Cash Control Professor Eric Carstensen Mira Costa College

Cash Control Professor Eric Carstensen Mira. Costa College http: //www. miracosta. edu/instruction/accounting/index. html

Cash and Cash Equivalents • Cash refers to many items other than currency (paper money) and coins. Also included are checking accounts, savings accounts and petty cash, along with checks from customers. • Cash equivalents are short-term (maturing in three months or less), highly liquid investments such as money markets and treasury bills that are readily convertible to known amounts of cash.

Control of Cash • Cash handling and recordkeeping should be performed by different people (separation of duties). • Make daily cash deposits. • All payments made by check. • Collect receivables as soon as possible; delay payments as long as possible. • Plan/Budget for expenditures.

Bank Reconciliation Process • The bank balance and cash ledger balance are rarely, if ever, the same • The company has information that the bank does not, and vice-versa • When reconciling, we take what the company knows and send it to the bank side (deposits, outstanding checks, for example) • Information from the statement is sent to the company side of the reconciliation (charges and fees, for example)

Bank Reconciliation Example You just received the bank statement and the bank indicates a balance of $13, 493. 96 while your records show a debit balance of $11, 244. 55 in the cash account. You discover that the deposit you made late last week isn't on the statement; that totaled $821. 11. One of your customer's checks was returned for Not Sufficient Funds; that check was written for $557. 65. Outstanding checks were #135 for $375. 00, #137 for $264. 82 and #141 for $1, 328. 98. Your service charge from the bank is $18. 00 per month. You also find that check #136 was correctly written for $584. 18 for advertising, but it was recorded as $548. 18. Finally, a purchase return of $1, 712. 77 was deposited directly into your account. Prepare the reconciliation and the necessary adjusting entries.

Bank Rec Example - Continued Your Balance 13, 493. 36 11, 244. 55 Bank Balance add: deposit in 1, 712. 77 transit add: direct deposit 821. 11 12, 957. 32 14, 314. 47 less: NSF (557. 65) less Outstanding Checks: less: service (18. 00) #135 (375. 00) less: error #136 (36. 00) #137 (264. 82) (611. 65) #141 (1, 328. 98) (1, 968. 80) 12, 345. 67 reconciled balance 12, 345. 67 reconciled balance

Bank Rec Example - Concluded 1 cash 1, 712. 77 inventory 1, 712. 77 to account for purchase return 2 accts receivable 557. 65 cash 557. 65 to establish receivable for NSF check 3 bank fees & charges 18. 00 cash 18. 00 to account for bank service charge 4 advertising expense 36. 00 cash to correct recording error check #136 36. 00

Petty Cash System • Most employees do not have company credit cards, but, sometimes need to make purchases on behalf of the company • Used when writing a check would be impractical and/or too time-consuming • Employs a petty cash register • Custodian of the register is not responsible for record keeping (separation of duties)

Establishing a Petty Cash Account 1 1 petty cash 200. 00 to establish petty cash account petty cash 50. 00 to increase petty cash account cash 50. 00 petty cash 50. 00 to decrease petty cash account

Petty Cash Example Transactions Voucher Date Description 1 01 -02 reimburse G/L accountant $21. 65 for mileage 2 01 -03 purchase pizzas for accounting dept lunch - $38. 50 3 01 -07 reimburse A/R clerk $42. 00 for train ticket to seminar 4 01 -10 purchase VG donuts for customer sales call - $12. 36 5 01 -15 reimburse receptionist for office supplies - $12. 75 6 01 -17 reimburse admin assistant for stamps - $19. 80 7 01 -22 purchase palnt for reception desk - $16. 49 8 01 -29 purchase birthday cake for payroll specialist - $22. 54

Petty Cash Register Example For the Month of Petty Cash Payments Date Description January Year 20 XX Page 1 of 1 Voucher Total Distribution of Payments * No. Amount Travel Postage Staff Meals Cust. Meals Supplies Misc. Exp. 1 Received in Fund 200. 00 2 Mileage Reimbursement 1 21. 65 3 Staff Luncheon 2 38. 50 7 Train Ticket 3 42. 00 10 Customer Sales Call 4 12. 36 15 Supplies 5 12. 75 17 Postage Stamps 6 19. 60 22 Plant for Reception Desk 7 16. 49 29 Birthday Cake 8 22. 54 185. 89 63. 65 19. 60 61. 04 12. 36 12. 75 16. 49 Balance 14. 11 Replenish Fund 185. 89 Total 200. 00 31 * please note that each company will use different accounts, depending on their unique business needs

Resulting Petty Cash Journal Entry 1 31 Travel Expense 63. 65 Postage Expense 19. 60 Staff Meals & Ent. Expense 61. 04 Customer Meals & Ent. Expense 12. 36 Supplies Expense 12. 75 Miscellaneous Expense 16. 49 Cash 185. 89

Cash Short Example 1 31 Travel Expense 63. 65 Postage Expense 19. 60 Staff Meals & Ent. Expense 61. 04 Customer Meals & Ent. Expense 12. 36 Supplies Expense 12. 75 Miscellaneous Expense 16. 49 Cash Over & Short 2. 00 Cash 187. 89

Cash Over Example 1 31 Travel Expense 63. 65 Postage Expense 19. 60 Staff Meals & Ent. Expense 61. 04 Customer Meals & Ent. Expense 12. 36 Supplies Expense 12. 75 Miscellaneous Expense 16. 49 Cash Over & Short 2. 00 Cash 183. 89