Chapter Cash Accounting, 21st Edition Warren Reeve Fess PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University © Copyright 2004 South-Western, a division of Thomson Learning All rights reserved Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc Some Some of of the the action action has has been been automated, automated, so so click click the the mouse mouse when when you you see see this this lightning lightningbolt bolt in in the the lower lower right-hand right-hand corner corner of of the the screen screen You You can can point point and and click click anywhere anywhere on on the the screen screen Objectives Objectives Describe the nature of cash and the importance After studying After over studying this of internal control cash.this you Summarize chapter, basic procedures for achieving chapter, you should should internal control over cashto: receipts be be able able to: Summarize basic procedures for achieving internal control over cash payments, including the use of a voucher system Describe the nature of a bank account and its use in controlling cash Objectives Objectives Prepare a bank reconciliation and journalize any necessary entries Account for small cash transactions using a petty cash fund Summarize how cash is presented on the balance sheet Compute and interpret the ratio of cash to current liabilities Control Over Cash Many companies need several cash accounts to account for different cash categories and funds Most companies have multiple bank accounts The title for each bank account should be: Cash in Bank—(Name of Bank) Preventive controls protect cash from theft and misuse of cash Detective controls are designed to detect theft or misuse of cash and are also preventive in nature Retailers’ Retailers’ Sources Sources of of Cash Cash Cash Receipts CASHIER’S DEPARTMENT Register records ACCOUNTING DEPARTMENT Mail Receipts Remittance advices Retailers’ Retailers’ Sources Sources of of Cash Cash CASHIER’S DEPARTMENT ACCOUNTING DEPARTMENT Deposit ticket Deposit receipt Bank Controlling Controlling Cash Cash Received Received from from Cash Cash Sales Sales 19 Cash 142 00 Cash Short and Over Sales 00 150 00 To record cash sales and actual cash on hand Cash Cash sales sales for for March March19 19totaled totaled $3,150.00 $3,150.00 per per the the cash cash register register tape tape After After removing removingthe the change change fund, fund, only only $3,142.00 $3,142.00was was on on hand hand Controlling Controlling Cash Cash Received Received in in the the Mail Mail Most Most companies’ companies’ invoices invoices are are designed designed so so that that customers customers return return aa portion portion of of the the invoice, invoice, call call aa remittance remittance advice advice Controlling Controlling Cash Cash Received Received in in the the Mail Mail The employee who opens the mail should initially compare the amount received with the amount on the remittance advice The employee opening the mail stamps checks and money orders “For Deposit Only” in the bank account of the business All cash is sent to the Cashier’s Department where checks and money orders are combined with receipts from cash sales and a bank deposit ticket is prepared BANK Bank’s books Beginning balance Add deposit not recorded by bank $3,359.78 816.20 $4,175.9 Deduct outstanding checks: No 812 $1,061.00 No 878 435.39 No 883 48.60 1,544.99 Depositor’s records Beginning balance $2,549.99 Add note and interest collected by bank 408.00 $2,957.9 Deduct check return because of insufficient funds $300.00 Bank service charges 18.00 Error recording Check No 879 9.00 327.00 Check Check No No 879 879 for for $732.26 $732.26 to to Taylor Taylor Co Co on on account, account, erroneously erroneously recorded recorded in in journal journal as as $723.26 $723.26 BANK Bank’s books Beginning balance Add deposit not recorded by bank $3,359.78 816.20 $4,175.9 Deduct outstanding checks: No 812 $1,061.00 No 878 435.39 No 883 48.60 1,544.99 Adjusted balance $2,630.99 Depositor’s records Beginning balance $2,549.99 Add note and interest collected by bank 408.00 $2,957.9 Deduct check return because of insufficient funds $300.00 Bank service charges 18.00 Error recording Check No 879 9.00 327 Adjusted balance $2,630.99 Now, Now, ifif desired, desired, we we can can prepare prepare aa formal formal statement statement for for Power Power Networking Networking Power Networking Bank Reconciliation July 31, 2006 Balance per bank statement Add: Deposit not recorded by bank $3,359.78 816.20 Deduct: Outstanding checks No 812 No 878 No 883 Adjusted balance $1,061.00 435.39 48.60 Balance per depositor’s records Add: Note and interest collected by bank $4,175.98 1,544.99 $2,630.99 $2,549.99 408.00 $2,957.99 Deduct: NSF check (Thomas Ivey) returned$300.00 Bank service charges 18.00 Error in recording Check No 879 9.00 327.00 Adjusted balance $2,630.99 Journal Journal entries entries must must be be prepared prepared for for those those items items that that affected affected the the depositor’s depositor’s side side of of the the reconciliation reconciliation Power Networking Bank Reconciliation July 31, 2006 Balance per bank statement Add: Deposit not recorded by bank $3,359.78 816.20 Deduct: Outstanding checks No 812 No 878 No 883 Adjusted balance $1,061.00 435.39 48.60 Balance per depositor’s records Add: Note and interest collected by bank Deduct: NSF check (Thomas Ivey) returned Bank service charges Error in recording Check No 879 Adjusted balance $300.00 18.00 9.00 $4,175.98 1,544.99 $2,630.99 $2,549.99 408.00 $2,957.99 327.00 $2,630.99 Entries Entries Related Related to to aa Bank Bank Reconciliation Reconciliation July 31 Cash Notes Receivable Interest Receivable Note collected by bank 408 00 400 00 00 Power Networking Bank Reconciliation July 31, 2006 Balance per bank statement Add: Deposit not recorded by bank $3,359.78 816.20 Deduct: Outstanding checks No 812 No 878 No 883 Adjusted balance $1,061.00 435.39 48.60 Balance per depositor’s records Add: Note and interest collected by bank Deduct: NSF check (Thomas Ivey) returned Bank service charges Error in recording Check No 879 Adjusted balance $300.00 18.00 9.00 $4,175.98 1,544.99 $2,630.99 $2,549.99 408.00 $2,957.99 327.00 $2,630.99 Entries Entries Related Related to to aa Bank Bank Reconciliation Reconciliation July 31 Cash 408 00 Notes Receivable 400 00 Interest Receivable Note collected by bank 30 Accounts Receivable—Thomas Ivey Miscellaneous Administrative Exp Accounts Payable—Taylor Co Cash NSF check, bank service charges, and error in recording Check no 879 00 300 00 18 00 00 327 00 Petty Cash On On August August 1, 1, issued issued Check Check No No.511 511for for $100 $100 to to established established aa petty pettycash cashfund fund Aug Petty Cash Cash Established petty cash fund 100 00 100 00 At At the the end end of of August, August, the the petty petty cash cash receipts receipts indicated indicated expenditures expenditures for for the the following following items: items: office office supplies, supplies, $28, $28, postage postage (office (office supplies), supplies), $22; $22; store store supplies, supplies, $35, $35, and and miscellaneous miscellaneous administrative administrative items, items, $3 $3 Aug 31 Office Supplies Store Supplies Miscellaneous Administrative Exp Cash Replenished petty cash fund 50 00 35 00 00 88 00 Financial Analysis and Interpretation Solvency is the ability of a business to meet its financial obligations (debts) as they are due Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities This ability is normally assessed by examining balance sheet relationships Financial Analysis and Interpretation Doomsday Doomsday Ratio Ratio Laettner Co Oakley Co A Cash and equivalents $100,000 $ 120,000 B Current liabilities 400,000 1,500,000 Doomsday ratio A / B 0.25 0.08 Use: the company’s ability How these ratios Use: To To indicate indicate the company’s ability to to How are are these ratiosused? used? meet meet creditors creditorsobligations obligationsin in the the worst worst case case assumption assumption that that should should the the business business cease cease to to exist exist Chapter The The End End ... studying After over studying this of internal control cash.this you Summarize chapter, basic procedures for achieving chapter, you should should internal control over cashto: receipts be be able... CASHIER’S DEPARTMENT Register records ACCOUNTING DEPARTMENT Mail Receipts Remittance advices Retailers’ Retailers’ Sources Sources of of Cash Cash CASHIER’S DEPARTMENT ACCOUNTING DEPARTMENT Deposit ticket... the Accounting Department where a clerk prepares the records of the transactions and posts them to the customer account The stamped duplicate copy of the deposit ticket is returned to the Accounting