Chapter 9:Cash

bonding

The process by which employees are investigated by an insurance company that will insure the business against losses through employee theft or mishandling of funds.

bank endorsement

a signature of the payee written on the back of the check that transfers ownership of the check without specifying to whom or for what purpose

restricitive endorsement

a signature that transfers a check to a specific party for a stated purpose; it is the safest endorsement

Bank Reconcilliation Statement

a statement that accounts for all differences between the balance on the bank statement and the book balance of cash

endorsement

a written authorization that transfers ownership of a check

check

a written order singed by an authorized person instructing a bank to pay a specific sum of money to a designated person or business

promissory note

a written promise to pay a specified amount of money on a specific date

debit cards

also called check cards; operate like cash or a personal check debit means subtract

cash short or over account

an account used to record any discrepancies between the amount of currency and coins in the cash register and the amount shown on the audit tape -if the account has a credit balance, there is an overage which is treated as revenue -if the account has a debit balance, there is a shortage, which is treated as an expense

electronic funds transfers (EFTs)

an electronic transfer of money from one account to another

outstanding checks

checks that have been recorded in the cash payments journal but have not yet been paid by the bank

outstanding checks and deposits in transit are

common reasons why the bank statement balance does not agree with the book balance

items found on the first section of the bank reconciliation, or adjustments to the bank statement balance include

deposits in transit, outstanding checks

cash

in accounting, currency, coins, checks, money orders, and funds on deposit in a bank most cash transactions involve checks

petty cash

only one person controls the petty cash fund. that person should keep receipts for all expenditures

common reasons that the bank statement balance does not agree with the book balance includes which of the following

outstanding checks; deposit in transit; unrecorded deposits; service charges

a check stub records which of the following

purpose; balance; check amount; date; payee

common uses of online banking include

receipt of payment from customers; payments to the government; payments to vendors

drawee

the bank on which a check is written

drawer

the person or firm issuing a check

payee

the person or firm to whom a check is payable

good internal control of banking activities include

using prenumbered checks; limiting access of the checkbook to designated employees

deposit slip

A form prepared to record the deposit of cash or checks to a bank account.

statement of account

A form sent to a firm's customers showing transactions during the month and the balance owed .

debit memorandum

A form that explains any deduction, other than a check, from a checking account.

full endorsement

A signature transferring a check to a specific person, firm, or bank.

identify the characteristics of debit cards

- the bank debits the depositor's checking accounts when depositors use their debit cards - debit cards operate like cash or a personal check

control of cash receipts

1. have only designated employees receive and handle cash whether it consists of checks and money orders or currency and coins 2. keep cash receipts in a cash register, a locked cash drawer, or a safe while they are on the premises 3. make a record of all cash receipts as the funds come into the business 4. before a bank deposit is made, check the funds to be deposited against the record made when the cash was received 5. deposit cash receipts in the bank promptly-every day or several times a day and deposit the funds intact 6. enter cash receipts transactions in the accounting records promptly 7. have the monthly bank statement sent to and reconciled by someone other than the employees who handle, record, and deposit the funds

internal control of banking activities

1. limit access to the checkbook to designated employees. when the checkbook is not in use, keep it in a locked drawer or cabinet 2. use prenumbered check forms. periodically, verify and account for all checks. examine checks before singing them. match each check to an approved invoice or other payment authorization 3. separate duties 4. file all deposit receipts, canceled checks, voided checks, and bank statements for future reference 5. require employees working with cash receipts or cash payments to take mandatory annual vacations

control of cash payments

1. make all payments by check except for payments from special-purpose cash funds such as petty cash fund or a travel and entertainment fund 2. issues checks only when an approved bill, invoice, or other document that describes the reason for payment 3. have only designated personnel, who are experienced and reliable, approve bills and invoices 4. have checks prepared and recorded in the checkbook or check register by someone other than the person who approves the payments 5. have still another person sign and mail the checks to creditors. consider requiring that two people sign all checks greater that a predesignated amount 6. use prenumbered check forms. periodically, the numbers of the checks that were issued and the numbers of the blank check forms remaining should be verified to make sure that all check numbers are accounted for 7. during the bank reconciliation process, compare the canceled checks to the checkbook or check register. the person who does the bank reconciliation should be someone other than the person who prepares or records the checks 8. enter promptly in the accounting records all cash payment transactions. the person who records cash payments should not be the one who approves payments or the one who writes the checks

other than errors there are four main reasons why the book balance of cash may not agree with the balance on the bank statement

1. outstanding checks 2. deposit in transit 3. service charges and other deductions are not recorded in business records 4. deposits, such as collection of promissory notes, aren't recorded in the business records

internal controls for petty cash

1. use the petty cash fund only for small payments that cannot conveniently be made by check 2. limit the amount set aside for petty cash to the approximate amount needed to cover one month's payments from the fund 3. write petty cash fund checks to the person in charge of the fund, not to the order of "cash" 4. assign one person to control the petty cash fund. this person has sole control of the money and is the only one authorized to make payments from the fund 5. keep petty cash in a safe, a locked cash box, or a locked drawer 6. obtain a petty cash voucher for each payment. the voucher should be signed by the person who receives the money and should show payment details. this provides an audit trail for the fund

dishonored check

A check returned to the depositor unpaid because of insufficient funds in the drawer's account; also called an NSF check.

deposit in transit

A deposit that is recorded in the cash receipts journal but that reaches the bank too late to be shown on the monthly bank statement.

postdated check

a check dated some time in the future

canceled check

a check paid by the bank on which it was drawn

cash proof

a document that records the verification that the amount of currency and coins in a cash register agrees with the amount shown on the cash register transaction totals

service charges

a fee charged by a bank to cover the costs of maintaining accounts and providing services

negotiable

a financial instrument whose ownership can be transferred to another person or business

statement of account

a form sent to a firm's customers showing transactions during the month and the balance owed

credit memorandum

a form that explains any addition, other than a deposit, to a checking account

petty cash voucher

a form used to record the payments made from a petty cash fund

petty cash analysis sheet

a form used to record transactions involving petty cash