century 21 accounting © 2009 south-western, cengage learning lesson 5-1 how are checking accounts...

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 5-1LESSON 5-1

How are checking accounts utilized in a sole proprietorship?


How do businesses use cash?How do businesses use cash?

Most major payments are made by check Small cash payments for items such as postage and some

supplies may be made from a cash fund kept at the place of business.

Risk of error due to the frequency of cash transactions

Checking account – business form ordering a bank to pay cash from a bank account Signature card kept aon filet bank

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LESSON 5-1


Depositing CashDepositing Cash

Bank customer prepares deposit slip Vary from bank to bank but contain same basic information

Checks are listed according to bank routing numbers on each check

Bank customer receives a receipt Copy of slip with printed verification

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LESSON 5-1


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LESSON 5-1

DEPOSITING CASHDEPOSITING CASH page 119


DEPOSIT RECORDED ON A DEPOSIT RECORDED ON A CHECK STUBCHECK STUB

After deposit is recorded on check stub, subtotal is calculated

Cash receipts are journalized at the time cash is received, but they are deposited later No journal entry needed because

it has already been recorded

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LESSON 5-1

page 119


EndorsementsEndorsements

Endorsement – signature or stamp on the back of a check transferring ownership (must be within space indicated) Should be signed exactly as the person’s name appears on the front

of the check (Pay to the order of) Ownership might be transferred multiple times

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LESSON 5-1


Blank EndorsementsBlank Endorsements

signature of endorser only Whomever is in possession of the check is the subsequent owner Should be used only when the person is at the bank ready to cash or

deposit a check

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LESSON 5-1

Blank EndorsementBlank Endorsement


Special EndorsementsSpecial Endorsements

endorsement in full – indicates a new owner Includes “Pay to the order of (name of new owner)” Only the new owner can cash/deposit/transfer check

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LESSON 5-1

Special EndorsementSpecial Endorsement


Restrictive EndorsementsRestrictive Endorsements

Restrictive endorsement – restricts further transfer of the check Prevents unauthorized persons from cashing the check if it is lost or

stolen

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LESSON 5-1

Restrictive EndorsementRestrictive Endorsement


Check stubCheck stub

Business’s record of each check written for a cash payment transaction Objective evidence

To avoid forgetting to prepare a check stub, the check stub is prepared BEFORE the check is written

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LESSON 5-1


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LESSON 5-1

5. Write the amount of the check.

2. Write the date of the check.

3. Write to whom the check is to be paid.

4. Record the purpose of the check.

1. Write the amount of the check.

6. Calculate the new checking account balance.

COMPLETED CHECK STUBCOMPLETED CHECK STUB page 121

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5566


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LESSON 5-1

COMPLETED CHECKCOMPLETED CHECK

7. Write the date.

page 121

1111 1212

1010

9988

77

10. Write the amount in words.

8. Write to whom the check is to be paid.

9. Write the amount in figures.

11. Write the purpose of the check.

12. Sign the check.


Voided checksVoided checks

Banks usually refuse to accept altered checks If an error is made, a new check should be written All checks should be retained (not thrown away) to help

account for all checks and make sure none have been lost or stolen

Void the check that contains an error by writing “VOID” across the check and stub

Voided check is journalized to avoid questions about whether or not all checks have been journalized

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LESSON 5-1


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1. Record the date in the Date column.

2. Write the word VOID in the Account Title column

3. Write the check number in the Doc. No. column.

4. Place a check mark in the Post. Ref. column.

5. Place a dash in both the Debit and Credit columns.

RECORDING A VOIDED CHECKRECORDING A VOIDED CHECK page 122

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LESSON 5-1

TERMS REVIEWTERMS REVIEW

code of conduct checking account endorsement blank endorsement special endorsement restrictive endorsement postdated check

page 123



What is a bank reconciliation?

Why is it an important accounting procedure?


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LESSON 5-2

BANK STATEMENTBANK STATEMENT page 124


Bank StatementBank Statement

Bank statement - report of deposits, withdrawals, and bank balances sent to a depositer by a bank

Why might a bank’s records and a customer’s records differ?1. Service charge may not have been recorded in customer’s records

2. Outstanding deposits may be recorded in the customer’s records but not the bank’s

3. Outstanding checks may be recorded in the customer’s records but not on a bank statement

4. A customer may have made math or recording errors

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LESSON 5-2


Bank statement reconciliationBank statement reconciliation

Bank statement is reconciled by verifying that information on a bank statement agrees with the checkbook Reconciling immediately is an important part of cash control

Reconciling the bank statement For each check listed on the bank statement, place a check mark on

the corresponding check stub outstanding check = check stub with no check mark (these have been

issued by the customer but not yet reported on bank statement)

For each deposit on the bank statement, place a check mark on the corresponding check stub

Outstanding deposits = deposits made at the bank but not yet on the bank statement

Service charge – deduct service charge from the check stub

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LESSON 5-2


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LESSON 5-2

5.Bank Statement Balance

BANK STATEMENT RECONCILIATIONBANK STATEMENT RECONCILIATION

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66

77

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9.Adjusted Bank Balance

page 125

2.Check Stub Balance

10. Compare Adjusted Balances

1.Date

3.Service Charge4.Adjusted Check Stub Balance

6.Outstanding Deposits7.Subtotal8.Outstanding Checks 1010


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LESSON 5-2

1. Write Service Charge $8.00 on the check stub under the heading “Other.”

RECORDING A BANK SERVICE CHARGE RECORDING A BANK SERVICE CHARGE ON A CHECK STUBON A CHECK STUB page 126

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2. Write the amount of the service charge in the amount column.

3. Calculate and record the new subtotal on the Subtotal line.


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LESSON 5-2

1. Write the date.

JOURNALIZING A BANK SERVICE JOURNALIZING A BANK SERVICE CHARGECHARGE page 127

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August 31. Received bank statement showing August bank service charge, $8.00. Memorandum No. 3.

2. Write the title of the account debited. Record the debit amount.

3. Write the title of the account credited. Record the credit amount.

4. Write the source document number in the Doc. No. column.

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LESSON 5-2

TERM REVIEWTERM REVIEW

bank statement

page 128



How do you record dishonored checks and an Electronic Funds Transfer?


DISHONORED CHECKSDISHONORED CHECKS

Dishonored check – check that the bank refuses to pay Why are checks dishonored?

1. Person who wrote the check has insufficient funds to pay (illegal)

2. Check appears to be altered (also illegal!)

3. Signature of person who signed check doesn’t match signature card

4. Amounts written in figures do not match amounts written in words

5. Check is postdated

6. Person who wrote check has stopped payment on the check

Dishonored checks can affect credit score of person who wrote the check

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page 129


What happens when a check is dishonored?What happens when a check is dishonored?

Sometimes the money can be collected directly from the person or business that wrote the check

Often the money cannot be collected and becomes an expense to the business Additionally, banks usually charge a fee for handling dishonored

checks that also become an expense of the business

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LESSON 5-3


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LESSON 5-3

RECORDING A DISHONORED CHECK RECORDING A DISHONORED CHECK ON A CHECK STUBON A CHECK STUB

1. Write Dishonored check $105.00 on the line under the heading “Other.”

page 129

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2. Write the total of the dishonored check in the amount column.

3. Calculate and record the new subtotal on the Subtotal line.


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LESSON 5-3

JOURNALIZING A DISHONORED JOURNALIZING A DISHONORED CHECKCHECK page 130

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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.

2. Write the title of the account debited. Write the debit amount.

3. Write the title of the account credited. Write the amount credited.


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1. Write the date.


Electronic Funds TransferElectronic Funds Transfer

Computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents

Many businesses use EFT to pay vendors (via phone or internet) Person in charge of EFT should be given a password to

safeguard cash

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LESSON 5-3


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LESSON 5-3

JOURNALIZING AN ELECTRONIC FUNDS JOURNALIZING AN ELECTRONIC FUNDS TRANSFERTRANSFER page 131

September 2. Paid cash on account to Kelson Enterprises, $350.00, using EFT. Memorandum No. 10.

2. Write the title of the account debited. Record the amount debited.

3. Write the title of the account credited. Record the amount credited.


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1. Write the date.


Debit CardDebit Card

Bank card that automatically deducts the amount of a purchase from the checking account of the cardholder Eliminates the need to write a check How is this different than a credit card?

Businesses must record these transactions promptly and update the check stub Recorded on the check stub as “other” Debit card transactions are verified as part of the bank reconciliation

process

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LESSON 5-3


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LESSON 5-3

JOURNALIZING A DEBIT CARD JOURNALIZING A DEBIT CARD TRANSACTIONTRANSACTION page 132

September 5. Purchased supplies, $24.00, using debit card. Memorandum No. 12.




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1. Write the date.


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LESSON 5-3


dishonored check electronic funds transfer debit card

page 133



How/why do businesses use a petty cash fund?


Petty CashPetty Cash

An amount of cash kept on hand and used for making small payments Businesses use petty cash when it is not cost/time effective to write

a check What is considered a “small” payment varies among businesses Asset account

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LESSON 5-4


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LESSON 5-4

1. Write the date.

ESTABLISHING A PETTY CASH FUNDESTABLISHING A PETTY CASH FUND page 134

August 19. Paid cash to establish a petty cash fund, $100.00. Check No. 8.




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Petty cash slip – form showing the purpose and amount taken from the petty cash fund (proof of payment) Number, date of payment, payee, reason, amount, account,

signature Slips are kept in the petty cash box until the fund is replenished (no

entries for individual petty cash payments)

MAKING PAYMENTS FROM A PETTY CASH MAKING PAYMENTS FROM A PETTY CASH FUND WITH A PETTY CASH SLIPFUND WITH A PETTY CASH SLIP

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LESSON 5-4

page 135


Replenishing Petty CashReplenishing Petty Cash

Petty cash is replenished when the funds are low or at the end of the fiscal period (usually monthly)

Before petty cash is replenished, a proof of the fund is completed by comparing the total of the slips to the amount remaining in the fund

Record entry to replenish fund Debit expense accounts (slips) and credit cash (write check to

replenish)

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LESSON 5-4


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LESSON 5-4

1. Write the date.

REPLENISHING PETTY CASHREPLENISHING PETTY CASH page 136

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August 31. Paid cash to replenish the petty cash fund, $30.00: miscellaneous expense, $20.00; advertising, $10.00. Check No. 12.


3. Write the title of the account credited. Record the credit amount.

2. Write the title of the first account debited. Write the debit amount. Write the title of the second account. Record the debit amount.

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LESSON 5-4


petty cash petty cash slip

page 138

century 21 accounting © 2009 south-western, cengage learning lesson 5-1 how are checking accounts...

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