BAF3M Accounting
Chapter 10 – Cash Control and
Banking
10.1 Payment Systems
• Def’n: a method for people to
exchange one value for another
Ex. You trade $20 for a T shirt at a concert
You get a “Rockin’” T, the vendor gets your $20 bill
10.1 Payment Systems
• 5 main ones exist:
– Cash
– Cheques or “Checks”
– Credit Cards
– Debit Cards
– Direct Payments
10.1 Payment Systems
• Cash
– Dollar bills, coins
– Popular, Easy
– Volume of transactions large, value of each
individual transaction is small
– Anonymity
– Security concerns
10.1 Payment Systems
• Cheques (“Checks” in the USA)
– Written instruction to transfer an amount from
one account to another
– Takes longer
– Could be NSF
– More secure
10.1 Payment Systems
• Credit Cards
– Limited monthly spending limit
– Issuer (visa, amex, etc) pays the merchant
– You pay the issuer back by the due date
– If you don’t pay on time, you pay interest
– Relatively safe, very convenient
– Some fraud occurs
– Some have annual fees
10.1 Payment Systems
• Debit Cards
– Money goes directly from your account to the
seller’s account
– Need a PIN (please never say “PIN Number”)
– Extremely popular, safe, convenient
– Some bank accounts charge for debiting
10.1 Payment Systems
• Direct Transfers
– Money goes from one account to another
automatically on a set date
• Example: My mortgage payment is deducted from my bank
account every 2nd Wednesday.. I never actually hand any
cash to CIBC (who holds my mortgage)
– Goes the other way too – many people are paid by
‘direct deposit’
• Example: My employer (GECDSB) never actually gives me
cash... Every 15th and 30th my pay is automatically deposited
to my bank account
10.2 Accounting for Cash Receipts
• Cash Receipts are all the funds taken in
from business operations, includes all
items considered to be money
• Three types listed
– Mail receipts
– Over-the-counter sales
– Cash Register Receipts
Read these paragraphs and understand the
appropriate journal entries
10.2 Accounting for Cash Receipts
• Preparing Cash Proofs
– Change Fund or Float  an amount of money
for making change for customers
– Created by the business making a cheque out
to “cash”
Journal Entry
Cash Float
Bank
$$$
$$$
10.2 Accounting for Cash Receipts
• Cash Proof is an accounting procedure
that compares cash receipts according to
source documents against cash receipts
according to a physical count
– i.e.
What SHOULD BE there
VS.
What IS there
10.2 Accounting for Cash Receipts
• Cash Short or Over
– New account created to balance the source
document info correctly
– If a short then it is a DR
– If an over then it is a CR
Don’t just add/subtract the error from the sales
amount, this is not accurates
10.3 Accounting for Cash
Payments
• Businesses often pay by cheque, direct
transfer, or cash
• Cheques are most popular – helps clear
the accounts payable
• Cash payments made with “petty cash”
10.3 Accounting for Cash
Payments
• Petty Cash
– A small amount of cash kept in the office to
cover small expenses
• Establishing the Petty Cash fund
– Journal
Petty Cash
Bank
$$$
$$$
10.3 Accounting for Cash
Payments
• Operating the Petty Cash Fund
– As Cash is removed, bills/vouchers replace
– At any time the total of all the cash, bills and
vouchers should equal the initial petty cash
amount
10.4 Accounting Controls for Cash
• An accounting system that promotes employee
honesty, accuracy and efficiency is considered
to have good internal control
Internal Control – a set of procedures established
to protect the assets from theft, waste and
ensure accurate accounting data, encourage
efficiency and adhere to company policies
10.4 Accounting Controls for Cash
1) Where possible 2 people should process and
prepare accounting documents independently
of each other and their work must agree.
2) The person who records transactions or
prepares accounting records should not also
control or handle the physical assets.
3) All assets should be kept in a safe place.
10.4 Accounting Controls for Cash
4) Only a few key employees should be allowed
to approve and authorize transactions.
5) An independent accountant should periodically
carry out an audit to ensure that the
accounting system is being followed correctly.
6) Responsibilities should be clearly established.
It should be easy to tell who is responsible for
errors or missing assets.
10.4 Accounting Controls for Cash
I.
SEPARATE DUTIES – the people handling the cash
should not be the people keeping the records for the
cash
II.
DEPOSIT FUNDS DAILY – cash receipts for the day
should be deposited by the end of the day
III.
DEPOSIT FUNDS INTACT – cash received during
the day should not be available for making payments
or for borrowing by employees.
10.4 Accounting Controls for Cash
IV.
MAKE ALL PAYMENTS BY CHEQUE OR
ELECTRONIC TRANSFER OF FUNDS.
V.
ENDORSE CHEQUES “FOR DEPOSIT ONLY” –
then each cheque can only be credited to the
business’s bank account and cannot be cashed in
any other way
VI.
RECONCILE BANK ACCOUNTS MONTHLY – this
is a routine procedure to determine why the balance
on deposit in the bank does not agree with the
balance of cash shown by the books of the company.
10.4 Accounting Controls for Cash
• Bank Reconciliation
– A routine procedure to determine why the
balance on deposit in the bank does not
agree with the balance of cash shown by the
books of the company
– Usually outstanding cheques or late deposits