Accounting Chapter 11 Teacher Notes

Cash Control Sytems

Checking Account Terms:

  1. Checking account: a bank account from which payments can be ordered by a depositor
  2. Endorsement - signature or stamp on the back of a check transferring ownership
    • Blank endorsement - signature only

Checks are used in a business for

Checks are voided when mistakes are made. Voided check are recorded in the Journal with VOID in the ACCOUNT TITLE column a line (-----) drawn through the CASH CREDIT column.

Bank Statement: reports all of a bank accounts activities for a period of time, usually a calendar month.

Include deposits, withdrawals, bank fees, service charges, interest payments and bank balances.

Bank statements must be reconciled by verifying information on the bank statement matches the business's checkbook.

It is important to compare a business's checkbook records with the bank statement for:

Postdated checks are have future dates; the date written on the check has not yet come about on the calendar.

Dishonored check - a check that the bank refused to accept. Checks can be dishonored if:

  1. they appears altered
  2. the signature is missing or doesn't match the signature card
  3. the amounts written in figures in words differ
  4. the check is postdated
  5. the person who wrote the check stopped payment
  6. the account the check was written on has insufficient funds (not enough money)

Electronic Funds Transfer: This is like paying with a check, but the funds (money) go directly from your checking or savings account to the receiver's account.

Debit Card Transactions automatically deduct the funds from your bank account when payment is made.


Reconciling a Bank Statement

This is also commonly referred to as balancing your checkbook.

The Bank Statement shows all activity to your account during a month. This activity is called “cleared” meaning the bank has processed it and added or subtracted from your bank balance.

Cleared checks and other debits have been subtracted from your bank balance.

Cleared deposits have been added, or credited to your bank balance.

When you reconcile, you compare what is on the bank statement with what is in your checkbook records. The goal is to match the ending balance on the bank statement balance to the current balance in your checkbook.

The process:

  1. Compare all transactions on the bank statement with transactions recorded in your checkbook. Put a checkmark in your checkbook next to all cleared transactions.
  2. Starting with ending bank statement balance:
    1. Add any outstanding deposits (added to the checkbook balance but not on the bank statement)
    2. Subtract any outstanding checks or other charges (subtracted from the checkbook balance but not on the bank statement)
    3. Add any new interest earned to the checkbook balance.
    4. Subtract any fees on the bank statement from the checkbook balance.

Petty Cash is kept on hand for small purchases such as postage.