Chapter 7
Appendix 7A
Cash Controls
Prepared by:
Dragan Stojanovic, CA
Rotman School of Management, University of Toronto
Using Bank Accounts
• Using different bank accounts for different
purposes
– General chequing account
• Used for day-to-day activities
– Imprest bank accounts
• Used for specific purposes
– Lockbox accounts
• Used for collections in subsidiary locations
• Arrangements made with a local bank to pick-up
and deposit funds received
• Allows for quicker collection and availability of
cash
2
Imprest Petty Cash System
• Designed for disbursements where payment by
cheque is impractical
• Control processes/procedures include the
following:
– Designate a petty cash custodian
– Custodian is responsible for getting a receipt for
each authorized disbursement
– Custodian prepares a summary of petty cash
receipts and disbursements each time the fund
requires reimbursement
– Cheque is prepared and transactions recorded
by someone other than the custodian
3
Imprest Petty Cash System
•
•
Cash Over and Short account used when the
cash in the fund plus dollar amount of receipts
does not equal the balance of the petty cash
fund
Additional control procedures include:
– Unscheduled fund counts to ensure fund
balance is maintained
– Receipts are marked (after being
submitted for reimbursement) in some
way to ensure they cannot be used again
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Imprest Petty Cash System: Example
A petty cash fund is established for $300. A
cheque is issued (for cash), with the following
entry made:
Petty Cash
Cash (Bank)
300
300
No entries are required when petty cash
disbursements are made
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Imprest Petty Cash System: Example
Petty cash is reconciled and replenished when the fund is
low enough to warrant a cheque being issued or at the
end of an accounting period
The following disbursements were made:
Office Supplies
$ 42
Postage
53
Entertainment
76
Total
$171
The custodian counts the cash and finds there is $127 cash.
The fund is $2 short ($300 – $171 = $129).
Once the custodian has ensured that all receipts and cash have
been accounted for, the $2 difference is considered Cash Over
and Short.
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Imprest Petty Cash System: Example
A cheque is written for the required amount of $173
($171 + $2). The entry to record the cheque is:
Office Supplies Expense
Postage Expense
Entertainment Expense
Cash Over and Short
Cash (Bank)
42
53
76
2
173
What would the entry have been if it was decided to
decrease the fund to $250?
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Reconciliation of Bank Balances
• Ensures there are no errors
• Ensures no omissions have occurred during
the month
• Ensures unusual transactions are properly
recorded
• Should not be completed by the same person
who writes cheques or completes the
deposits
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Bank Reconciliation:
Reconciling Items
1. Deposits in Transit: deposits that have been recorded in
the books of account, but not yet by the bank
2. Outstanding Cheques: cheques that have been recorded
in the books of account, but have not yet cleared the bank
3. Bank Charges: service, and other charges, made by the
bank, but not yet recorded in the books of account
4. Bank Credits: collections or deposits made by the bank,
but not yet recorded in the books of account
5. Bank or Depositor Errors: any unrecorded errors by either
the bank or the company
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Bank Reconciliation:
Form and Content
Balance per bank statement (end of period)
Add: Deposits in transit
$$
Undeposited receipts
$$
Bank errors
$$
Deduct:
Outstanding cheques
Bank errors
Correct cash balance
Balance per depositor’s books
Add: Unrecorded bank credits
Book errors
$$
$$
$$
$$
Unrecorded bank charges $$
Book errors
$$
Correct book balance
$$$
$$
$$$
$$
$$$
$$$
$$
$$$
Deduct:
$$
$$$
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