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.
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.
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 428.00 428.00 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 428.00 428.00 8 Cash Sales 212.80 3,040.00 3,252.80 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
Cash Receipts RECEIPTS JOURNAL PAGE 1 ACCOUNTS SALES TAX OTHER ACCOUNTS POST. SALES RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT Jan. 7 John Allen 428.00 428.00 8 Cash Sales 212.80 3,040.00 3,252.80 11 Clyde Davis 267.50 267.50 12 Investment 10,000.00 S. Harris, Capital 10,000.00 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 428.00 428.00 8 Cash Sales 212.80 3,040.00 3,252.80 11 Clyde Davis 267.50 267.50 12 Investment S. Harris, Capital 10,000.00 10,000.00 13 Blake Howard 535.00 535.00 15 Cash Sales 4,196.10 275.10 3,930.00 Cash Short/Over 9.00 $275.10 + $3,930.00 = $4,205.10 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.
Cash Receipts RECEIPTS JOURNAL PAGE 1 ACCOUNTS SALES TAX OTHER ACCOUNTS POST. SALES RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT Jan. 7 John Allen 428.00 428.00 8 Cash Sales 212.80 3,040.00 3,252.80 11 Clyde Davis 267.50 267.50 12 Investment S. Harris, Capital 10,000.00 10,000.00 13 Blake Howard 535.00 535.00 15 Cash Sales 275.10 3,930.00 Cash Short/Over 9.00 4,196.10 16 Kim Johnson 107.00 107. 00 17 Cash Refund 50.00 Supplies 50.00 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. $400.00 July 31, Six months AFTER I PROMISE TO PAY TO THE ORDER OF The Trend Center Four hundred and no/100 - - - - - - - - - - - - - - -------------------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 400.00 Accounts Rec./Jeff Wells 400.00 Received a 6-month, 9% note from Jeff Wells to replace open account
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 428.00Accounts Credit section. 428.00 8 Cash Sales 212.80 3,040.00 3,252.80 11 Clyde Davis 267.50 267.50 12 Investment S. Harris, Capital 10,000.00 10,000.00 13 Blake Howard 535.00 535.00 15 Cash Sales 275.10 3,930.00 Cash Short/Over 9.00 4,196.10 16 Kim Johnson 107.00 107. 00 17 Cash Refund Supplies 50.00 50.00 22 Ed Ramirez 200.00 200.00 22 Cash Sales 295.40 4,220.00 4,515.40 29 Cash Sales 49.00 700.00 Cash Short/Over 7.00 756.20 31 Linda Sanchez 107.00 107.00 31 Newton Wu 260.00 260.00 31 Cash Sales 231.70 3,310.00 3,541.70 31 Collection of Notes Receivable 400.00 note/j. Wells Interest Income 18.00 418.00 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 $28,634.50 Credits Accounts Receivable Credit column $ 1,904.50 Sales Tax Payable Credit column 1,064.00 Sales Credit column 15,200.00 Other Accounts Credit column 10,466.00 Total credits $28,634.50
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 428.00 428.00 8 Cash Sales 212.80 3,040.00 3,252.80 11 Clyde Davis 267.50 267.50 12 Investment S. Harris, Capital 301 10,000.00 10,000.00 13 Blake Howard 535.00 535.00 15 Cash Sales 275.10 3,930.00 Cash Short/Over 617 9.00 4,196.10 16 Kim Johnson 107.00 107. 00 17 Cash Refund Supplies 129 50.00 50.00 22 Ed Ramirez 200.00 200.00 22 Cash Sales 295.40 4,220.00 4,515.40 29 Cash Sales 49.00 700.00 Cash Short/Over 617 7.00 756.20 31 Linda Sanchez 107.00 107.00 31 Newton Wu 260.00 260.00 31 Cash Sales 231.70 3,310.00 3,541.70 31 Collection of Notes Receivable 109 400.00 note/j. Wells Interest Income 491 18.00 418.00 31 Totals 1,904.50 1,064.00 15,200.00 10,466.00 28,634.50 (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 428.00 428.00 8 Cash Sales 212.80 3,040.00 3,252.80 11 Clyde Davis The (X) 267.50indicates that the individual 267.50 12 Investment S. Harris, Capital 301 10,000.00 10,000.00 amounts are posted, and not the total. 13 Blake Howard 535.00 535.00 15 Cash Sales 275.10 3,930.00 Cash Short/Over 617 9.00 4,196.10 16 Kim Johnson 107.00 107. 00 17 Cash Refund Supplies 129 50.00 50.00 22 Ed Ramirez 200.00 200.00 22 Cash Sales 295.40 4,220.00 4,515.40 29 Cash Sales 49.00 700.00 Cash Short/Over 617 7.00 756.20 31 Linda Sanchez 107.00 107.00 31 Newton Wu 260.00 260.00 31 Cash Sales 231.70 3,310.00 3,541.70 31 Collection of Notes Receivable 109 400.00 note/j. Wells Interest Income 491 18.00 418.00 31 Totals 1,904.50 1,064.00 15,200.00 10,466.00 28,634.50 (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.
RECEIPTS JOURNAL PAGE 1 SALES POST. ACCOUNTS TAX SALES OTHER ACCOUNTS RECEIVABLE PAYABLE ACCOUNT TITLE POST. AMT. Jan. 7 John Allen 428.00 428.00 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 75267-6205 POST. BALANCE Jan. 1 Balance 428.00 3 Sales Slip 1101 S1 214.00 642.00 7 CR1 428.00 214.00 Copyright 31 2005 Sales Hellen Zhang Slip Skyline 1110 College S1 267.50 481.50 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.
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.
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. 3 111 January rent Rent Expense 1400.00 1400.00 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.
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. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 749.00 749.00 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. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing Store 3250.00 65.00 3185.00 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. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing Store 3250.00 65.00 3185.00 14 116 Store supplies Supplies 129 750.00 750.00 15 117 Withdrawal S. Harris, Draw. 302 2400.00 2400.00 17 118 Electric bill Utilities Exp. 643 300.00 300.00 17 119 The Style Shop 4300.00 4300.00 21 120 Telephone bill Telephone Exp. 649 250.00 250.00 25 121 Newspaper ad Advertising Exp. 614 420.00 420.00 27 122 Clothes Rack 1200.00 Depot 1200.00 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
CK. NO. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing Store 3250.00 65.00 3185.00 14 116 Store supplies Supplies 129 750.00 750.00 15 117 Withdrawal S. Harris, Draw. 302 2400.00 2400.00 17 118 Electric bill Utilities Exp. 643 300.00 300.00 17 119 The Style Shop 4300.00 4300.00 21 120 Telephone bill Telephone Exp. 649 250.00 250.00 25 121 Newspaper ad Advertising Exp. 614 420.00 420.00 27 122 Clothes Rack Depot 1200.00 1200.00 30 123 Sebrina s Clothing Store 400.00 400.00 31 124 Fashion World 2560.00 51.20 2508.80 31 125 January payroll Salaries Exp. 637 4200.00 4200.00 31 126 Purchase of goods Purchases 2400.00 2400.00 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. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing Store 3250.00 65.00 3185.00 14 116 Store supplies Supplies 129 750.00 750.00 15 117 Withdrawal S. Harris, Draw. 302 2400.00 2400.00 17 118 Electric bill Utilities Exp. 643 300.00 300.00 17 119 The Style Shop 4300.00 4300.00 21 120 Telephone bill Telephone Exp. 649 250.00 250.00 25 121 Newspaper ad Advertising Exp. 614 420.00 420.00 27 122 Clothes Rack Depot 1200.00 1200.00 30 123 Sebrina s Clothing Store 400.00 400.00 31 124 Fashion World 2560.00 51.20 2508.80 31 125 January payroll Salaries Exp. 637 4200.00 4200.00 31 126 Purchase of goods Purchases 501 2400.00 2400.00 31 127 Freight charge Freight In 150.00 150.00 The account name and amount appear in the Other Accounts Debit section. The credit is in the Cash Credit column CK. NO. Jan. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing Store 3250.00 65.00 3185.00 14 116 Store supplies Supplies 129 750.00 750.00 15 117 Withdrawal S. Harris, Draw. 302 2400.00 2400.00 17 118 Electric bill Utilities Exp. 643 300.00 300.00 17 119 The Style Shop 4300.00 4300.00 21 120 Telephone bill Telephone Exp. 649 250.00 250.00 The Trend Center issued a check for $85.60 to a 25 121 Newspaper ad Advertising Exp. 614 420.00 420.00 27 customer 122 Clothes Rack who Depot returned a defective 1200.00 item 1200.00 30 123 Sebrina s Clothing Store 400.00 400.00 31 124 Fashion World 2560.00 51.20 2508.80 31 125 January payroll Salaries Exp. 637 4200.00 4200.00 31 126 Purchase of goods Purchases 501 2400.00 2400.00 31 127 Freight charge Freight In 502 150.00 150.00 31 128 Cash refund Sales Ret. & Allow. 80.00 Sales Tax Payable 5.60 85.60 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
CK. NO. Jan. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing Store 3250.00 65.00 3185.00 14 116 Store supplies Supplies 129 750.00 750.00 15 117 Withdrawal S. Harris, Draw. 302 2400.00 2400.00 17 118 Electric bill Utilities Exp. 643 300.00 300.00 17 119 The Style Shop 4300.00 4300.00 21 120 Telephone bill Telephone Exp. 649 250.00 250.00 25 121 Newspaper ad Advertising Exp. 614 420.00 420.00 27 122 Clothes Rack Depot 1200.00 1200.00 30 123 Sebrina s Clothing Store 400.00 400.00 31 124 Fashion World 2560.00 51.20 2508.80 31 125 January payroll Salaries Exp. 637 4200.00 4200.00 31 126 Purchase of goods Purchases 501 2400.00 2400.00 31 127 Freight charge Freight In 502 150.00 150.00 31 128 Cash refund Sales Ret. & Allow. 451 80.00 Sales Tax Payable 231 5.60 85.60 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 3,000.00 Notes Payable 201 3,000.00 Issued a 6-month, 10% note to Dallas Equipment Company for purchase of new store fixtures CK. NO. Jan. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing Store 3250.00 65.00 3185.00 14 116 Store supplies Supplies 129 750.00 750.00 15 117 Withdrawal S. Harris, Draw. 302 2400.00 2400.00 17 118 Electric bill Utilities Exp. 643 300.00 300.00 17 119 The Style Shop 4300.00 4300.00 21 120 Telephone bill Telephone Exp. 649 250.00 250.00 25 121 Newspaper ad Advertising Exp. 614 420.00 420.00 27 122 Clothes Rack Depot 1200.00 1200.00 30 123 Sebrina s Clothing Store 400.00 Debit Notes Payable for $3,000 400.00 31 124 Fashion World 2560.00 51.20 2508.80 31 125 January payroll Salaries Exp. 637 4200.00 4200.00 31 126 Purchase of goods Purchases 501 2400.00 2400.00 31 127 Freight charge Freight In 502 150.00 150.00 31 128 Cash refund Sales Ret. & Allow. Debit Interest Expense for $150 451 80.00 Sales Tax Payable 231 5.60 85.60 31 129 Note paid to Dallas Notes Payable 3000.00 Equipment Company Interest Exp. 150.00 3150.00 PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Credit Cash for $3,150
CK. NO. PAYMENTS JOURNAL PAGE 1 POST. ACCOUNTS OTHER ACCOUNTS PURCHASES PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing Store 3250.00 65.00 3185.00 14 116 Store supplies Supplies 129 750.00 750.00 15 117 Withdrawal S. Harris, Draw. 302 2400.00 2400.00 17 118 Electric bill Utilities Exp. 643 300.00 300.00 17 119 The Style Shop 4300.00 4300.00 21 120 Telephone bill Telephone Exp. 649 250.00 250.00 25 121 Newspaper ad Advertising Exp. 614 420.00 420.00 27 122 Clothes Rack Depot 1200.00 1200.00 30 123 Sebrina s Clothing Store 400.00 400.00 31 124 Notice Fashion World that the debits in the 2560.00 Other Accounts Debit 51.20 2508.80 31 125 January payroll section appear on two lines. Salaries Exp. 637 4200.00 4200.00 31 126 Purchase of goods Purchases 501 2400.00 2400.00 31 127 Freight charge Freight In 502 150.00 150.00 31 128 Cash refund Sales Ret. & Allow. 451 80.00 Sales Tax Payable 231 5.60 85.60 31 129 Note paid to Dallas Notes Payable 201 3000.00 Equipment Company Interest Exp. 691 150.00 3150.00 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. 3 111 January rent Rent Expense 634 1400.00 1400.00 ACCOUNT Rent Expense ACCOUNT NO. 634 POST. BALANCE Jan. 3 CP1 1400.00 1400.00 The CP1 indicates that the entry is recorded on page 1 of the cash payments journal.
PAYMENTS JOURNAL PAGE 1 CK. POST. ACCOUNTS OTHER ACCOUNTS PURCHASES NO. PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan. 3 111 January The rent amount of $3,250 was posted Rent Expense to Sebrina s 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Clothing Store account in the Sales subsidiary Tax Pay. ledger 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing Store 3250.00 65.00 3185.00 14 116 Store supplies Supplies 129 750.00 750.00 15 117 Withdrawal S. Harris, Draw. 302 2400.00 2400.00 17 118 Electric bill Utilities Exp. 643 300.00 300.00 17 119 The Style Shop 4300.00 4300.00 21 120 Telephone bill Telephone Exp. 649 250.00 250.00 25 121 Newspaper ad Advertising Exp. 614 420.00 420.00 27 122 Clothes Rack Depot 1200.00 1200.00 30 123 Clothing Store 400.00 400.00 Name Sebrina s Clothing Store Terms 2/10, n/30 31 124 Fashion World 2560.00 51.20 2508.80 Address 31 125 January 5671 payrollpreston Road, Dallas, Texas, Salaries 75267-6205 Exp. 637 4200.00 4200.00 31 126 Purchase of goods Purchases 501 2400.00 2400.00 31 127 Freight charge Freight In 502 150.00 150.00 31 128 Cash refund POST. Sales Ret. & Allow. 451 80.00 BALANCE Sales Tax Payable 231 5.60 85.60 31 129 Note paid to Dallas Notes Payable 201 3000.00 Jan. 1 Equipment Balance Company Interest Exp. 691 150.00 1,100.003150.00 31 130 Establish petty cash fund Petty Cash Fund 105 200.00 200.00 3 Invoice 8434,12/29/-- P1 3,250.00 4,350.00 31 Totals 13 12710 CP1 (205) 3,250.00 17654 (X) 116.2 30248 1,100.00 (504) Page (101) 303 30 CP1 400.00 700.00 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.
PAYMENTS JOURNAL PAGE 1 CK. POST. ACCOUNTS OTHER ACCOUNTS PURCHASES NO. PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT Jan. 3 111 January rent Rent Expense 634 1400.00 1400.00 10 112 Store fixtures Store Equip. 131 1200.00 1200.00 11 113 Tax remittance Sales Tax Pay. 231 749.00 749.00 11 114 Fashion World 1000.00 1000.00 13 115 Sebrina s Clothing 3250.00 3185.00 65.00 Store 14 116 Store supplies Supplies 129 750.00 750.00 15 117 Withdrawal S. Harris, Draw. 302 2400.00 2400.00 17 118 Electric bill Utilities Exp. 643 300.00 300.00 17 119 The Style Shop 4300.00 4300.00 21 120 Telephone bill 250.00 Telephone Exp. 649 250.00 25 121 Newspaper ad Advertising Exp. 614 420.00 420.00 27 122 Clothes Rack Depot 1200.00 1200.00 30 123 Sebrina s Clothing 400.00 400.00 Store Fashion Debit World Petty Cash Fund 2560.00 in the other Accounts Debit 31 124 51.20 2508.80 31 125 January payroll Salaries Exp. 637 4200.00 4200.00 31 126 Purchase section of goods and enter the credit Purchases in the Cash Credit 501 column. 2400.00 2400.00 31 127 Freight charge Freight In 502 150.00 150.00 31 128 Cash refund Sales Ret. & Allow. 451 80.00 Sales Tax Payable 231 5.60 85.60 31 129 Note paid to Dallas Notes Payable 201 3000.00 Equipment Company Interest Exp. 691 150.00 3150.00 31 130 Establish petty cash Petty Cash Fund 200.00 200.00 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 129 17 50 Total 17 50 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.
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
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
Banking Procedures Before writing the check, complete the check stub. The check stub shows: Balance brought forward: $11,167.90 Check amount: $1,400 Balance: $9,767.90 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.
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 19-07-67889 Blank Endorsement Stacee Harris 19-07-67889 Restrictive Endorsement PAY TO THE ORDER OF FIRST SECURITY NATIONAL BANK FOR DEPOSIT ONLY THE TREND CENTER 19-07-67889 P.310
Banking Procedures Deposit Slip The printed numbers on the lower edge of the deposit slip are the same numbers on the bottom of the checks. The numbers are printed using a special magnetic ink character recognition (MICR) type that can be "read" by machine. Deposit slips and checks encoded with MICR are rapidly and efficiently processed by machine. The 12 indicates that the bank is in the 12 th Federal Reserve District. The 10 is the routing number used in processing the document. The 8640 identifies First Security National Bank. The 19 07 67889 is The Trend Center account number.
The transit number appears on the top part of the fraction that appears in the upper right corner of the check. The transit number for this check is 11-8640. The deposit slip shows the date, January 8. Currency indicates paper money, $1,350.00. Coin indicates the amount in coins, $109.90. Some banks ask that the American Bankers Association (ABA) transit number for each check be entered on the deposit slip. Banking Procedures A postdated check is a check dated some time in the future. If the business receives a postdated check, it should not deposit it before the date on the check. Otherwise, the check could be refused by the drawer's bank. A canceled check is a check paid by the bank on which it was drawn. It is proof of payment.
Reconcile the monthly bank statement Bank Statement The last column of the bank statement shows the account balance at the beginning of the period, after each day's transactions, and at the end of the period. A code, explained at the bottom, identifies transactions that do not involve checks or deposits. Reconcile the monthly bank statement A dishonored check is a check returned to the depositor unpaid because of Not Sufficient Funds in the drawer s account. It is also called an NSF check A credit memorandum is a form that explains any addition, other than a deposit, to a checking account A debit memorandum is a form that explains any deduction, other than a check, from a checking account A service charge is a fee charged by a bank to cover the costs of maintaining accounts and providing services The Bank Reconciliation Process The ending cash balance according to the bank is $17,636.70. On January 31 the Cash account, called the book balance of cash, is $9,554.00.
Reconcile the monthly bank statement Sometimes the difference between the bank balance and the book balance is due to errors Errors made by banks Arithmetic errors Errors made by businesses Arithmetic errors Giving credit to the wrong depositor Charging a check against the wrong account Not recording a check or deposit Recording a check or deposit for the wrong amount Many banks require that errors in the bank statement be reported within a short period of time, usually 10 days. The Bank Reconciliation Process Reasons may not agree with the balance on the bank statement: 1. Outstanding checks are checks that have been recorded in the cash payments journal but have not yet been paid by the bank 2. Deposit in transit is 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. 3. Service charges and other deductions not recorded in the business records. 4. Deposits, such as the collection of promissory notes, not recorded in the business records. 5. A bank reconciliation statement is a statement that accounts for all differences between the balance on the bank statement and the book balance of cash. The Bank Reconciliation Process Format of a bank reconciliation statement First Section Bank statement balance = Second Section Book balance + deposits in transit + deposits not recorded outstanding checks deductions + or bank errors + or errors in books Adjusted bank balance = Adjusted book balance
The Bank Reconciliation Process Steps to prepare the bank reconciliation statement: First Section 1. Enter the balance on the bank statement. 2. Compare the deposits in the checkbook with the deposits on the bank statement. 3. List the outstanding checks. 4. List any bank errors. 5. Compute the adjusted bank balance. The Bank Reconciliation Process The Trend Center Bank Reconciliation Statement January 31, Bank statement balance 17636.70 Additions: Deposit of January 31 in transit 3541.70 Step 1: Enter the balance on the bank statement, $17,636.70. Step 2: Compare the deposits in the checkbook with the deposits on the bank statement. On January 31 receipts of $3,541.70 were placed in the bank's night deposit box. The bank recorded the deposit on February 1. The deposit will appear on the February bank statement. The Bank Reconciliation Process The Trend Center Bank Reconciliation Statement January 31, Bank statement balance 17636.70 Additions: Deposits of January 31 in transit 3541.70 Check incorrectly charged to account 800.00 Deductions for outstanding checks: Check 124 of January 31 2,508.80 Step 4: List any bank errors. Check 125 of January 31 4,200.00 Check 126 of January 31 2,400.00 Check 127 of January 31 150.00 Check 128 of January 31 85.60 Check 129 of January 31 3,150.00 Check 130 of January 31 200.00 Total outstanding checks 12694.40 Adjusted bank balance 9284.00 Step 3: List the outstanding checks. The Trend Center has seven outstanding checks totaling $12,694.40. An $800 check was incorrectly deducted from The Trend Center s account. Step 5: Compute the adjusted bank balance.
The Bank Reconciliation Process Steps to prepare the bank reconciliation statement: Second Section 1. Enter the balance in books from the Cash account. 2. Record any deposits made by the bank that have not been recorded in the accounting records. 3. Record deductions made by the bank. 4. Record any errors in the accounting records that were discovered during the reconciliation process. 5. Compute the adjusted book balance. Step 4: Record any errors in the accounting records that were discovered during the reconciliation process. The Trend Center Bank The Reconciliation Trend Center Statement did not have any errors in January. January 31, Step 2: Record any deposits made by Bank statement balance the bank that have not been 17636.70 Additions: recorded in the accounting Deposits records. of January 31 in transit 3541.70 Check incorrectly charged to account The Trend Center did not have any. 800.00 4341.70 21978.40 Deductions for outstanding checks: Step 3: Record deductions Check 124 made of January by the 31bank. There 2,508.80 are two items: Check 125 of January 31 4,200.00 The NSF check for Check $250126 of January 31 2,400.00 Check 127 of January 31 The bank service charge for $20 150.00 Check 128 of January 31 85.60 Check 129 of January 31 3,150.00 Check 130 of January 31 200.00 Step 1: Enter the balance Total outstanding checks 12694.40 in books from the Cash Adjusted bank balance 9284.00 account, $9,554. Book balance 9554.00 Deductions: NSF Check 250.00 Bank service charge 20.00 270.00 Adjusted book balance 9284.00 Step Copyright 5: Compute 2005 Hellen Zhang the adjusted Skyline College book balance. Adjusting the Financial Records For The Trend Center, two entries must be made. GENERAL JOURNAL PAGE 16 POST. Jan 31 Accts. Rec./Bridgette Wilson 250.00 Bank Fees Expense 20.00 Cash 270.00 To record NSF check and service charge The first entry is for the NSF check from Bridgette Wilson, a credit customer. The second entry is for the bank service charge. The effect of the two items is a decrease in the Cash account balance.
Internal Control of Banking Activities Well-run businesses put the following internal controls in place. 1. Limit access to the checkbook to designated employees. 2. Use prenumbered check forms. 2. Have a separation of duties. 3. File all deposit receipts, canceled checks, voided checks, and bank statements for future reference. Chapter Nine The End