record the
previously unrecorded items.
Certified and Cashier’s Checks
• A certified check is a check drawn by a
depositor and taken to its bank for
certificating which indicates that the
depositor’s balance is large enough to cover
the check.
• A. The amount of the certified check is
deducted immediately after certification from
the depositor’s checking account.
Certified and Cashier’s Checks
• B. The certified check now becomes a liability
of the bank rather than the depositor.
• A casher’s check is a check drawn by a bank
made out to either the depositor checking
account.
Petty Cash Funds
Establishing the Fund
• Petty cash funds are usually established from
which small disbursements can be made to avoid
writing a check for these small payments.
• A. The entry to establish a petty cash fund is to
debit Petty Cash Fund and to credit Cash for the
amount drawn.
• B. A petty cash cashier is responsible for
operation of the fund so that adequate control is
maintained over cash disbursements.
Operating The Fund
• A petty cash voucher is a form which indicates
the amount and reason for the petty cash
disbursement.
• A. Voucher should be prepared for each
disbursement from the fund.
• B. Invoices for the expenditure should be stapled
to the petty cash voucher.
• C. The person responsible for petty cash is
accountable for having cash and petty cash
vouchers equal to the amount of the fund.
Replenishing The Fund
• To replenish petty cash, a check is drawn for
the amount that will restore the fund to its
original amount.
• A. The journal entry is to debit expenses and
assets for the amount disbursed and to credit
Cash.
• B. Replenishments are made when the petty
cash fund becomes low in currency and at the
end of the accounting period.
Replenishing The Fund
• C. If the petty cash fund is found to be larger
than needed, excess petty cash can be
transferred back to the Cash account by
debiting Cash and crediting Petty Cash.
• D. Increases in the petty cash fund can be
made by debiting Petty Cash and crediting
Cash and transferring cash over to the
individual responsible for the petty cash fund.
Petty Cash Funds
• Establishing the Funds
• Imprest System
Dr. Petty Cash Funds
Cr. Cash
• Fluctuating System
Dr. Petty Cash Funds
Cr. Cash
xx
xx
xx
xx
Replenishing The Fund
• Replenishing The Fund
• If Imprest System
Dr. Expense
Cr. Cash
• If Fluctuating System
xx
Dr. Expense
xx
Cr. Petty Cash Funds
xx
xx
Cash Short and Over
• The petty cash fund must always be restored
to its set amount, so the credit to Cash will
always be for the difference between the set
amount and the actual cash in the fund.
• A. Debits will be made for all items vouchered.
• B. Any discrepancy will be debited or credited
to an account called Cash Short and Over.
Cash Short and Over
• 1. The Cash Short and Over account is an
expense or a revenue depending upon
whether it has a debit or credit balance.
• 2. Entries in the Cash Short and Over account
may be entered from other change-making
funds such as those in the cash register.
Cash Short and Over
• Cash Over
Dr. Cash
xx
Cr. Sale
Cash short and over
xx
xx
Cash Short
Dr. Cash
Cash short and over
Cr. Sale
xx
xx
xx
Net Price Method
• Instead of using the gross price method of
recording purchases, the net price method can be
used which emphasizes the importance of taking
purchase discounts.
• Using the net price method, a purchase is
recorded in Purchases and Accounts, Payable net
of the discount.
• 1. Using this approach, the discount is deducted
before the transaction is entered in the journal.
Net Price Method
• 2. The net price method has theoretical merit
because the goods are recorded at their actual
cash cost.
• 3. This approach does not show discounts
taken.
• 4. Under this approach if the discount is
missed, the lost discount is recorded as a
nonoperating expense in an account called
Discount lost.
The Voucher System
• A Voucher system is a set of procedures,
special journals, and authorization forms
designed to provide control over cash
payments.
Procedures for Preparing A Voucher
• A. Basic data are entered on the voucher from
the invoice.
• B. The invoice, voucher, and receiving report
undergo careful examination before the voucher
receives approval or disapproval for payment.
• C. The accounting department notes on the
voucher the proper debits and credits,
• C. Proper entries are made in the voucher
register, and the voucher is filed in the unpaid
voucher file.
Special Journals Used
• A voucher register is a multicolumn special
journal having a special debit for accounts
most frequently debited when a liability is
incurred.
• A. The credit for all entries into the voucher
register is to Vouchers Payable.
• B. After the voucher is entered in the voucher
register, it is filed in the unpaid vouchers file.
Special Journals Used
• C. When the voucher is paid, it is filed in the
paid vouchers file and the payment date and
check number are inserted in the proper
columns in the voucher register.
• A check register is a special journal showing all
checks issued, listed by date and check
number.
Special Journals Used
• 1. Separate columns would be needed for the
debit to Vouchers Payable and the credit to
Cash since the dollar amounts posted to these
two accounts would differ by the amount of
the discount taken.
• 2. An alternative system is to enter the
invoices net of discount in the Vouchers
Register.
Procedures for Paying a Voucher
• When a voucher is due for payment, it is
removed from the unpaid voucher file and a
check is prepared for the amount payable.
• A. The treasurer usually receives the prepared
check, voucher, and supporting documents.
• B. If the treasurer approves the payment, the
check is signed and mailed.
• C. The voucher is then returned to the
accounting department.
Files Maintained in a Voucher System
• An unpaid voucher file and a paid voucher file are
maintained in a voucher system.
• A. Unpaid vouchers are filed according to their
due dates; if the credit terms run from the end of
the month, the invoices of each creditor are
included in one voucher and then filed by due
date.
• B. The paid voucher file is filed by voucher
number in numerical order and contains all
vouchers which have been paid.
The End
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