Cash
Chapter
7-1
Financial Accounting, Fifth Edition
Control Features: Use of a Bank
Contributes to good internal control over cash.
Minimizes the amount of currency on hand.
Creates a double record of bank transactions.
Bank reconciliation.
Chapter
7-2
Control Features: Use of a Bank
Bank Statements
Debit Memorandum
Bank service charge
NSF (not sufficient
funds)
Credit Memorandum
Collect notes
receivable.
Interest earned.
Chapter
7-3
Illustration 7-7
Control Features: Use of a Bank
Review Question
The control features of a bank account do not
include:
a. having bank auditors verify the correctness of
the bank balance per books.
b. minimizing the amount of cash that must be kept
on hand.
c. providing a double record of all bank
transactions.
d. safeguarding cash by using a bank as a
depository.
Chapter
7-4
Control Features: Use of a Bank
Reconciling the Bank Account
Reconcile balance per books and balance per bank to
their adjusted (corrected) cash balances.
Reconciling Items:
1. Deposits in transit.
2. Outstanding checks.
Time Lags
3. Bank memoranda.
4. Errors.
Chapter
7-5
SO 5 Prepare a bank reconciliation.
Control Features: Use of a Bank
Reconciliation Procedures
Illustration 7-8
+ Deposit in Transit
+ Notes collected by bank
-
-
NSF (bounced) checks
-
Check printing or other
service charges
Outstanding Checks
+/- Bank Errors
+/- Book Errors
CORRECT BALANCE
Chapter
7-6
CORRECT BALANCE
SO 5 Prepare a bank reconciliation.
Control Features: Use of a Bank
Advertising
expense
Chapter
7-7
SO 5 Prepare a bank reconciliation.
Control Features: Use of a Bank
Illustration: Prepare a bank reconciliation at April 30.
Cash balance per bank statement
Add:
Deposit in transit
Less:
Outstanding checks
Adjusted cash balance per bank
Cash balance per books
Add:
Collection of notes receivable
Error in check No. 443
Less:
NSF check
Bank service charge
Adjusted cash balance per books
Chapter
7-8
$15,907.45
2,201.40
(5,904.00)
$12,204.85
$11,589.45
1,035.00
36.00
(425.60)
(30.00)
$12,204.85
SO 5 Prepare a bank reconciliation.
Control Features: Use of a Bank
Illustration: Journalize the adjusting entries at April 30
on the books of Laird Company.
Apr. 30
Dr.
615.40
45.00
Cash
Bank fee expense
Accounts receivable
Notes receivable
Interest revenue
Advertising expense
Chapter
7-9
Cr.
425.60
1,000.00
50.00
36.00
SO 5 Prepare a bank reconciliation.
Control Features: Use of a Bank
Review Question
The reconciling item in a bank reconciliation that
will result in an adjusting entry by the depositor
is:
a. outstanding checks.
b. deposit in transit.
c. a bank error.
d. bank service charges.
Chapter
7-10
SO 5 Prepare a bank reconciliation.