ACCOUNTING
CHAPTER 5
Cash Control Systems
Accounting
Mr. Khatcheressian 11/19/2013
CHAPTER 5 PREVIEW
Chapter 5 describes cash control systems for a
sole proprietorship.
 Checking accounts, including writing checks and
reconciling bank statements, are covered.
 Basic procedures are also introduced for
electronic funds transfers, debit card
transactions, and petty cash usage for a
proprietorship.

CHAPTER 5 OBJECTIVES
Define accounting terms related to using a
checking account and a petty cash fund.
 Identify accounting concepts and practices
related to using a checking account.
 Prepare business papers related to using a
checking account.
 Reconcile a bank statement
 Journalize dishonored checks and electronic
banking transactions.
 Establish a replenish a petty cash fund.

ACCOUNTING IN THE REAL WORLD

At Hard Rock Café, customers use cash or credit
cards to make purchases. What control problems
may occur when employees accept cash for a sale?

Answer: A dishonest employee may attempt to take
some cash. Or, an employee could accidentally give
too much cash back in change. The cash needs to be
deposited in a bank. If it is known that there are
large amounts of cash on hand, the business might be
robbed.
INTERNET RESEARCH ACTIVITY
Banks offer many services, including savings
accounts and loans. If you have a savings
account with a bank, the bank pays you interest
on the money in the account.
 If you take out a loan, you pay interest to the
bank on the money you owe.


Go to a homepage for a bank of your choice.
Wells Fargo
 Capital One
 Bank of America

INTERNET ACTIVITY
Find the range of interest the bank offers for its
saving accounts.
 Find the range of interest charged by the bank on
an auto loan.
 Compare the two rates.


Why does the bank charge more interest on loans
than it pays on saving accounts?

Answer: The difference in interest rates is basically
how a bank is profitable. The bank charges more for
loans than it pays for saving accounts.
INTRODUCTION TO LESSON 5.1

In accounting, money is referred to as cash.

Most business make major payments via check.


Small payments for items such as postage or
supplies may be made from a cash fund.
Remember the importance of good controls for
cash. Cash transactions occur more frequently
than other types of transactions, and cash is easy
to transfer from one person to another.
QUESTION FOR YOU.
How many of you have a checking account?
 What accounting forms are connected with the
use of a checking account?


Many of these forms are also used for the checking
account for a business.
ACCOUNTING TERMS




Code of conduct a statement that guides the
ethical behavior of a company and its employees
Checking account a bank account from which
payments can be ordered by a depositor.
Endorsement a signature or stamp on the
back of a check transferring ownership.
Blank endorsement an endorsement
consisting only of the endorser’s signature.
ACCOUNTING TERMS
Special endorsement an endorsement
indicating a new owner of a check.
 Restrictive endorsement
an endorsement
restricting further transfer of a check’s
ownership.
 Postdated check
a check with a future date
on it.
 Bank statement
a report of deposits,
withdrawals, and bank balances sent to a
depositor by a bank.
 Dishonored check
a check that a bank
refuses to pay.

ACCOUNTING TERMS
Electronic funds transfer a computerized
cash payments system that transfers funds
without the use of checks, currency, or other
paper documents. (p. 131)
 Debit card
a bank card that automatically
deducts the amount of the purchase from the
checking account of the cardholder. (p. 132)
 Petty cash
an amount of cash kept on hand
and used for making small payments. (p. 134)
 Petty cash slip
a form showing proof of a
petty cash payment. (p. 135)

ENDORSEMENTS
page 120
12
Blank Endorsement
Special Endorsement
Restrictive Endorsement
LESSON 5-1
LET ME EXPLAIN
It is important to accurately record additions to
and subtractions from a bank account.
 Lets take a look at how to prepare a deposit slip
and a check stub……

DEPOSITING CASH
page 119
14
LESSON 5-1
DEPOSIT RECORDED ON
A CHECK STUB
page 119
15
After the deposit is recorded on the
check stub, a checkbook subtotal is
calculated. The balance brought
forward on Check Stub no. 1 is Zero.
The previous balance, $0.00, plus the
deposit, $5000.00, equals the subtotal,
$5000.00.
Cash receipts are journalized at the time cash is received.
Later the cash receipts are deposited in the checking account.
Therefore, no journal entry is needed for deposits because the
cash receipts have already been journalized.
ENDORSEMENTS
Endorsement a signature or stamp on the back
of a check transferring ownership. (p. 120)
Blank endorsement an endorsement consisting
only of the endorser’s signature. (p. 120)
Special endorsement an endorsement indicating
a new owner of a check. (p. 120)
Restrictive endorsement an endorsement
restricting further transfer of a check’s ownership.
(p. 120)
ENDORSEMENTS
•Should be written in ink
•Have space limitations on the back of a check for
an endorsement
•Should be signed exactly as the person’s name
appears on the front of the check.
•Know that there are similarities and differences
in the three kinds of endorsements you are about
to see.
•The most common bank endorsement is the
blank endorsement
•Restrictive endorsements should always be used
if mailing a deposit to the bank or if endorsing a
check before going to a bank.
COMPLETED CHECK STUB
page 121
1
18
1. Write the amount of the check.
2
3
2. Write the date of the check.
3. Write to whom the check is to
be paid.
4
4. Record the purpose of the
check.
5. Write the amount of the check.
5
6. Calculate the new checking
account balance.
6
LES
SON
5-1
COMPLETED CHECK STUBS AND CHECK
•The check stub should always be completed before
writing out the check
•Writing the purpose of the check on the check stub is a
good record keeping practice
•Remember that numbers should be written very close on
a check so no one can change the amount
•Remember that if amounts in words and in figures are
not the same, a bank may pay only the amount in words
•A check should be signed as the signature appears on the
signature card. It is important to write the signature the
same each time.
COMPLETED CHECK
page 121
8
20
7
9
10
11
7. Write the date.
8. Write to whom the check is to
be paid.
9. Write the amount in figures.
12
10. Write the amount in words.
11. Write the purpose of the check.
LES
12. Sign the check.
SON
5-1
RECORDING A VOIDED CHECK
page 122
21
2
1
1.
2.
3.
4.
5.
4
3
Record the date.
Write the word VOID in the Account Title column
Write the check number.
Place a check mark in the Post. Ref. column.
Place a dash in the Cash Credit column.
5
LES
SON
5-1
22
TERMS REVIEW
page 123
code of conduct
 checking account
 endorsement
 blank endorsement
 special endorsement
 restrictive endorsement
 postdated check

LESSON 5-1
APLIA AND ASSIGNMENT


Work together and On Your Own 5.1
Application Problem 5.1
Code of Conduct Assignment
Go to www.merck.com
1.Obtain access to the code of conduct.
2. Assuming you are a Merck employee, may you:
a. Give a physician a gift consisting of a medical textbook.
b. Use your cellphone to discuss new research methods
with another Merck employee?
c. Accept a supplier’s invitation to attend the Super Bowl?
LESSON 5-2
Bank Reconciliation
ACCOUNTING
OBJECTIVES
Identify accounting concepts and practices
related to using a checking account.
 Prepare business papers related to using a
checking account.
 Reconcile a bank statement

PEOPLE WHO HAVE CHECKING
ACCOUNTS.
People make errors on their checking account all
the time.
 How do they find out about their errors?
 In this lesson you will learn how to find errors
that you make as well as find errors that the
bank may make.

PREVIEW OF LESSON 5.2

New Term

Bank Statement

Bank statement a report of deposits, withdrawals, and
bank balances sent to a depositor by a bank.
This lesson will
discuss a bank
reconciliation and
special entries
necessary for a
business checking
account.
EXPLANATION
Using a checking account was introduced earlier
in this chapter.
 The bank periodically sends a report of deposits ,
withdrawals, and the bank balance to the
depositor.
 The bank’s records and a depositor’s records may
differ and both may still be correct?

?????????
FOUR REASONS WHY THIS MAY HAPPEN
1. A Service Charge may not have been recorded
in the depositor’s business records.
 2. Outstanding deposits may be recorded in the
depositor’s records but not on a bank statement.
 3. Outstanding checks may be recorded in the
depositor’s records but not on a bank statement.
 4. A depositor may have made math or recording
errors.


IT IS IMPORTANT TO ALWAYS ANALYZE
THE BANK STATEMENT EACH TIME IT IS
RECEIVED.
BANK STATEMENT
page 124
Deposits, Checks, and
Service Charges
should be verified!
•When a bank statement is
received, canceled checks can
accompany it.
•Canceled checks should be
compared with check stubs
and a check mark placed on
each stub for canceled checks
LESSON 5-2
Follow the same procedure for
deposits!
BANK STATEMENT
RECONCILIATION
balances should be the same.
1
31
1. Date
2. Check Stub
2
Balance
3. Service Charge
6
4. Adjusted Check
3
Stub Balance
5. Bank Statement
Balance
6. Outstanding
8
4
Deposits
7. Subtotal
8. Outstanding
10
Checks
9. Adjusted Bank Balance
When the Reconciliation is
10. Compare Adjusted Balances completed, the two adjusted
page 125
5
7
9
LESSON 5-2
BANK STATEMENT
RECONCILIATION
page 125
The format for
bank statements
and the
accompanying
reconciliation
form may vary
from bank to
bank, but the
forms present
the same
information.
LESSON 5-2
RECORDING A BANK SERVICE
CHARGE ON A CHECK STUB
page 126
33
1. Write Service Charge $8.00
on the check stub under the
heading “Other.”
2. Write the amount of the
service charge in the amount
column.
3. Calculate and record the
new subtotal on the Subtotal
line.
1
2
3
THE SERVICE CHARGE SHOULD BE WRITTEN ON A
CHECK STUB AND DEDUCTED FROM THE ACCOUNT
BALANCE SO THAT THE CHECKING ACCOUNT IS NOT
OVERSTATED.
LESSON 5-2
JOURNALIZING A BANK SERVICE
CHARGE
page 127
34
The service charge MUST be recorded in the
journal and posted to the cash account so
that the cash account will also be up to date.
The company prepared a memo as a source
document to support the journal entry
No Check is written for the amount of the service
charge. The bank has already deducted it from
the account.
LESSON 5-2
JOURNALIZING A BANK SERVICE
CHARGE
page 127
35
August 31. Received bank statement showing August bank service
charge, $8.00. Memorandum No. 3.
4
1
3
2
1. Date. Write the date.
2. Debit. Write the title of the account to
be debited. Record the amount debited.
3. Credit. Record the amount credited.
4. Source document. Write the source What accounts are affected?
document number.
Are they increased or decreased,
debited or credited?
36
TERM REVIEW
page 128
 bank
statement-a report of deposits,
withdrawals, and bank balances sent to a
depositor by a bank. (p. 124)
1.
2.
3.
4.
5.
TRY APLIA 5.2
WORK TOGETHER
ON YOUR OWN
APPLICATION PROBLEM
Math Review Handout Parts A
& B only
6. Exit Ticket (next slide)
LESSON 5-2
EXIT TICKET


List four reasons why a depositor’s records and a
bank’s records may differ.
If a check mark is placed on the check stub of
each canceled check, what does a check stub with
no check mark indicate?
LESSON 5-3
Dishonored Checks and Electronic Banking
Accounting
FRIDAY WARM UP


CASES FOR CRITICAL THINKING PAGE 143.
Look at cases one and two and answer the
questions provided.

We will go over together once finished.
FRIDAY WARM UP


CASES FOR CRITICAL THINKING.
Case one: Ms. Merker is following the better
procedure. Even though Ms. Velez has a
relatively small checking account balance, she
still needs to know the correct account balance
against which she can write checks. A bank
statement should be reconciled when it is
received, regardless of the size of the account.
FRIDAY WARM UP


CASES FOR CRITICAL THINKING.
Case two: Mr. K agrees with Ms. Dorset. One of
the purposes of a petty cash fund is to provide for
small cash payments. Limiting petty cash
payments to $50.00 or less is providing for large
payments as well as small. Ms. Dorset’s $20.00
limit is more reasonable for petty cash. The size
of the fund, whether $100 or $3000, depends
upon the size of the company and the number
and amount of payments to be made from the
fund.
OBJECTIVES
• Define accounting terms related to using a
checking account.
 • Identify accounting concepts and practices
related to using a checking account.
 • Prepare business papers related to using a
checking account.
 • Journalize dishonored checks and electronic
banking transactions.

PREVIEW OF LESSON 5.3
New Terminology
 Dishonored check
a check that a bank
refuses to pay. (p. 129)
 Electronic funds transfer
a computerized
cash payments system that transfers funds
without the use of checks, currency, or other
paper documents. (p. 131)
 Debit card
a bank card that automatically
deducts the amount of the purchase from the
checking account of the cardholder. (p. 132)

LETS TAKE A LOOK!
Dishonored checks are taken very seriously
within a bank.-meaning that the depositor has
insufficient funds or a forged check is being used.
 Some stores post signs to inform customers of the
charge that will be imposed for a dishonored
check.
 When the check is first received, it was deposited
and the amount was added to the bank account.
Now when it is dishonored the amount must be
subtracted from the bank account.
 There is usually a fee that is associated with the
finding of a dishonored check.

RECORDING A DISHONORED CHECK
ON A CHECK STUB
page 129
45
1
2
3
1. Write Dishonored check
$105.00 on the line under
the heading “Other.”
2. Write the total of the
dishonored check in the
amount column.
3. Calculate and record the
new subtotal on the Subtotal
line.
LES
SON
5-3
REMINDER….

An entry must be recorded in a journal before it
is posted to the account.

Only after posting is complete will the cash account
reflect the dishonored check.
REMINDER….

Also, a transaction must first be analyzed to
determine what accounts to debit and credit.

Once this analysis is done, an entry can be recorded
into a journal.

There are four steps used to record entry in the
journal.
JOURNALIZING A DISHONORED
CHECK
page 130
48
November 29. Received notice from the bank of a dishonored
check from Campus Internet Café, $70.00, plus $35.00 fee; total,
$105.00. Memorandum No. 55.
1
4
2
1. Date. Write the date.
2. Debit. Write the title of the
account to be debited.
3. Credit. Write the amount credited.
4. Source document. Write the
source document number.
3
LES
SON
5-3
JOURNALIZING AN ELECTRONIC
FUNDS TRANSFER
page 131
49
September 2. Paid cash on account to Kelson Enterprises,
$350.00, using EFT. Memorandum No. 10.
4
1
2
1. Date. Write the date.
2. Debit. Write the title of the account to be
debited. Record the amount debited.
3. Credit. Record the amount credited.
4. Source document. Write the source
document number.
3
LES
SON
5-3
ELECTRONIC FUNDS TRANSFER
EFT means that the business does not have
to write a check for this amount. Therefore,
there is no check stub for the source
document.
A memorandum is often used as a source
document for EFT payments.
JOURNALIZING A DEBIT CARD
TRANSACTION
There is a difference between an electronic funds
transfer and a debit card.
When a purchase is made with a debit card, cash
is immediately deducted from the account.
When using a debit card, it is important to
remember to record the entry in the journal.
Here are the four steps used to record the entry in
the journal.
JOURNALIZING A DEBIT CARD
TRANSACTION
page 132
52
September 5. Purchased supplies, $24.00, using debit card.
Memorandum No. 12.
4
1
2
1. Date. Write the date.
2. Debit. Write the title of the account to be
debited. Record the amount debited.
3. Credit. Record the amount credited.
4. Source document. Write the source
document number.
3
LES
SON
5-3
53
TERMS REVIEW
page 133
dishonored check
 electronic funds transfer
 debit card

Try Aplia problems:

Work together 5-3

On your own 5-3

Application 5-3
Chapter 5 Study Guide
 Study tools on text website (c21accounting.com)

LESSON 5-3
FINANCIAL LITERACY

Page 135- Activity # 1
EXIT TICKET



List the six reasons why a bank may dishonor a
check?
What account is credited when electronic funds
transfer is used to pay cash on account?
What account is credited when a debit card is
used to purchase supplies?
LESSON 5-4
Petty Cash
OBJECTIVES
Define accounting terms related to using a petty
cash fund.
 Establish and replenish a petty cash fund.

PICTURE THIS!
Picture yourself working in a business that’s uses
checks for all cash payments.
 What would happen if the letter carrier brought
an envelope to you with $1.25 postage due?

In many businesses it takes days to authorize
and write a check.
 This lesson will illustrate another option for the
business

5-4 TERMINOLOGY


petty cash-an amount of cash kept on hand and
used for making small payments. (p. 134)
petty cash slip-a form showing proof of a petty
cash payment. (p. 135)
HOW IS PETTY CASH USED IN
BUSINESSES?


To make change for customers or patients
To pay for small purchases which require cash,
such as food for the office lunch or coffee supplies,
or for parking. Most retail businesses keep a cash
drawer as do health care practices.
MORE ON PETTY CASH…
Most large corporations may have several petty
cash funds
 The Petty Cash Account is an asset account with
a normal debit balance

MORE ON PETTY CASH…

Keep as much cash as you need in your cash
drawer, but not too much, so it isn't a temptation
for employees or robbers.
ASK YOURSELF THE FOLLOWING WHEN
ANALYZING THE TRANSACTION…
•What Accounts are Affected?
•Are they Increased or Decreased?
•Are they Debited or Credited?
Complete the T accounts as the
information is provided.
ESTABLISHING A PETTY CASH
FUND-4 STEPS
page 134
64
August 19. Paid cash to establish a petty cash fund, $100.00.
Check No. 8.
4
1
2
1. Date. Write the date.
2. Debit. Write the title of the account to be debited.
Record the amount debited.
3. Credit. Record the amount credited.
4. Source document. Write the source document
number.
3
MAKING PAYMENTS FROM A PETTY
CASH FUND WITH A PETTY CASH SLIP
page 135
65
MAKING PAYMENTS FROM A PETTY
CASH FUND WITH A PETTY CASH SLIP
page 135
•When Cash is Paid
from a petty cash
fund, no formal
entry is recorded in
a journal.
•Only a petty cash
slip is prepared.
•The entry will be
made at a later
date.
REPLENISHING PETTY CASH
The Petty Cash Fund is replenished when the
amount in the fund is low or at the end of a fiscal
period.
 The balance in the actual petty cash account has
never been reduced by an entry.


When cash was paid from the fund, no entry was
made in the journal. Therefore, the petty cash
account in the general ledger still has a balance of
$100.00
page 136
REPLENISHING PETTY CASH (CONT)
When cash was paid from the fund, the reason
for the payment was recorded on a petty cash slip
but no entry was made in the journal.
 These slips are now used to summarize payments
from the fund and to record the payments in the
journal. To replenish the fund, debit accounts for
which petty cash was used and credit the cash
account

page 136
ASK YOURSELF THE FOLLOWING WHEN
ANALYZING THE TRANSACTION…
•What Accounts are Affected?
•Are they Increased or Decreased?
•Are they Debited or Credited?
Complete the T accounts as the
information is provided.
REPLENISHING PETTY CASH
page 136
70
August 31. Paid cash to replenish the petty cash fund, $30.00:
miscellaneous expense, $20.00; advertising, $10.00. Check No. 12.
4
1
1. Date. Write the date. 2
2. Debit. Write the title of the first account to be debited. Write the
amount to be debited. Write the title of the second account to be
debited. Record the amount to be debited.
3. Credit. Record the amount credited.
4. Source document. Write the source document number.
3
TERMS REVIEW


petty cash-an amount of cash kept on hand and
used for making small payments. (p. 134)\
petty cash slip-a form showing proof of a petty
cash payment. (p. 135)
ACTIVITY
Aplia 5-4, Study Guide
 www.c21accounting.com

Xtra! Study Tools (Chapter 5)
 Tutorial Quiz (Chapter 5)


Research a company or university's petty cash
policy and provide a detailed summary of your
findings.

Make sure you look at what procedures are in place
and uses for the account, ect and compare it with
another similar company.
THINK, PAIR AND SHARE….


Quickly jot down, in note form, the procedures for
establishing, maintaining, and replenishing a
petty cash fund.
When you are finished, pair up and share what
you wrote!
EXIT TICKET
Why do businesses use petty cash funds?
 Why is Cash and not Petty Cash credited when a
petty cash fund is replenished?
