CHAPTER 8
INTERNAL
CONTROL
AND CASH
Chapter
8-1
Cash Controls
Cash consists of coins, currency, checks, money
orders, and money on hand or on deposit in a bank.
Cash receipts come from:
cash sales
collections on account from customers
receipt of interest, rent, and dividends
investments by owners
bank loans
proceeds from the sale of noncurrent assets
Chapter
8-2
LO 3 Explain the applications of internal control principles to cash receipts.
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
8-3
LO 6 Indicate the control features of a bank account.
Use of a Bank
Writing Checks
Illustration 8-11
Written order signed by depositor directing bank to pay
a specified sum of money to a designated recipient.
Maker
Payee
Payer
Chapter
8-4
LO 6 Indicate the control features of a bank account.
Use of a Bank
Bank Statements
Illustration 8-12
Debit Memorandum
Bank service charge
NSF (not sufficient
funds –bounced
check)
Credit Memorandum
Collect notes
receivable.
Interest earned.
Chapter
8-5
LO 6 Indicate the control features of a bank account.
Reconciling Items
Book Balance
Bank Statement Balance



Deduct: Outstanding
checks.
Add: Deposits in transit.
Add or Deduct: Bank
errors.





Chapter
8-6
Deduct: Nonsufficient
funds check (NSF).
Deduct: Bank service
charge.
Add: Interest earned on
checking account.
Add: Collections made by
the bank.
Add or Deduct:
Book errors.
Use of a Bank
Reconciliation Procedures
Illustration 8-13
+ 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
8-7
CORRECT BALANCE
LO 7 Prepare a bank reconciliation.
Use of a Bank
E8-11 The following information pertains to Family Video Company.
1.
Cash balance per bank, July 31, $7,263.
2.
Cash balance per books, July 31, $7,284.
3.
July bank service charge not recorded by the depositor $28.
4.
Deposits in transit, July 31, $1,500.
5.
Bank collected $900 note for Family in July, plus interest $36,
less fee $20.The collection has not been recorded by Family, and
no interest has been accrued.
6.
Outstanding checks, July 31, $591.
Instructions
a) Prepare a bank reconciliation at July 31.
b) Journalize the adjusting entries at July 31 on the books of Family
Video Company.
Chapter
8-8
LO 7 Prepare a bank reconciliation.
Use of a Bank
E8-11 a) Prepare a bank reconciliation at July 31.
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
Collection of interest
Less:
Bank service charge
Note collection fee
Adjusted cash balance per books
Chapter
8-9
$7,263
1,500
(591)
$8,172
$7,284
900
36
(28)
(20)
$8,172
LO 7 Prepare a bank reconciliation.
Use of a Bank
E8-11 b) Journalize the adjusting entries at July 31 on
the books of Family Video Company.
Dr.
Cr.
July 31
Cash
888
Bank charge expense
28
Miscellaneous expense
Notes receivable
Interest revenue
20
900
36
Note: Adjusting journal entry includes only the
adjustments to the cash balance per books.
Chapter
8-10
LO 7 Prepare a bank reconciliation.