cash control & banking activities

Chapter 11

*Cash Control & Banking Activities

*What do you think?

*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

*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

*Main Idea/Objectives

*Internal controls are steps to protect assets and keep reliable records

*How a business protects cash*How to use a checking account

*Protecting Cash

*Internal Controls (inside the business)*External Controls (outside the business)

*Checking Account

*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

*Endorsements

*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…

*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

*Reconciling the Bank Statement

*Section 2

*Objectives

*Why businesses prove cash*How to read and reconcile a bank

statement*Electronic Funds Transfer

*Proving Cash

*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

*Bank Statement

*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 Reconciliation

*Aka reconciling the bank statement*When these are received, the statement is compared to the checkbook

*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

*Interest is paid on some accounts and must be recorded in the checkbook, journalized and posted

*Bank Reconciliation

*Journalizing Bank Charges

*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

*Stop Payment

*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

*NSF Checks

*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

*Postdated Check

*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

*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