Accounting I | © John Petroff, Nancy Paz, Tibebe Mengistu Source: PEOI |
BANK ACCOUNTS
The most effective tool used to control cash is a bank account.
It provides a double record of all cash transactions. In order
to
provide effective controls on the use of bank accounts, special
documents are used to evidence transactions. Signature cards are
kept by the bank for all employees authorized to make withdrawals.
Deposit tickets must accompany deposits, and checks must be issued
for all
payments. A remittance advice is sent with each payment to ensure
that proper credit is recorded by creditors. Banks commonly require
that a minimum balance (compensating balance) be held.
BANK STATEMENTS
An advantage of using a bank account to control cash is that banks
send a bank statement monthly reporting all the transactions in
the account. Information normally present in the bank statement
consists of the beginning and ending balances, deposits, other
credits, withdrawals and other debits. The cancelled checks are
enclosed with the statement, as well as debit and credit
memorandums (for items processed by the bank usually unknown to
the
depositor). Rarely will the bank statement balance and the
depositor's Cash in Bank account balance be exactly the same,
and
they must be reconciled.
BANK RECONCILIATIONS
A bank reconciliation is a method used to determine the reasons
for discrepancies between the bank statement balance and the Cash
in
Bank account balance and to calculate an adjusted balance.
Discrepancies are usually due to outstanding items which have
not
yet been recorded by either of the bank or the company, and which
typically include checks not yet presented for collection, deposits
in transit and bank service charges. Errors are another common
cause of discrepancies, which the reconciliation will help correct.
Finally, the reconciliation may uncover irregularities.
BANK RECONCILIATIONS
A bank reconciliation is divided into two sections, the balance
per
bank statement and the balance per depositor's records. Although
it
is possible to reconcile one balance to the other, common practice
adjusts both balances to prove to one another. Outstanding
transactions unknown to the depositor discovered when the bank
statement was sent require journal entries.
Example:
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CASH ACCOUNTS
There are often several cash accounts because they serve different
purposes. The Cash in Bank account represents the checking account
that processes deposits, checks and memorandum items. The Cash
Short and Over account is used to record any variance by sales
clerks. The Cash on Hand Fund is used to provide change to conduct
business with customers. The Petty Cash Fund is used to pay for
small items with cash. Each of these cash accounts needs to be
strictly controlled to prevent mishandling.
The accounting assistant brought the following receipts and accepted $
40 to replenish the petty cash fund.
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INTERNAL CONTROL OF CASH ACCOUNTS
Numerous procedures are available to control cash accounts. Monthly
bank statements help verify the cash account balance. The bank
reconciliation is particularly useful in controlling cash receipts.
The voucher system is used to control cash payments. Different
cash
funds exist for specific purposes to keep track of each type of
cash transaction. It should be noted that it is of utmost
importance to separate cash handling and cash related accounting
duties.
THE VOUCHER SYSTEM
One of the most common methods to control cash payments is the
voucher system. The components of a voucher system are
1)- vouchers: documents establishing proof of payment,
2)- a voucher register: to record every voucher,
3)- an unpaid voucher file,
4)- a paid voucher file, and the
5)- a check register: to record the payment of each voucher.
The voucher system provides effective accounting controls and
aids
management decision making.
THE VOUCHER SYSTEM
IMPORTANT FACTS CONCERNING VOUCHERS
1)- Vouchers must be prepared for all payments.
2)- Vouchers represent written authorization of a payment.
3)- Before a voucher can be approved; the receiving report,
invoice and purchase order should be compared keeping in mind
possible discounts.
4)- All vouchers should be recorded in the voucher register in
a
numerical order.
THE VOUCHER SYSTEM
FACTS CONCERNING THE VOUCHER REGISTER
1)- All vouchers must be recorded in the voucher register.
2)- Vouchers are listed in numerical order.
3)- The register records the payee, the date the payment is made
and the number of the check issued for payment,
4)- The Accounts Payable account is always credited, but there
may be different accounts to be debited.
5)- The Sundry Accounts is used to debit accounts not listed in
the other Register columns.
THE VOUCHER SYSTEM
VOUCHER FILES PROCEDURES
1)- Unpaid vouchers are filed in the unpaid voucher file.
2)- Unpaid vouchers should be filed in the order they are due.
3)- Paid vouchers are filed in the paid voucher file.
4)- Paid vouchers are filed in numerical order.
THE VOUCHER SYSTEM
USING THE CHECK REGISTER
1)- When a voucher is paid, it is recorded in the check register.
2)- The check register is similar to the cash payments journal.
3)- All checks should be listed numerically, even those thatare
voided.
4)- Cash in Bank account should always be credited. If a discount
is taken, credit the Purchases Discount account.
5)- Voucher numbers and a running cash balance column are used
in the
check register.
ELECTRONIC FUNDS TRANSFER
The evolution of electronic funds transfer (EFT) will change the
way cash transactions are processed. EFT uses electronic impulses
that are computerized to perform cash transactions. This eliminates
the need for checks and physical money. EFT has a particularly
strong presence in retail sales. Point-of-sale systems are used
by
customers to pay for purchases using credit cards, charge cards,
and
bank cards. The greatest benefit EFT can provide is reduced costs,
and quicker and more accurate information.
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