Agenda. Lecture Chapter 9 Quiz Chapter 8 Exercises & Problem Chapter 8. Objective. Cash Receipts. Cash Receipts, Payments, & Banking Procedures

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1 Cash Receipts, Payments, & Banking Procedures Agenda Lecture Chapter 9 Quiz Chapter 8 Exercises & Problem Chapter 8 Cash Receipts, Payments, & Banking Procedures Objective Cash Receipts 1.cash receipts journal 9 2.Account for cash short or over 3. Post from the cash receipts journal to subsidiary and general ledgers Cash Payments 1.cash payments journal. 2. Post from the cash payments journal to subsidiary and general ledgers. 3. procedures for a petty cash fund. 4. internal control routines for cash Banking Procedures Cash Receipts The type of cash receipts depends on the nature of the business. Supermarkets receive checks as well as currency and coins. Department stores receive checks in the mail from charge account customers. Wholesalers usually receive cash in the form of checks. A cash receipts journal is a special journal used to record and post transactions involving the receipt of cash.

2 The cash receipts journal has separate columns for accounts that are frequently used. There are columns for: RECEIPTS JOURNAL PAGE 1 POST. ACCOUNTS RECEIVABLE SALES TAX SALES PAYABLE OTHER ACCOUNTS ACCOUNT NAME POST. AMOUNT Credits to Sales and Sales Tax Payable for cash sales Debits to Cash Credits to Accounts Receivable for payments received on account At the end of the month, the totals of all these columns are posted to the general ledger. Cash Receipts RECEIPTS JOURNAL PAGE 1 POST. ACCOUNTS RECEIVABLE SALES TAX SALES PAYABLE OTHER ACCOUNTS ACCOUNT NAME POST. AMOUNT The Other Accounts Credit section includes entries that do not fit into the special columns. Cash Receipts Cash Received on Account Cash refers to currency, coins, checks, money orders, and funds on deposit in a bank. A statement of account is a form sent to a firm s customers showing transactions during the month and the balance owed. Example: The Trend Center makes sales on account and bills customers once a month. It sends a statement of account to each customer.

3 Look at the January 7 entry for John Allen. RECEIPTS JOURNAL PAGE 1 POST. ACCOUNTS RECEIVABLE SALES TAX SALES PAYABLE OTHER ACCOUNTS ACCOUNT NAME POST. AMOUNT Jan. 7 John Allen The check amount is entered in the Accounts Receivable Credit and Cash Debit columns. Cash Receipts Cash Discounts on Sales Many wholesale businesses offer cash discounts to customers who pay within a certain time period. These are sales discounts. Businesses with many sales discounts add a Sales Discounts Debit column to the cash receipts journal. Cash Sales and Sales Taxes Example: the cash sales entries for January 8 in the cash receipts journal for The Trend Center. Cash Receipts RECEIPTS JOURNAL PAGE 1 ACCOUNTS SALES TAX OTHER ACCOUNTS POST. SALES RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT Jan. 7 John Allen Cash Sales , , The sales tax collected is entered in the Sales Tax Payable Credit column. The cash received is entered in the Cash Debit column. The sales is entered in the Sales Credit column. Confirm that total credits equal total debits

4 Cash Receipts RECEIPTS JOURNAL PAGE 1 ACCOUNTS SALES TAX OTHER ACCOUNTS POST. SALES RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT Jan. 7 John Allen Cash Sales , , Clyde Davis Investment 10, S. Harris, Capital 10, The account name and amount are entered in the Other Accounts Credit section and the debit is entered in the Cash Debit column. Additional Investment by the Owner Cash Receipts The Cash Short or Over account is 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. Occasionally errors occur when making change. When errors happen, the cash in the cash register is either more or less than the cash listed on the audit tape. When the cash in the register is less than the audit tape, cash is short. When cash in the register is more than the audit tape, cash is over. Cash Receipts RECEIPTS JOURNAL PAGE 1 ACCOUNTS SALES TAX OTHER ACCOUNTS POST. SALES RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT Jan. 7 John Allen Cash Sales , , Clyde Davis Investment S. Harris, Capital 10, , Blake Howard Cash Sales 4, , Cash Short/Over 9.00 $ $3, = $4, The cash is short. Shortages are recorded as debits. The Cash Short or Over Account Debits are not the normal balance of the Other Accounts Credit column, so the debit entry is circled.

5 Cash Receipts RECEIPTS JOURNAL PAGE 1 ACCOUNTS SALES TAX OTHER ACCOUNTS POST. SALES RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT Jan. 7 John Allen Cash Sales , , Clyde Davis Investment S. Harris, Capital 10, , Blake Howard Cash Sales , Cash Short/Over , Kim Johnson Cash Refund Supplies The name and amount are entered in the Other Accounts Credit section. The debit is entered in the Cash Debit column. Receipt of a Cash Refund Cash Receipts Businesses use promissory notes to extend credit for some sales transactions. On July 31 The Trend Center accepted a six-month promissory note from Jeff Wells, who owed $400 on account. $ July 31, Six months AFTER I PROMISE TO PAY TO THE ORDER OF The Trend Center Four hundred and no/ DOLLARS PAYABLE AT First Security National Bank VALUE RECEIVED with interest at 9% NO. 30 DUE January 31, Jeff Wells Collection of a Promissory Note and Interest On July 31 The Trend Center recorded a general journal entry to increase notes receivable and to decrease accounts receivable for $400. The asset account, Notes Receivable, was debited. The Accounts Receivable account was credited. GENERAL JOURNAL Page 16 POST. July 31 Notes Receivable Accounts Rec./Jeff Wells Received a 6-month, 9% note from Jeff Wells to replace open account

6 Collection of a Promissory Note and Interest On January 31 The Trend Center received a check for $418 from Jeff Wells. Amount owed = $400 Interest rate = 9% per year Rate for six-month period = (9%) 2 = 4.5% Interest amount = $400 x 4.5% = $18 Total amount with interest = $400 + $18 = $418 Cash Receipts RECEIPTS JOURNAL PAGE 1 ACCOUNTS SALES TAX OTHER ACCOUNTS POST. SALES RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT The note and the interest are recorded Jan. 7 John Allen in the Other Accounts Credit section Cash Sales , , Clyde Davis Investment S. Harris, Capital 10, , Blake Howard Cash Sales , Cash Short/Over , Kim Johnson Cash Refund Supplies Ed Ramirez Cash Sales , , Cash Sales Cash Short/Over Linda Sanchez Newton Wu Cash Sales , , Collection of Notes Receivable note/j. Wells Interest Income Collection of a Promissory Note and Interest Cash Receipts Post from the cash receipts journal to subsidiary & general ledgers Posting the Column Totals At the end of the month, the cash receipts journal is totaled and the equality of debits and credits is proved Debits = credits PROOF OF RECEIPTS JOURNAL Debits Cash Debit column $28, Credits Accounts Receivable Credit column $ 1, Sales Tax Payable Credit column 1, Sales Credit column 15, Other Accounts Credit column 10, Total credits $28,634.50

7 The column totals are posted to the general ledger RECEIPTS JOURNAL PAGE 1 ACCOUNTS SALES TAX OTHER ACCOUNTS POST. SALES RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT Jan. 7 John Allen Cash Sales , , Clyde Davis Investment S. Harris, Capital , , Blake Howard Cash Sales , Cash Short/Over , Kim Johnson Cash Refund Supplies Ed Ramirez Cash Sales , , Cash Sales Cash Short/Over Linda Sanchez Newton Wu Cash Sales , , Collection of Notes Receivable note/j. Wells Interest Income Totals 1, , , , , (111) (231) (401) (X) (101) The amounts in the Other Accounts Credit section are posted RECEIPTS JOURNAL PAGE 1 ACCOUNTS SALES TAX OTHER ACCOUNTS POST. SALES RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT Jan. 7 John Allen Cash Sales , , Clyde Davis The (X) indicates that the individual Investment S. Harris, Capital , , amounts are posted, and not the total. 13 Blake Howard Cash Sales , Cash Short/Over , Kim Johnson Cash Refund Supplies Ed Ramirez Cash Sales , , Cash Sales Cash Short/Over Linda Sanchez Newton Wu Cash Sales , , Collection of Notes Receivable note/j. Wells Interest Income Totals 1, , , , , (111) (231) (401) (X) (101) Posting to the Accounts Receivable Ledger Post entries from the Accounts Receivable Credit column to the customers accounts in the accounts receivable subsidiary ledger daily Example: On January 7, $428 was posted to John Allen s account in the accounts receivable subsidiary ledger.

8 RECEIPTS JOURNAL PAGE 1 SALES POST. ACCOUNTS TAX SALES OTHER ACCOUNTS RECEIVABLE PAYABLE ACCOUNT TITLE POST. AMT. Jan. 7 John Allen The amount of $428 is posted to John Allen s account The check mark ( ) indicates that the amount was posted to the customer s account The CR1 indicates that the transaction appears on page 1 of the cash receipts journal Name John Allen Terms n/30 Address 1313 Broken Arrow Road, Dallas, Texas POST. BALANCE Jan. 1 Balance Sales Slip 1101 S CR Copyright Sales Hellen Zhang Slip Skyline 1110 College S Cash Receipts Question: What are the Advantages of Cash Receipts Journal? Saves time and effort when recording and posting cash receipts Allows for the division of work among the accounting staff Strengthens the audit trail by recording all cash receipts transactions in one place Complete the following sentences: The cash receipts journal is a special journal used to record and post transactions involving the receipt of cash. Cash refers to currency, coins, checks, money orders, and funds on deposit. in a bank A cash receipts journal will always include a Cash Debit column.

9 Complete the following sentences: A(n) statement of account is a form sent to a firm s customers showing transactions during the month and the balance owed. The petty cash fund is used to handle payments involving small amounts of money. A(n) promissory note is a written promise to pay a specified amount of money on a specific date. Cash Payments For safety and convenience, most businesses make payments by check. Only a limited number of transactions are paid with currency and coins. 1. Record cash payments in a cash payments journal. 2. Post from the cash payments journal to subsidiary and general ledgers. 3. Demonstrate a knowledge of procedures for a petty cash fund. 4. Demonstrate a knowledge of internal control routines for cash. A cash payments journal is a special journal used to record transactions involving the payment of cash CK. NO. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT The cash payments journal has separate columns for accounts that are frequently used.

10 The Procedures of Cash Payments Payments for Expenses Businesses write checks for a variety of expenses each month. In January The Trend Center issued checks for rent, electricity, telephone service, advertising, and salaries. Consider the January 3 entry for rent expense. CK. NO. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan January rent Rent Expense The account name and amount are entered in the Other Accounts Debit section. The credit is entered in the Cash Credit column. The Procedures of Cash Payments Cash Purchases of Equipment and Supplies Businesses use cash to purchase equipment & assets. On January 10 The Trend Center issued a check for store fixtures. Payment of Taxes Retail businesses collect sales tax from their customers. Periodically the sales tax is remitted to the taxing authority. Consider the entry on January 11.

11 CK. NO. The Trend Center issued a check for $749 to pay the December sales tax. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Notice that the account name and amount appear in the Other Accounts Debit section. The credit is entered in the Cash Credit column. CK. NO. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Fashion World Sebrina s Clothing Store Debit Accounts Payable for the invoice amount, $3,250 Credit Purchases Discounts for the amount of the discount, $65 Purchases Discounts is a contra cost of goods sold account Credit Cash for the amount of cash paid, $3,185 CK. NO. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Fashion World Sebrina s Clothing Store Store supplies Supplies Withdrawal S. Harris, Draw Electric bill Utilities Exp The Style Shop Telephone bill Telephone Exp Newspaper ad Advertising Exp Clothes Rack Depot If there is no cash discount, the entry in the cash payments journal is a debit to Accounts Payable and a credit to Cash Payments on Account

12 CK. NO. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Fashion World Sebrina s Clothing Store Store supplies Supplies Withdrawal S. Harris, Draw Electric bill Utilities Exp The Style Shop Telephone bill Telephone Exp Newspaper ad Advertising Exp Clothes Rack Depot Sebrina s Clothing Store Fashion World January payroll Salaries Exp Purchase of goods Purchases Cash purchases are recorded in the cash payments journal Cash Purchases of Merchandise CK. NO. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Fashion World Sebrina s Clothing Store Store supplies Supplies Withdrawal S. Harris, Draw Electric bill Utilities Exp The Style Shop Telephone bill Telephone Exp Newspaper ad Advertising Exp Clothes Rack Depot Sebrina s Clothing Store Fashion World January payroll Salaries Exp Purchase of goods Purchases Freight charge Freight In The account name and amount appear in the Other Accounts Debit section. The credit is in the Cash Credit column CK. NO. Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Fashion World Sebrina s Clothing Store Store supplies Supplies Withdrawal S. Harris, Draw Electric bill Utilities Exp The Style Shop Telephone bill Telephone Exp The Trend Center issued a check for $85.60 to a Newspaper ad Advertising Exp customer 122 Clothes Rack who Depot returned a defective item Sebrina s Clothing Store Fashion World January payroll Salaries Exp Purchase of goods Purchases Freight charge Freight In Cash refund Sales Ret. & Allow Sales Tax Payable Payment of a Cash Refund PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Notice that the debits in the Other Accounts Debit section appear on two lines because two general ledger accounts are debited

13 CK. NO. Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Fashion World Sebrina s Clothing Store Store supplies Supplies Withdrawal S. Harris, Draw Electric bill Utilities Exp The Style Shop Telephone bill Telephone Exp Newspaper ad Advertising Exp Clothes Rack Depot Sebrina s Clothing Store Fashion World January payroll Salaries Exp Purchase of goods Purchases Freight charge Freight In Cash refund Sales Ret. & Allow Sales Tax Payable PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Notice that the debits in the Other Accounts Debit section appear on two lines because two general ledger accounts are debited. The Procedures of Cash Payments Payment of a Promissory Note and Interest A promissory note can be issued to settle an overdue account or to obtain goods, equipment, or other property. On January 31 The Trend Center issued a check for $3,150 in payment of the note ($3,000) and the interest ($150). GENERAL JOURNAL Page 16 POST. Aug. 2 Store Equipment 131 3, Notes Payable 201 3, Issued a 6-month, 10% note to Dallas Equipment Company for purchase of new store fixtures CK. NO. Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Fashion World Sebrina s Clothing Store Store supplies Supplies Withdrawal S. Harris, Draw Electric bill Utilities Exp The Style Shop Telephone bill Telephone Exp Newspaper ad Advertising Exp Clothes Rack Depot Sebrina s Clothing Store Debit Notes Payable for $3, Fashion World January payroll Salaries Exp Purchase of goods Purchases Freight charge Freight In Cash refund Sales Ret. & Allow. Debit Interest Expense for $ Sales Tax Payable Note paid to Dallas Notes Payable Equipment Company Interest Exp PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Credit Cash for $3,150

14 CK. NO. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Fashion World Sebrina s Clothing Store Store supplies Supplies Withdrawal S. Harris, Draw Electric bill Utilities Exp The Style Shop Telephone bill Telephone Exp Newspaper ad Advertising Exp Clothes Rack Depot Sebrina s Clothing Store Notice Fashion World that the debits in the Other Accounts Debit January payroll section appear on two lines. Salaries Exp Purchase of goods Purchases Freight charge Freight In Cash refund Sales Ret. & Allow Sales Tax Payable Note paid to Dallas Notes Payable Equipment Company Interest Exp The Procedures of Cash Payments Posting to the subsidiary and general ledgers Post entries from the Accounts Payable Debit column of the Cash Payments journal to the vendor accounts in the Accounts Payable subsidiary ledger daily The amounts in the Other Accounts Debit column are also posted individually to the general ledger accounts during the month Post to the Subsidiary & General Ledgers PAYMENTS JOURNAL PAGE 1 ACCOUNTS PURCH. CK. EXPLANATION POST. PAYABLE OTHER ACCOUNTS DISCOUNT NO. ACCOUNT TITLE POST. AMOUNT Jan January rent Rent Expense ACCOUNT Rent Expense ACCOUNT NO. 634 POST. BALANCE Jan. 3 CP The CP1 indicates that the entry is recorded on page 1 of the cash payments journal.

15 PAYMENTS JOURNAL PAGE 1 CK. POST. ACCOUNTS OTHER ACCOUNTS PURCHASES NO. PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan January The rent amount of $3,250 was posted Rent Expense to Sebrina s Store fixtures Store Equip Tax remittance Clothing Store account in the Sales subsidiary Tax Pay. ledger Fashion World Sebrina s Clothing Store Store supplies Supplies Withdrawal S. Harris, Draw Electric bill Utilities Exp The Style Shop Telephone bill Telephone Exp Newspaper ad Advertising Exp Clothes Rack Depot Clothing Store Name Sebrina s Clothing Store Terms 2/10, n/ Fashion World Address January 5671 payrollpreston Road, Dallas, Texas, Salaries Exp Purchase of goods Purchases Freight charge Freight In Cash refund POST. Sales Ret. & Allow BALANCE Sales Tax Payable Note paid to Dallas Notes Payable Jan. 1 Equipment Balance Company Interest Exp , Establish petty cash fund Petty Cash Fund Invoice 8434,12/29/-- P1 3, , Totals CP1 (205) 3, (X) , (504) Page (101) CP The Procedures of Cash Payments Question: What are the Advantages of the Cash Payments Journal? The cash payments journal: Saves time and effort when recording and posting cash payments Allows for a division of labor among the accounting staff Improves the audit trail because all cash payments are recorded in one place and listed by check number The Petty Cash Fund A petty cash fund is a special-purpose fund used to handle payments involving small amounts of money The amount of the petty cash fund depends on the needs of the business. Usually the office manager, cashier, or assistant is in charge of the petty cash fund. The Trend Center s cashier is responsible for petty cash. The Trend Center wrote a $200 check to the cashier, who cashed the check and put the currency in a locked cash box.

16 PAYMENTS JOURNAL PAGE 1 CK. POST. ACCOUNTS OTHER ACCOUNTS PURCHASES NO. PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan January rent Rent Expense Store fixtures Store Equip Tax remittance Sales Tax Pay Fashion World Sebrina s Clothing Store Store supplies Supplies Withdrawal S. Harris, Draw Electric bill Utilities Exp The Style Shop Telephone bill Telephone Exp Newspaper ad Advertising Exp Clothes Rack Depot Sebrina s Clothing Store Fashion Debit World Petty Cash Fund in the other Accounts Debit January payroll Salaries Exp Purchase section of goods and enter the credit Purchases in the Cash Credit 501 column Freight charge Freight In Cash refund Sales Ret. & Allow Sales Tax Payable Note paid to Dallas Notes Payable Equipment Company Interest Exp Establish petty cash Petty Cash Fund fund The Petty Cash Fund A petty cash voucher is a form used to record the payments made from a petty cash fund. The person receiving the funds signs the voucher. The person who controls the petty cash fund initials the voucher. Replenish the petty cash fund at the end of each month or sooner if the fund is low. The total vouchers plus the cash on hand should always equal the amount of the fund $200 for The Trend Center. The Petty Cash Fund A petty cash voucher shows: Voucher number PETTY VOUCHER 1 NOTE: This form must be computer processed or filled out in black ink. Amount Purpose of expenditure OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT Office Supplies Supplies Total Account to debit RECEIVED THE SUM OF Seventeen DOLLARS AND 50/100 CENTS SIGNED A. C. Abbott 2/3/-- APPROVED BY D.W. 2/3/-- Delta Office Supply Co.

17 Internal Control of the Petty Cash Fund 1. 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 only one person to control the petty cash fund and 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 the payment details. This provides an audit trail for the fund Internal Control over Cash The internal control over cash should be tailored to the needs of a business. Accountants play a vital role in designing, establishing, and monitoring the cash control system. Bonding is 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. Control of Cash Receipts (Separation of Duties) 1. Have only designated employees receive and handle cash. 2. Keep cash receipts in a cash register, 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.Check the funds to be deposited against the record made when the cash was received. The employee who checks the deposit is someone other than the one who receives or records the cash. 5.Deposit cash receipts intact in the bank promptly. The person who makes the bank deposit is someone other than the one who receives and records the funds. 6. Enter cash receipts transactions in the accounting record promptly. The person who records cash receipts is not the one who receives or deposits the funds 7. Have the monthly bank statement sent to and reconciled by someone other than the employees who handle, record, and deposit the funds

18 Control of Cash Payments 1. Make all payments by check except for payments from special purpose cash funds such as a petty cash fund. 2. Issue checks only with an approved bill, invoice, or other document that describes the reason for the payment. 3. Have only designated personnel approve bills and invoices. 4. Have checks prepared and recorded in the checkbook by someone other than the person who approves the payments. 5. Have another person sign and mail the checks to creditors 6. Use prenumbered check forms. 7. During the bank reconciliation process, compare the canceled checks to the checkbook. The person responsible for this should be someone other than the person who prepares or records the checks. 8. Record all cash payment transactions promptly. The person who records cash payments should not be the one who approves payments or the one who writes the checks Banking Procedures Write a check, endorse checks, prepare a bank deposit slip, and maintain a checkbook balance Reconcile the monthly bank statement Record any adjusting entries required from the bank reconciliation. Banking Procedures A check is a written order signed by an authorized person instructing a bank to pay a specific sum of money to a designated person or business. The drawer is the person or firm issuing a check The drawee is the bank on which a check is written The payee is the person or firm to whom a check is payable A financial instrument is negotiable if ownership can be transferred to another person or business

19 Banking Procedures Before writing the check, complete the check stub. The check stub shows: Balance brought forward: $11, Check amount: $1,400 Balance: $9, Banking Procedures Before writing the check, complete the check stub. The check stub shows: Date: January 3, Payee: Turner Real Estate Associates Purpose: January rent Copyright This 2005 check Hellen Zhang is Skyline a negotiable College financial instrument. Once the stub has been completed, fill in the check. Carefully enter: Date Payee Banking Procedures Amount in figures and words Copyright This 2005 check Hellen Zhang is Skyline a negotiable College financial instrument.

20 Banking Procedures Draw a line to fill any empty space after the payee's name and after the amount in words. To be valid, checks need an authorized signature. For The Trend Center only Stacee Harris, the owner, is authorized to sign checks. Copyright This 2005 check Hellen Zhang is Skyline a negotiable College financial instrument. Banking Procedures An endorsement is a written authorization that transfers ownership of a check Three types of endorsement: Blank endorsement is 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 Full endorsement is a signature transferring a check to a specific person, firm, or bank Restrictive endorsement is a signature that transfers a check to a specific party for a stated purpose Banking Procedures Full Endorsement PAY TO THE ORDER OF FIRST SECURITY NATIONAL BANK THE TREND CENTER Blank Endorsement Stacee Harris Restrictive Endorsement PAY TO THE ORDER OF FIRST SECURITY NATIONAL BANK FOR DEPOSIT ONLY THE TREND CENTER P.310

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