Accounting
Chapter 6
Lesson 6-1
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Money is referred to as cash in accounting
Check
Checking account
When open a checking account sign a signature card for all people who
are allowed to sign checks
Deposit slips are prepared when money put into an account
All deposit slips have the same info
o Checks listed according to the bank # on each check
When deposit made get a receipt
After deposit made, record it on check stub and a checkbook subtotal is
calculated
Cash receipts are journalized when cash received do no journal entry
needed for deposits
Ownership of a check can be transferred
Name of the first owner is on the line after “Pay to the order of”
Endorsement
Endorsement should be signed exactly as name appears on front – if not
correctly made out also need to sign with legal name
Each endorser guarantees payment
If bank doesn’t get payment from signer, each endorser is personally
liable
Blank endorsement = Rachel M. Nelson-Loupee
o next owner is whoever possesses the check
o Should be used only when ready to cash the check
Special (full) endorsement =
o only person whose name --------à
is on back may cash
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Pay to the order of
Donna Nelson
Rachel M. Nelson-Loupee
Restrictive endorsement =
For deposit only to
Account # 123456
o Can NOT be cashed
o Can only be used for stated purpose Rachel M. Nelson Loupee
Check stubs are prepared before check written to prevent forgetting
Preparing the check stub
Write amt. of check after $ at the top
Write date of check
Write to whom the check is to be paid
Record the purpose of the check
Write amt. of check in the amount column at bottom
Calculate the new checking account balance
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Preparing the Check – ALL DONE IN INK
Write the date
Write to whom the check is to be paid
Write amount in figures close the $
Write the amount in words and draw line to end
Write purpose of check on line at bottom left
Sign the bottom of the check
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If amounts in figures and words to NOT match bank will often pay the
words amount or refuse the check all together
Postdated checks
Banks can refuse to accept altered checks
If make a mistake, VOID the check but keep for records
Record a VOIDED check
Record the date
Write VOID in the account title column
Write check # in Doc. No. column
Place a checkmark in the Post. Ref. column
Place a dash in both Debit and Credit columns
Lesson 6-2
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Bank Statement
When banks receive checks it deducts the amount from the account
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Outstanding checks and deposits are those recorded by the depositor but
not received by the bank as of printing time
Account service charges are also on statements
Statements should be checked for accuracy
Reasons why might be a difference
Service chard not recorded by depositor
Outstanding deposits
Outstanding checks
Depositor math or recording error
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For cancelled checks a check mark is made on the check stub to indicate it
has cleared
Bank statements are reconciled by verifying that the info on it matches
the checkbook
Reconciliation Steps
Write date when prepared
IN left amt. column, list balance brought forward on next unused check
stub
List any bank charges in space provided
Write adjusted check stub balance at bottom left
Write ending balance shown on bank statement in right amount column
Write date and amt. of outstanding deposits and total it to the right amt.
column
Add the ending bank statement balance to total outstanding deposits and
get subtotal
List outstanding check numbers and amounts in correct space and carry
total to the right amt. column
Calculate adjusted bank balance
Compare adjusted balances. Must be the same – if not an error has been
made – must find and correct
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Recording a bank service charge on stub
Write service charge and amount under other
Write amt. of the charge in the amt. column
Calculate and record new subtotal
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Service charges are not usually large or common so recorded as a
miscellaneous expense
o Debit miscellaneous expense and credit cash
o Source Doc. is a memo
Lesson 6-3
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Dishonored Check
Reasons checks are dishonored
Checks appear to be altered
Signatures do not match
Amounts in words and figures do not match
Check is postdated
Check writer has stopped payment
Check writer has insufficient funds
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Issuing checks with insufficient funds or altering or forging a check is
illegal
Dishonored checks can impact credit rating
Dishonored checks are a business expense because banks charge the
depositing business a fee for handling the dishonored check
The business will then try to collect this amount (the bank fee) plus the
amount of the check from the check writer
Recording dishonored checks on a check stub
Write Dishonored check and amount under other (check amount + fee)
Write total of dishonored check in amount column
Calculate and record new subtotal
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A memo is prepared to deal with crediting cash for the service fee and
amount of dishonored check
Journalizing a dishonored check
Date
Write account and amount debited (A/R)
Credit Cash for total amount
Write source doc. of the transaction
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Electronic Funds Transfer
Use EFTs to send payments from business
EFTs use memos as source doc.
Journalizing an EFT
Date
Debit (A/P)
Credit (cash)
Source Doc. (memo)
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EFTs are recorded on check stub under Other
Debit Card
Debit card transaction need to be recorded under other on check stub
EFTs are on bank statement under checks
Debit cards show up as purchases
To Journalize a debit card transaction – cash is credited and a memo is
created
Lesson 6-4
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Petty Cash
Dollar amount to be held differs by business
Petty cash is an asset account with a normal debit balance
Establish a petty cash fund
Date
Debit Petty Cash
Credit Cash
Source doc. is a check
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Petty Cash slip: #, date, to whom paid, reason, amount paid, account to
be recorded, signature approval
No entries made to journal until pretty cash dry or end of month
Must prove petty cash fund
Replenishing petty cash does not affect the petty cash account
o Credit cash and debit whatever expenses were paid all in one
transaction with a new check as the source document.