Banking Procedures and Control of Cash

ANSWERS TO DISCUSSION QUESTIONS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Internal control helps develop control over a companys assets and monitor its operations. Preprinted deposit tickets take less time to fill out and lessen the chance of error or fraud. A check with a blank endorsement can be further endorsed by someone but a restrictive endorsement limits any further negotiation of the check. Payee: person or company to whom check is payable. Drawer: person or company who orders the bank to pay a sum of money. Drawee: Bank that the drawer has money in. So one doesnt forget to reduce the checkbook balance. Check stubs aid in updating journals. False; usually once a month. After a bank reconciliation, the adjusted checkbook balance is equal to the adjusted bank balance. Outstanding checks are subtracted from the bank balance because the bank has no idea they have been written, since they have not been processed. On the checkbook side, the written checks have already reduced the checkbook balance. Disagree; a debit memorandum reduces the account by the amount of the NSF check. The balance in the cash account in the ledger should equal the balance of cash in the checkbook. Electronic Funds Transfer (EFT) transfers funds among parties electronically without the use of paper checks. Cancelled checks are not returned to the depositor; they are kept for a certain period of time by the bank. Reject; Petty Cash is an asset. The auxiliary petty cash record is a supplementary record that gathers information about expenses which will be used to prepare a journal entry in the replenishment process. Debiting totals of individual expenses updates the ledger to record where cash was used. After replenishment, the cash is back to a certain level, and the old expenses have been updated in the ledger. The change fund, an asset, aids in making change to customers who pay cash. When the account Cash Over and Short has more shortages than overages, its balance is a miscellaneous expense shown on the income statement.

184

1.

A. B. C. D. E. F.

4 1 4 3 3 2

2. 3.

A, C, D, E

JUNE CO. BANK RECONCILIATION MAY 31, 200X

June Checkbook Balance Bank Service Charge

$20 10 +

Bank Balance Deposit in Transit Checks Outstanding Reconciled Bank Balance

$30 10 40 30 $10

Reconciled Book Balance

$10

4.

A. B. C. D. E. F.

1,2,4 1,2 3,4 3,4 1,2 1,2,4 5 6 1 12 10 5 6 1 22

5.

Band-Aid expense Stamp Expense Cash Short and Over Cash Petty Cash Band-Aid Expense Stamp Expense Cash Short and Over Cash

6.

185

SOLUTIONS TO EXERCISES 6-1.

LANG CO. BANK RECONCILIATION AS OF JULY 31, 200X CHECKBOOK BALANCE Checkbook Balance Deduct: Bank Service Charge $1,260 45 BALANCE PER BANK Bank Statement Balance Add: Deposit in Transit $900 600 $1,500

Reconciled Balance

$1,215

Deduct: Outstanding Checks Reconciled Balance

285 $1,215

Jul. 31 Service Charge Cash

4 5 00 4 5 00

6-2. Jul. 1 Petty Cash Cash Establishment 4 0 00 4 0 00

31 Donations Expense Postage Expense Office Supplies Expense Miscellaneous Expense Cash Replenishment

1 0 7 7 4

00 00 00 00 2 8 00

6-3. Jul. 31 Donations Expense Postage Expense Office Supplies Expense Miscellaneous Expense Cash Short and Over Cash Replenishment 1 0 7 7 4 1 00 00 00 00 00 2 9 00

186

EXERCISES (CONTINUED) 6-4. Jul. 31 Donations Expense Postage Expense Office Supplies Expense Miscellaneous Expense Cash Short and Over Cash Replenishment 6-5.
+ = = Beg. Change Fund Cash Register Total Cash should have on hand Counted Cash Cash Shortage $ 30 + 1,100 1,130 1,056 $ 74

1 0 7 7 4

00 00 00 00 1 00 2 7 00

Cash Cash Short and Over Sales Record daily sales with shortage

1 0 2 6 00 7 4 00 1 1 0 0 00

187

SOLUTIONS TO A PROBLEMS PROBLEM 6A-1

ABLE.COM BANK RECONCILIATION AS OF JULY 31, 200X BALANCE PER BANK Ending Bank Statement Balance Add: Deposits in Transit $8,000 1,110 $9,110 Checkbook Balance $6,600 Add: Proceeds of a Note Less Collection Charge by Bank 903 $7,503 Deduct: Bank Service Charge 1,690 $7,420 Reconciled Balance CHECKBOOK BALANCE

Deduct: Check No. 122 130 Reconciled Balance

$1,000 690

83 $7,420

GENERAL JOURNAL

Date 200X Jul. 31

Account Titles and Description Cash Collection Expense Notes Receivable Note Collected at Bank Miscellaneous Expense* Cash Recording Bank Service Charges

PR

Dr. 9 0 3 00 7 00

Cr.

9 1 0 00 8 3 00 8 3 00

31

*Service Charge Expense could be used instead.

188

PROBLEM 6A-2 This form is provided to help you balance your bank statement. If no errors are reported to auditors in ten days, the account will be considered correct. Please notify us of any change in address. Checks outstanding (not charged to account) Sort the checks numerically or by date issued. Check off on the stubs of your checkbook each check paid by bank. List the numbers and amounts of checks still outstanding in the space provided at the left. Verify the deposits in your checkbook with deposits credited on this statement. Bank balance shown on this statement $5,400 Plus: Deposits not credited on this statement $3,000 Subtotal $8,400 Less: Checks outstanding $2,130 Balance $6,270 If your checkbook does not agree, enter any necessary adjustments: Less: NSF $300 SC 30 $6,600

Check No. 111 119 121

Amount $600 $1,200 $330

Total

$2,130

330

Correct checkbook balance

$6,270

GENERAL JOURNAL

Date 200X Feb. 28

28

Account Titles and Description Accounts Receivable Cash NSF from Jim Rice Service Charge Expense* Cash Recording Bank Service Charge

PR

Dr. 3 0 0 00

Cr. 3 0 0 00

3 0 00 3 0 00

*Miscellaneous Expense could be used instead.

189

PROBLEM 6A-3
GENERAL JOURNAL PAGE 4

Date 200X Apr. 1

Account Titles and Description Petty Cash Cash Establishment, Check 14 Accounts Payable Cash Paid Reliable, Check 15 Accounts Payable Cash Paid Roger Co., Check 16 Office Equipment Cash Bought Equipment from Roy Kloon, Check 17 Postage Expense Office Supplies Expense Miscellaneous Expense Cash Replenishment, Check 18

PR

Dr. 8 0 00

Cr. 8 0 00

15

2 0 0 00 2 0 0 00

20

6 0 0 00 6 0 0 00

28

7 0 0 00 7 0 0 00

30

9 00 1 8 00 9 00 3 6 00

190

MERRY CO. AUXILIARY PETTY CASH RECORD

PROBLEM 6A-3 (CONCLUDED)

Receipts 8 0 00 5 00 1 0 00 8 00 4 00 1

Date Voucher 200X No. Apr. 1 5 1 8 2 17 3 24 4 26 5 Payment 8 0 00 8 0 00 3 4 8 5 0 8 4 9 6 4 0 9 00 00 00 00 00 00 00 00 00 1 8 00

Postage Expense

Category of Payment Office Supplies Sundry Expense Account Amount

Misc.

Description Establishment Postage Office Supplies Office Supplies Postage Donations Totals Ending Balance

9 00 9 00

191 4 4 00 3 6 00 8 0 00

30 30

Ending Balance Replenishment Balance (New)

PROBLEM 6A-4
GENERAL JOURNAL PAGE 2

Date 200X Oct. 1

Account Titles and Description Petty Cash Cash Establishment, Check 444 Postage Expense Delivery Expense Computer Supplies Expense Miscellaneous Expense Cash Short and Over Cash Replenishment, Check 618

PR

Dr. 1 0 0 00

Cr. 1 0 0 00

29

2 7 00 2 0 00 8 00 8 00 3 00 6 6 00

192

LOGAN CO. AUXILIARY PETTY CASH RECORD

PROBLEM 6A-4 (CONCLUDED)

Receipts 1 0 0 00 1 4 00

Payment

Postage Expense

Category of Payment Delivery Sundry Expense Account Amount

1 2 00 Misc 9 00 8 00
Comp; Supplies Exp.

Date Voucher 200X No. Oct. 1 5 1 9 2 12 3 14 4 17 5 Description Establishment Postage Delivery Donation Postage Delivery 1 4 00 1 2 00 8 00 9 00 8 00 8 00 4 00 Computer Supplies Postage Fund Shortage 1 0 0 00

8 00

193 3 6 6 3 4 1 0 0 00 00 00 00 Ending Balance Replenishment Balance (New) 1 0 3 6 1 0 0 4 6 0 00 00 00 00

27 28

6 7

8 00 4 00
Cash Short and Over

28

2 7 00

2 0 00

3 00 1 9 00

28 29 29

SOLUTIONS TO B PROBLEMS PROBLEM 6B-1

ABLE.COM COMPANY BANK RECONCILIATION AS OF JULY 31, 200X BALANCE PER BANK Ending Bank Statement Balance Add: Deposits in Transit 3,600 $12,785 $9,185 Checkbook Balance Add: Proceeds of a Note Less Collection Charge by Bank 2,754 $10,969 Deduct: Check No. 111 115 $590 1,255 1,845 Reconciled Balance $10,940 Reconciled Balance $10,940 Deduct: Bank Service Charge 29 $8,215 CHECKBOOK BALANCE

GENERAL JOURNAL

Date 200X Jul. 31

Account Titles and Description Cash Collection Expenses Notes Receivable Note Collected at Bank Miscellaneous Expense* Cash Recording Bank Service Charge

PR

Dr. 2 7 5 4 00 6 00

Cr.

2 7 6 0 00

31

2 9 00 2 9 00

*Service Charge Expense could be used instead.

194

PROBLEM 6B-2 This form is provided to help you balance your bank statement. If no errors are reported to auditors in ten days, the account will be considered correct. Please notify us of any change in address. Checks outstanding (not charged to account) Sort the checks numerically or by date issued. Check off on the stubs of your checkbook each check paid by bank. List the numbers and amounts of checks still outstanding in the space provided at the left. Verify the deposits in your checkbook with deposits credited on this statement. Bank balance shown on this statement $ 632 Plus: Deposits not credited on this statement $ 416 Subtotal $1,048 Less: Checks outstanding $ 292 Balance $ 756 If your checkbook does not agree, enter any necessary adjustment: Less: NSF SC $ 40 2 $ 798

Check No. 110 116 118

Amount $80 $160 $52

Total

$292

42

Correct checkbook balance

GENERAL JOURNAL

$ 756

Date 200X Apr. 30

Account Titles and Description Accounts Receivable Cash NSF from Jim Rice Service Charge Expense* Cash Recording Bank Service Charge

PR

Dr. 4 0 00

Cr. 4 0 00

30

2 00 2 00

*Miscellaneous Expense could be used instead.

195

PROBLEM 6B-3
GENERAL JOURNAL PAGE 2

Date 200X Apr. 1

Account Titles and Description Petty Cash Cash Establishment, Check 4 Accounts Payable Cash Paid Reliable, Check 5 Accounts Payable Cash Paid Roger Co., Check 6 Office Equipment Cash Bought Equipment from Roy Kloon, Check 7 Postage Expense Office Supplies Expense Miscellaneous Expense Cash Replenishment, Check 8

PR

Dr. 6 0 00

Cr. 6 0 00

15

4 0 0 00 4 0 0 00

20

3 0 0 00 3 0 0 00

28

8 0 0 00 8 0 0 00

30

1 5 00 1 9 00 1 2 00 4 6 00

196

MERRY CO. AUXILIARY PETTY CASH RECORD Category of Payment Receipts 6 0 00 9 00 1 2 00 7 00 6 00 Misc. 1 5 00 1 9 00 1 2 00 1 2 00 Payment Postage Expense Office Supplies Expense Account Sundry Amount

PROBLEM 6B-3 (CONCLUDED)

Date Voucher 200X No. Apr. 1 5 1 8 2 17 3 24 4 26 5 Description Establishment Postage Office Supplies Office Supplies Postage Donations Totals Ending Balance 6 0 00 6 0 00 9 1 2 7 6 1 2 4 6 1 4 6 0 00 00 00 00 00 00 00 00

197 Ending Balance Replenishment Balance (New) 1 4 00 4 6 00 6 0 00

30 30

PROBLEM 6B-4 (CONCLUDED)

GENERAL JOURNAL PAGE 2

Date 200X Oct.

Account Titles and Description 1 Petty Cash Cash Establishment, Check 444 Postage Expense Delivery Expense Computer Supplies Expense Miscellaneous Expense Cash Short and Over Cash Replenishment, Check 618

PR

Dr. 9 0 00

Cr. 9 0 00

29

2 9 00 2 1 00 9 00 6 00 4 00 6 9 00

198

LOGAN CO. AUXILIARY PETTY CASH RECORD

PROBLEM 6B-4 (CONCLUDED)

Receipts 9 0 00 1 6 00

Payment

Postage Expense

Category of Payment Delivery Sundry Expense Account Amount

1 4 00 Misc 1 0 00 7 00
Comp; Supplies Exp.

Date Voucher 200X No. Oct. 1 5 1 9 2 12 3 14 4 17 5 Description Establishment Postage Delivery Donation Postage Delivery 1 6 00 1 4 00 6 00 1 0 00 7 00 9 00 3 00 Computer Supplies Postage Fund Shortage 9 0 00

6 00

199 4 6 9 2 1 9 0 00 00 00 00 Ending Balance Replenishment Balance (New) 9 2 6 9 0 1 9 0 00 00 00 00

27 28

6 7

9 00 3 00
Cash Short and Over

28

2 9 00

2 1 00

4 00 1 9 00

28 29 29

SOLUTIONS TO REAL WORLD APPLICATION #1

Dec. 3

Petty Cash Delivery Expense Office Supplies Postage Cash

5 0 8 1 2 2 0

00 50 00 00 9 0 50

The Petty Cash Account is too low if it continuously doesnt cover items using Petty Cash. If in the past the Petty Cash was sufficient, this may have been a one-time problem. Should a shortage of funds occur, Claire Montgomery was indeed correct.

SOLUTIONS TO REAL WORLD APPLICATION #2

LEE COMPANY BANK RECONCILIATION AS OF NOVEMBER 30, 200X BALANCE PER BANK CHECKBOOK BALANCE

Bank Balance Add: Deposits in Transit

$4,440.50 611.00 $5,051.50

Checkbook Balance Add: Collection of Notes Rec. Less: Collection Fee $ 500.00 6.00

$4,209.50

$ 494.00

Less: Outstanding checks # 621 942 947 $152.50 71.50 206.50 430.50

Error in recording ck. #899

54.00 $4,757.50

Less: NSF check A. Ellen Service Charges

$ 130.00 6.50 136.50 $4,621.00

Reconciled Balance

$4,621.00

Reconciled Balance

200

Nov. 30 Collection Expense Cash Notes Receivable Note collected at Bank 30 Accts. Rec. Cash Recording NSF from Abby Ellen 30 Cash Office Equipment Error on check 899 30 Miscellaneous Expense Cash Recording Bank Service Charge

6 00 4 9 4 00 5 0 0 00

1 3 0 00 1 3 0 00

5 4 00 5 4 00

6 50 6 50

SOLUTIONS TO REAL WORLD APPLICATION #3 The question in this case is whether Sean should report to the bank that his account is increased by $250. Although the bank is making a mistake, it is not ethical for Sean to keep the money. It is important that he report the mistake back to the bank and not take advantage of the situation.

201

CONTINUING PROBLEM
GENERAL JOURNAL PAGE 3

Date 200X Oct.

Account Titles and Description 1 Prepaid Rent Cash Petty Cash Cash Cash Service Revenue Cash Accounts Receivable Freedman, Withdrawals Cash Accounts Payable Cash Accounts Payable Cash Accounts Receivable Service Revenue Postage Exp. Supplies expense Misc. Exp. Freedman, Withdrawals Cash

PR 1025 1000 1010 1000 1000 4000 1000 1020 3010 1000 2000 1000 2000 1000 1020 4000 5070 5050 5100 3010 1000

Dr. 1 2 0 0 00

Cr. 1 2 0 0 00

1 0 0 00 1 0 0 00 3 6 0 0 00 3 6 0 0 00 2 6 0 0 00 2 6 0 0 00 2 0 0 0 00 2 0 0 0 00 6 5 00 6 5 00 9 5 00 9 5 00 4 2 0 0 00 4 2 0 0 00 2 4 1 1 5 2 0 5 00 00 00 00 9 2 00

16

17

22

31

202

CASH

ACCOUNT NO. 1000

Balance Date Explanation 9/30 0X Balance forward 10/1 2 4 5 7 16 17 31

PETTY CASH

Post Ref. J3 J3 J3 J3 J3 J3 J3 J3

Debit

Credit 1 1 2 0 0 00 1 0 0 00

3 6 0 0 00 2 6 0 0 00 2 00 6 9 9 0 5 5 2 00 00 00 00

3 6 4 4 4 4

Debit 6 45 4 45 3 45 9 45 5 45 5 45 4 80 3 85 2 93

Credit 00 00 00 00 00 00 00 00 00

ACCOUNT NO. 1010

Balance Date Explanation 10/2 0X

ACCOUNTS RECEIVABLE

Post Ref. J3

Debit 1 0 0 00

Credit

Debit 1 0 0 00

Credit

ACCOUNT NO. 1020

Balance Date Explanation 9/30 0X balance forward 10/5 22 Post Ref. J3 J3 Debit Debit 2 6 0 0 00 2 6 0 0 00 0 4 2 0 0 00 4 2 0 0 00 Credit Credit

PREPAID RENT

ACCOUNT NO. 1025

Balance Date Explanation 9/30 0X balance forward 10/1 Post Ref. J3 Debit 1 2 0 0 00 Credit Debit 4 0 0 00 1 6 0 0 00 Credit

SUPPLIES

ACCOUNT NO. 1030

Balance Date Explanation 0X balance forward Post Ref. Debit Credit Debit 9 0 00 Credit

203

COMPUTER SHOP EQUIPMENT

ACCOUNT NO. 1080

Balance Date Explanation 9/30 0X balance forward Post Ref. Debit Credit Debit 2 4 0 0 00 Credit

ACCUMULATED DEPRECIATION, COMPUTER SHOP EQUIPMENT

ACCOUNT NO. 1081

Balance Date Explanation 9/30 0X balance forward Post Ref. Debit Credit 9 9 00 Debit Credit 9 9 00

OFFICE EQUIPMENT

ACCOUNT NO. 1090

Balance Date Explanation 9/30 0X balance forward Post Ref. Debit Credit Debit 6 0 0 00 Credit

ACCUMULATED DEPRECIATION, OFFICE EQUIPMENT

ACCOUNT NO. 1091

Balance Date Explanation 9/30 0X balance forward Post Ref. Debit Credit 2 0 00 Debit Credit 2 0 00

ACCOUNTS PAYABLE

ACCOUNT NO. 2000

Balance Date Explanation 9/30 0X balance forward 10/16 10/17

T. FREEDMAN, CAPITAL

Post Ref. J3 J3

Debit 6 5 00 9 5 00

Credit

Debit

Credit 2 1 0 00 1 4 5 00 5 0 00

ACCOUNT NO. 3000

Balance Date Explanation 9/30 0X balance forward Post Ref. Debit Credit Debit Credit 7 4 0 6 00

204

T. FREEDMAN, WITHDRAWALS

ACCOUNT NO. 3010

Balance Date Explanation 10/7 0X 10/31 Post Ref. J3 J3 Debit 2 0 0 0 00 1 5 00 Credit Debit 2 0 0 0 00 2 0 1 5 00 Credit

INCOME SUMMARY

ACCOUNT NO. 3020

Balance Date Explanation Post Ref. Debit Credit Debit Credit

SERVICE REVENUE

ACCOUNT NO. 4000

Balance Date Explanation 10/4 0X 22 Post Ref. J3 J3 Debit Credit 3 6 0 0 00 4 2 0 0 00 Debit Credit 3 6 0 0 00 7 8 0 0 00

ADVERTISING EXPENSE

ACCOUNT NO. 5010

Balance Date Explanation Post Ref. Debit Credit Debit Credit

205

RENT EXPENSE

ACCOUNT NO. 5020

Balance Date Explanation Post Ref. Debit Credit Debit Credit

UTILITIES EXPENSE

ACCOUNT NO. 5030

Balance Date Explanation Post Ref. Debit Credit Debit Credit

PHONE EXPENSE

ACCOUNT NO. 5040

Balance Date Explanation Post Ref. Debit Credit Debit Credit

SUPPLIES EXPENSE

ACCOUNT NO. 5050

Balance Date Explanation 10/31 0X Post Ref. J3 Debit 4 2 00 Credit Debit 4 2 00 Credit

206

INSURANCE EXPENSE

ACCOUNT NO. 5060

Balance Date Explanation Post Ref. Debit Credit Debit Credit

POSTAGE EXPENSE

ACCOUNT NO. 5070

Balance Date Explanation 10/31 0X Post Ref. J3 Debit 2 5 00 Credit Debit 2 5 00 Credit

DEPRECIATION EXPENSE, COMPUTER SHOP EQUIPMENT

ACCOUNT NO. 5080

Balance Date Explanation Post Ref. Debit Credit Debit Credit

DEPRECIATION EXPENSE, OFFICE EQUIPMENT

ACCOUNT NO. 5090

Balance Date Explanation Post Ref. Debit Credit Debit Credit

MISCELLANEOUS EXPENSE

ACCOUNT NO. 5100

Balance Date Explanation 10/31 0X Post Ref. J3 Debit 1 0 00 Credit Debit 1 0 00 Credit

207

AUXILIARY PETTY CASH RECORD

Receipts 1 0 0 00 2 5 00

Payment

Postage Expense

Category of Payment Sundry Supplies Account Amount

208 1 0 0 00

2 2 00 Misc. 2 0 00 W/D 2 5 00 4 2 00 1 5 00 2 5 00 1 0 00

Date Voucher 200X No. Oct. 2 6 101 8 102 12 103 23 104 30 105 Description Establishment Stamps Supplies Newspaper Supplies Lunch Total 2 2 1 2 1 9 5 2 0 0 5 2 00 00 00 00 00 00

BANK RECONCILIATION AS OF SEPTEMBER 30, 200X

BALANCE PER BANK

CHECKBOOK BALANCE

Bank Statement Balance

$2,905.00

Checkbook Balance

$1,645.00

Add: Deposit in Transit

140.00 3,045.00

Add:

Deduct: Check # 8106 8107 200.00 1,200.00 1,400.00 Deduct: 0

Reconciled Balance

$1,645.00

Reconciled Balance

$1,645.00

209

ELDORADO COMPUTER CENTER TRIAL BALANCE OCTOBER 31, 200X

Cash Petty Cash Accounts Receivable Prepaid Rent Supplies Computer Shop Equipment Accum. Depr. C.S. Equip. Office Equipment Accum. Depr. Office Equip. Accounts Payable T. Freedman, Capital T. Freedman, Withdrawals Service Revenue Postage Exp. Supplies Expense Misc. Exp. Totals

4 2 1 4 2 1 6

9 0 0 0 9 2 4 0

3 0 0 0 0 0

00 00 00 00 00 00 9 9 00

6 0 0 00 2 0 00 5 0 00 7 4 0 6 00 2 0 1 5 00 7 8 0 0 00 2 5 00 4 2 00 1 0 00 15 3 7 5 00 15 3 7 5 00

210