Cash Controls
Cash Disbursements Controls
Petty Cash Fund - Used to pay small amounts.
Involves:
1. establishing the fund,
2. making payments from the fund, and
3. replenishing the fund.
SO 5 Describe the operation of a petty cash fund.
Cash Controls
Illustration: If Laird Company decides to establish a $100 fund
on March 1, the journal entry is:
Mar. 1 Petty cash 100
Cash
100
SO 5 Describe the operation of a petty cash fund.
Cash Controls
Illustration: Assume that on March 15 Laird’s petty cash
custodian requests a check for $87. The fund contains $13 cash
and petty cash receipts for postage $44, freight-out $38, and
miscellaneous expenses $5. The general journal entry to record the
check is:
Mar. 15 Postage expense 44
Freight-out 38
Miscellaneous expense 5
Cash
87
SO 5 Describe the operation of a petty cash fund.
Cash Controls
Illustration: Occasionally, the company may need to recognize a
cash shortage or overage. Assume that Laird’s petty cash
custodian has only $12 in cash in the fund plus the receipts as
listed. The request for reimbursement would, therefore, be for $88,
and Laird would make the following entry:
Mar. 15 Postage expense 44
Freight-out 38
Miscellaneous expense 5
Cash over and short 1
Cash
88
SO 5 Describe the operation of a petty cash fund.
Control Features: Use of a Bank
Illustration 8-8
Making Bank Deposits
Authorized employee Bank Code
should make deposit. Numbers
Reverse Side
Front Side
SO 6 Indicate the control features of a bank account.
Control Features: Use of a Bank
Bank Statements
Illustration 8-10
Debit Memorandum
Bank service charge.
NSF (not sufficient
funds).
Credit Memorandum
Collect notes
receivable.
Interest earned.
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.
SO 7 Prepare a bank reconciliation.
Control Features: Use of a Bank
Reconciliation Procedures Illustration 8-11
+ Deposit in Transit + Notes collected by bank
- Outstanding Checks - NSF (bounced) checks
+/- Bank Errors - Check printing or other
service charges
+/- Book Errors
CORRECT BALANCE CORRECT BALANCE
SO 7 Prepare a bank reconciliation.
Control Features: Use of a Bank
SO 7 Prepare a bank reconciliation.
Control Features: Use of a Bank
Illustration: Prepare a bank reconciliation at April 30.
Cash balance per bank statement $15,907.45
Deposit in transit 2,201.40
Outstanding checks (5,904.00)
Adjusted cash balance per bank $12,204.85
Cash balance per books $11,589.45
Error in check No. 443 36.00
NSF check (425.60)
Bank service charge (30.00)
Collection of notes receivable 1,035.00
Adjusted cash balance per books $12,204.85
SO 7 Prepare a bank reconciliation.
Control Features: Use of a Bank
Company records each reconciling item used to determine the
adjusted cash balance per books.
Collection of Note Receivable: Assuming interest of $50 has
not been accrued and collection fee is charged to Miscellaneous
Expense, the entry is:
Apr. 30 Cash 1,035.00
Miscellaneous expense 15.00
Notes receivable 1,000.00
Interest revenue 50.00
SO 7 Prepare a bank reconciliation.
Control Features: Use of a Bank
Book Error: The cash disbursements journal shows that check
no. 443 was a payment on account to Andrea Company, a
supplier. The correcting entry is:
Apr. 30 Cash 36.00
Accounts payable 36.00
NSF Check: As indicated earlier, an NSF check becomes an
account receivable to the depositor. The entry is:
Apr. 30 Accounts receivable 425.60
Cash 425.60
SO 7 Prepare a bank reconciliation.
