Appendix 7A

Sixth Canadian Edition
Prepared by:
Gabriela H. Schneider, CMA; Grant MacEwan College
Appendix 7A
Cash Controls
Learning Objectives
1. Explain common techniques employed to
control cash.
Using Bank Accounts
• Using different bank accounts for different
– General 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
Imprest Petty Cash System
• Designed for disbursements where payment
by cheque is impractical
• Control processes/procedures include the
– Designate a petty cash custodian
– Custodian is responsible to get 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
Imprest Petty Cash System
Cash Over and Short account used when
the Petty Cash fund summary does not
Additional control procedures include:
1. Unscheduled fund counts made to ensure fund
balance is maintained
2. Receipts are destroyed or marked (after being
submitted for reimbursement) in some way to
ensure they cannot be used again
At any given time, the balance in the fund
should equal the receipts plus the cash on
Imprest Petty Cash System
A petty cash fund is established for $300.00. A
cheque is issued (for cash), with the following
entry made:
Petty Cash
Cash (Bank)
No entries are required when petty cash
disbursements are made.
Imprest Petty Cash System
This is used when the fund is low enough to warrant a
cheque being issued, or it is the end of an accounting period.
The following disbursements were made:
Office Supplies
$ 42
76 $171 Total
The custodian counts the cash and finds there is $127.00.
$300.00 - $171.00 = $129.00
The fund is $2.00 short.
The $2.00 difference is considered Cash Over and Short,
after the custodian has ensured that all receipts and cash
have been accounted for.
Imprest Petty Cash System
A cheque is written for the required amount of $173.00
($171.00 + $2.00).
The entry to record the cheque:
Office Supplies Expense
Postage Expense
Entertainment Expense
Cash Over and Short
Cash (Bank)
What would the entry have been if it was decided to
increase the fund to $350.00?
Reconciliation of Bank Balances
• Ensures that 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
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
Bank Reconciliation – Form and Content
Balance per bank statement (end of period)
Add: Deposits in transit
Undeposited receipts
Bank errors
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
Bank Reconciliation
• Adjusting journal entries prepared for
all items appearing in the depositor’s
book section
• Any bank errors should be raised with
the bank immediately
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