9-1 Skyline College Chapter 9. 9-2 Journal Flow Chart Does the transaction involve cash? YES Was...

9-1

Skyline College

Chapter

9

9-2

Journal Flow Chart

Does the transaction involve cash?

YES

Was cash RECEIVED?

YES NO

Record thetransaction in

the CASHRECEIPTS

(CRs) Journal

Use the CRs and CDs Journals to preparethe monthly Bank Reconcilation


the CASHDISBURSEMENTS

(CDs) Journal

NO

Was inventory PURCHASED?

YES NO

Record thepurchase in

the PURCHASES Journal (PJ)

Was it a credit SALE?

YES NO

Record theTransaction

in theSALES

Journal (SJ)


In theGENERALJournal (GJ)

9-3

A cash receipts journal is a special journal used to record and post transactions involving the receipt of cash.

The Cash Receipts Journal

9-4

Consider the cash sales entries for January 8 in the cash receipts journal for The Style Shop.

Cash Sales and Sales Taxes

9-5

ACCOUNT NAME POST. REF.

AMOUNT

20-- Jan.Jan. 7 Roy Anderson 432.00 432.00

ACCOUNTS RECEIVABLE

CREDIT

POST. REF.

DESCRIPTION DATEOTHER ACCOUNTS CREDIT

CASH DEBIT

SALES CREDIT

SALES TAX PAYABLE CREDIT

8 Cash Sales 360.00 4,500.00 4,860.00

CASH RECEIPTS JOURNAL PAGE 1

9-6

Occasionally errors occur when making change.

When errors happen, the cash in the cash register is either more or less than the cash listed on the audit tape.

When cash in the register is more than the audit tape, cash is over.

When the cash in the register is less than the audit tape, cash is short.

Cash Short Over

9-7


AMOUNT

7 R. Anderson 432.00 432.008 Cash Sales 212.80 3,040.00 4,860.00

11 Vicki Bowman 270.00 270.0012 Investment Amos, Capital 15,000.00 15,000.0013 Barbara Coe 540.00 540.00

ACCOUNTS RECEIVABLE

CREDIT

POST. REF.


CASH DEBIT

SALES CREDIT


15 Cash Sales 384.00 4,800.00 Cash Short/Over 18.00 5,166.00


Debits are not the normal balance of the Other Accounts Credit column, so the debit entry is circled.

Cash sales with cash short.

$384 + $4,800 = $5,184

9-8

Cash Discounts on SalesCash Discounts on Sales

The Style Shop does not offer cash discounts.

However, many wholesale businesses offer cash discounts to customers who pay within a certain time period. These are sales discounts.

Businesses with many sales discounts add a Sales Discounts Debit column to the cash receipts journal.

9-9


AMOUNT

20-- Jan.Jan. 7 R. Anderson 432.00 432.00

8 Cash Sales 360.00 4,500.00 4,860.0011 V. Bowman 270.00 270.00

ACCOUNTS RECEIVABLE

CREDIT

POST. REF.


CASH DEBIT

SALES CREDIT


12 Investment Amos, Capital 15,000.00 15,000.00

The account name and amount are entered in the Other Accounts Credit section and the debit is entered in the Cash Debit column.


Additional Investment by the OwnerAdditional Investment by the Owner

9-10


AMOUNT

Roy Anderson 432.00 432.00Cash Sales 360.00 4,500.00 4,860.00Vicki Bowman 270.00 270.00Investment Amos, Capital 15,000.00 15,000.00Barbara Coe 540.00 540.00Cash Sales 384.00 4,800.00 Cash Short/Over 18.00 5,166.00Alma Sanchez 108.00 108.00

OTHER ACCOUNTS CREDITCASH DEBIT

SALES CREDIT


ACCOUNTS RECEIVABLE

CREDIT

POST. REF.

DESCRIPTION


The name and amount are entered in the Other Accounts Credit section. The debit is entered in the Cash Debit column.

Cash Refund Supplies 75.00 75.00

Receipt of a Cash RefundReceipt of a Cash Refund

9-11

A promissory note is a written promise to pay a specified amount of money on a certain date.

Promissory Note

Sometimes promissory notes are used to replace an accounts receivable balance when the account is overdue.

9-12

On July 31 The Style Shop accepted a six-month promissory note from Stacee Fairley, who owed $800 on account.

$800 July 31, 20--

Six months AFTER DATE I PROMISE TO PAY

TO THE ORDER OF The Style Shop

Eight hundred and no/100 - - - - - - - - - - - - - - - - - - - - - - - - - - DOLLARS

-PAYABLE AT First Texas Bank

VALUE RECEIVED with interest at 9%

NO. 30 DUE January 31, 20-- Stacee Fairley

9-13

GENERAL JOURNAL Page 16

DATE DESCRIPTION POST. DEBIT CREDIT REF. 20-- July 31 Notes Receivable 800 Accounts Rec./Stacee Fairley 800 Received a 6-month, 9% note from Stacee Fairley to replace open account

The asset account, Notes Receivable, was debited. The Accounts Receivable account was credited.

On July 31 The Style Shop recorded a general journal entry to increase notes receivable and to decrease accounts receivable for $800.

9-14

Interest rate = 9% per year

Time = six months

Interest amount $800 x 9% x 6/12 = $36P x i x t

Total amount with interest = $836($800 + $36)

Amount owed (principle) = $800

9-15


AMOUNT


8 Cash Sales 212.80 4,500.00 4,860.0011 V. Bowman 270.00 270.0012 Investment M. Amos 15,000.00 15,000.0013 Coe 535.00 540.0015 Cash Sales 384.00 4,800.00 Cash Short/Over 18.00 5,166.0016 A. Sanchez 108.00 108.0017 Cash Refund Supplies 75.00 75.0022 Fred Wu 400.00 400.0022 Cash Sales 400.00 5,000.00 5,400.0029 Cash Sales 216.00 2,700.00 Cash Short/Over 16.00 2,932.0031 K. Ramirez 108.00 108.0031 M. Davis 275.00 275.0031 Cash Sales 440.00 5,500.00 5,940.00


SALES CREDIT


ACCOUNTS RECEIVABLE

CREDIT

POST. REF.

DESCRIPTION DATE

31 Collection of Notes Receivable 800.00

note/S. Fairley Interest Income 36.00 836.00

The note and the interest are recorded in the Other Accounts Credit section.


Collection of a Promissory Note and InterestCollection of a Promissory Note and Interest

9-16

At the end of the month, the cash receipts journal is totaled and the equality of debits and credits is proved.

Posting the Column TotalsPosting the Column Totals

Posting the Cash Receipts Journal

9-17


AMOUNT


8 Cash Sales 212.80 4,500.00 4,860.0011 V. Bowman 270.00 270.0012 Investment M. Amos 15,000.00 15,000.0013 Coe 535.00 540.0015 Cash Sales 384.00 4,800.00 Cash Short/Over 18.00 5,166.0016 A. Sanchez 108.00 108.0017 Cash Refund Supplies 75.00 75.0022 Fred Wu 400.00 400.0022 Cash Sales 400.00 5,000.00 5,400.0029 Cash Sales 216.00 2,700.00 Cash Short/Over 16.00 2,932.0031 K. Ramirez 108.00 108.0031 M. Davis 275.00 275.0031 Cash Sales 440.00 5,500.00 5,940.0031 note/S. Fairley Notes Receivable 109 800.00

Interest Income 491 36.00 836.0031 Totals 2,133.00 1,800.00 22,500.00 15,909.00 42,342.00

(111) (231) (401) (X) (101)

ACCOUNTS RECEIVABLE

CREDIT

POST. REF.


CASH DEBIT

SALES CREDIT



The column totals are posted to the general ledger.

2,133 + 1,800 + 22,500+ 15,909 = 42,3422,133 + 1,800 + 22,500+ 15,909 = 42,342

9-18


AMOUNT


8 Cash Sales 212.80 4,500.00 4,860.0011 V. Bowman 270.00 270.0012 Investment M. Amos 15,000.00 15,000.0013 Coe 535.00 540.0015 Cash Sales 384.00 4,800.00 Cash Short/Over 18.00 5,166.0016 A. Sanchez 108.00 108.0017 Cash Refund Supplies 75.00 75.0022 Fred Wu 400.00 400.0022 Cash Sales 400.00 5,000.00 5,400.0029 Cash Sales 216.00 2,700.00 Cash Short/Over 16.00 2,932.0031 K. Ramirez 108.00 108.0031 M. Davis 275.00 275.0031 Cash Sales 440.00 5,500.00 5,940.0031 note/S. Fairley Notes Receivable 109 800.00

Interest Income 491 36.00 836.0031 Totals 2,133.00 1,800.00 22,500.00 15,909.00 42,342.00

(111) (231) (401) (X) (101)


SALES CREDIT


ACCOUNTS RECEIVABLE

CREDIT

POST. REF.

DESCRIPTION DATE


The amounts in the Other Accounts Credit section are posted.

The (X) indicates that the individual amounts are posted, and not the total.

9-19

Posting to the Accounts Receivable Ledger

Posting to the Accounts Receivable Ledger

Post entries from the Accounts Receivable Credit column to the customers’ accounts in the accounts receivable subsidiary ledger daily.

On January 7, $432 was posted to Roy Anderson’s account in the accounts receivable subsidiary ledger.

9-20


SALESDATE DESCRIPTION POST. ACCOUNTS TAX SALES OTHER ACCOUNTS CREDIT CASH REF. RECEIVABLE PAYABLE CREDIT ACCOUNT TITLE POST. AMT. DEBIT CREDIT CREDIT REF.20--

Jan. 7 R. Anderson 432 .00 432.00

Name Roy Anderson Terms n/30 Address 8913 S. Hampton Rd, Dallas, Texas 75232-6002

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. 20-- Jan. 1 Balance 432.00 3 Sales Slip 1101 S1 432.00 864.00 7 CR1 432.00 432.00 31 Sales Slip 1110 S1 267.50 699.50

The “CR1” indicates that the transaction appears on page 1 of the cash receipts journal.

9-21

The cash receipts journal:

Saves time and effort when recording and posting cash receipts

Allows for the division of work among the accounting staff

Strengthens the audit trail by recording all cash receipts transactions in one place

Advantages of the Cash Receipts Journal

9-22

A cash payments journal is a special journal used to record transactions involving the payment of cash.

The Cash Payments Journal

9-23

Journal Flow Chart

Does the transaction involve cash?

YES

Was cash RECEIVED?

YES NO


the CASHRECEIPTS

(CRs) Journal

Use the CRs and CDs Journals to preparethe monthly Bank Reconcilation


the CASHDISBURSEMENTS

(CDs) Journal

NO

Was inventory PURCHASED?

YES NO

Record thepurchase in

the PURCHASES Journal (PJ)

Was it a credit SALE?

YES NO


in theSALES

Journal (SJ)


In theGENERALJournal (GJ)

9-24

Businesses write checks for a variety of expenses each month.

In January The Style Shop issued checks for rent, electricity, telephone service, advertising, and salaries.

Consider the January 3 entry for rent expense.

Payments for Expenses

9-25


AMOUNT

CASH PAYMENTS JOURNAL PAGE 1 OTHER ACCOUNTS DEBITACCOUNTS

PAYABLE DEBIT

POST. REF.

DATE CK.NO.

DESCRIPTION PURCHASES DISCOUNT

CREDIT

CASH CREDIT

20--Jan. 3 111 January rent Rent Expense 1500 1500

The credit is entered in the Cash Credit column.

The account name and amount are entered in the Other Accounts Debit section.

9-26

Merchandising businesses usually make numerous payments on account for goods that were purchased on credit.

Consider the January 27 entry for International Apparel Mart.

Payments on Account

9-27


AMOUNT

20--Jan. 3 111 January rent Rent Expense 634 1500.00 1500.00

10 112 Store fixtures Store Equip. 131 2400.00 2400.0011 113 Tax remittance Sales Tax Pay. 231 756.00 756.0011 114 World of Fashions 3935.00 3856.3013 115 Fashion Designs 2865.00 57.30 2807.7014 116 Store supplies Supplies 129 900.00 900.0015 117 Withdrawal M. Amos, Drawing 302 3000.00 3000.0017 118 Electric bill Utilities Exp. 643 318.00 318.0017 119 The Trend Center 4250.00 4250.0021 120 Telephone bill Telephone Exp. 649 276.00 276.0025 121 Newspaper ad Advertising Exp. 614 840.00 840.00


PAYABLE DEBIT

POST. REF.

DATE CK.NO.


CREDIT

CASH CREDIT

27 122 International Apparel Mart 2400.00 2400.00

If there is no cash discount, the entry in the cash payments journal is a debit to Accounts Payable and a credit to Cash.

9-28

Purchases Discounts is a contra cost of goods sold account.

For an example of a payment with a discount, refer to the January 13 entry for Fashion Designs.

Purchases Discounts

9-29


AMOUNT


10 112 Store fixtures Store Equip. 131 2400.00 2400.0011 113 Tax remittance Sales Tax Pay. 231 756.00 749.0011 114 World of Fashions 3935.00 78.7 3856.3013 115 Fashion Designs 2865.00 57.30 2807.70


PAYABLE DEBIT

POST. REF.

DATE CK.NO.


CREDIT

CASH CREDIT

Credit Purchases Discounts for the amount of the discount, $57.30.

Credit Cash for the amount of cash paid, $2807.70.

Debit Accounts Payable for the invoice amount, $2865

9-30

Businesses use cash to purchase equipment and other assets.

On January 10 The Style Shop issued a check for store fixtures.

Cash Purchases of Equipment and Supplies

9-31


AMOUNT



PAYABLE DEBIT

POST. REF.

DATE CK.NO.


CREDIT

CASH CREDIT

The credit is recorded in the Cash Credit column.

10 112 Store fixtures Store Equip. 2400.00 2400.00

The account name and amount appear in the Other Accounts Debit section.

9-32

Retail businesses collect sales tax from their customers. Periodically the sales tax is remitted to the taxing authority.

Consider the entry on January 11.

Payment of Taxes

9-33


AMOUNT


10 112 Store fixtures Store Equip. 131 1200.00 1200.00


PAYABLE DEBIT

POST. REF.

DATE CK.NO.


CREDIT

CASH CREDIT

11 113 Tax remittance Sales Tax Pay. 756.00 756.00

The Style Shop issued a check for $749 to pay the December sales tax.

Notice that the account name and amount appear in the Other Accounts Debit section.

The credit is entered in the Cash Credit column.

9-34

Although most merchandising businesses buy their goods on credit, occasionally purchases are made for cash.

Consider the January 31 entry for the purchase of goods.

Cash Purchases of Merchandise

9-35


AMOUNT


10 112 Store fixtures Store Equip. 131 2400.00 2400.0011 113 Tax remittance Sales Tax Pay. 231 756.00 756.0011 114 World of Fashions 3935.00 78.70 3856.3013 115 Fashion Designs 2865.00 57.30 2807.7014 116 Store supplies Supplies 129 900.00 900.0015 117 Withdrawal M. Amos, Drawing 302 3000.00 3000.0017 118 Electric bill Utilities Exp. 643 318.00 318.0017 119 The Trend Center 4250.00 4250.0021 120 Telephone bill Telephone Exp. 649 276.00 276.0025 121 Newspaper ad Advertising Exp. 614 840.00 840.0027 122 International Apparel Mart 2400.00 2400.0030 123 Fashion Designs 1135.00 1135.0031 124 World of Fashions 565.00 565.0031 125 January payroll Salaries Exp. 637 4950.00 4950.00


PAYABLE DEBIT

POST. REF.

DATE CK.NO.


CREDIT

CASH CREDIT

31 126 Purchase of goods Purchases 3200.00 3200.00

Cash purchases are recorded in the cash payments journal.

9-36

DATE DESCRIPTION


AMOUNT


10 112 Store fixtures Store Equip. 131 2400.00 2400.0011 113 Tax remittance Sales Tax Pay. 231 756.00 756.0011 114 World of Fashions 3935.00 78.7 3856.3013 115 Fashion Designs 2865.00 57.30 2807.7014 116 Store supplies Supplies 129 900.00 900.0015 117 Withdrawal M. Amos, Drawing 302 3000.00 3000.0017 118 Electric bill Utilities Exp. 643 318.00 318.0017 119 The Trend Center 4250.00 4250.0021 120 Telephone bill Telephone Exp. 649 276.00 276.0025 121 Newspaper ad Advertising Exp. 614 840.00 840.0027 122 International Apparel Mart

2400.00 2400.00

30 123 Fashion Designs 1135.00 1135.0031 124 World of Fashions 565.00 565.0031 125 January payroll Salaries Exp. 637 4950.00 4950.00

CK.NO.

CASH

CREDIT

ACCOUNTS

PAYABLE DEBITPOST. REF. OTHER ACCOUNTS DEBIT

PURCHASES DISCOUNT

CREDIT

Freight In 175.00 175.00

The credit is in the Cash Credit column.

Payment of “freight-in” and amount appear in the Other Accounts Debit section.

9-37

DATE DESCRIPTION ACCOUNT NAME AMOUNT



2400.00 2400.00


CASH

CREDITCK.NO. POST. REF. ACCOUNTS

PAYABLE DEBIT

POST.

REF.

OTHER ACCOUNTS DEBIT PURCHASES DISCOUNT

CREDIT

31 128 Cash refund Sales Ret. & Allow. 160.00Sales Tax Payable 12.80 172.80

The Style Shop issued a check for $172.80 to a customer who returned a defective item.

Cash Payments Journal

9-38

A promissory note can be issued to settle an overdue account or to obtain goods, equipment, or other property.

Payment of a Promissory Note and Interest

9-39

GENERAL JOURNAL Page 16

DATE DESCRIPTION POST. DEBIT CREDIT REF. 20-- Aug. 2 Store Equipment 131 6,000 Notes Payable 201 6,000 Issued a 6-month, 10% note to Metroplex Equipment Company for purchase of new store fixtures

On August 2, The Style Shop issued a six-month promissory note for $6,000 to purchase store fixtures from Metroplex Equipment Company.

The note had an interest rate of 10 percent.

9-40

On January 31 The Style Shop issued a check for $6,300 in payment of the note ($6,000) and the interest ($300).

P x i x t = interest

$6,000 x 10% x 6/12 = $300

9-41

ACCOUNT NAME



2400.00 2400.00


CASH

CREDIT

ACCOUNTS

PAYABLE DEBIT

POST.

REF.

AMOUNTDATEPURCHASES

DISCOUNT CREDIT

OTHER ACCOUNTS DEBIT

POST.

REF.

DESCRIPTIONCK.NO.

31 128 Cash refund Sales Ret. & Allow. 160.00Sales Tax Payable 12.80 172.80

Cash Payments Journal

31 129 Note paid to MetroplexEquipment Company

Notes PayableInterest Exp.

Debit Notes Payable for $6,000

Debit Interest Expense for $300

6000.00

300.00

Credit Cash for $6,300

6300.00

9-42

During the month, the amounts recorded in the Accounts Payable Debit column are posted to the individual accounts in the accounts payable subsidiary ledger.

The amounts in the Other Accounts Debit column are also posted individually to the general ledger accounts during the month.

Posting from the Cash Payments Journal

Consider the January 3 entry in the cash payments journal that was posted to Rent Expense account.

9-43

ACCOUNT Rent Expense ACCOUNT NO. 634

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20-- Jan. 3 CP1 1500 1500

CASH PAYMENTS JOURNAL PAGE 1

ACCOUNTS PURCH.DATE CK. EXPLANATION POST. PAYABLE OTHER ACCOUNTS DEBIT DISCOUNT CASH NO. REF. DEBIT ACCOUNT TITLE POST. AMOUNT CREDIT CREDIT REF.20-- Jan. 3 111 January rent Rent Expense 634 1500 1500

The “CP1” indicates that the entry is recorded on page 1 of the cash payments journal.

9-44

Post entries from the Accounts Payable Debit column of the cash payments journal to the vendor accounts in the accounts payable subsidiary ledger daily.

Posting to the Accounts Payable Ledger

On January 13, $2,865 was posted to Fashion Designs account in the subsidiary ledger.

9-45


AMOUNT


10 112 Store fixtures Store Equip. 131 2400.00 2400.0011 113 Tax remittance Sales Tax Pay. 231 756.00 756.0011 114 World of Fashions 3935.00 3856.3013 115 Fashion Designs 2865.00 57.30 2807.7014 116 Store supplies Supplies 129 900.00 900.0015 117 Withdrawal M. Amos, Drawing 302 3000.00 3000.0017 118 Electric bill Utilities Exp. 643 318.00 318.0017 119 The Trend Center 4250.00 4250.0021 120 Telephone bill Telephone Exp. 649 276.00 276.0025 121 Newspaper ad Advertising Exp. 614 840.00 840.0027 122 Intl. Apparel Mart 2400.00 2400.0030 123 Fashion Designs 1135.00 1135.0031 124 World of Fashions 565.00 51.20 565.0031 125 January payroll Salaries Exp. 637 4950.00 4950.0031 126 Purchase of goods Purchases 501 3200.00 3200.0031 127 Freight charge Freight In 502 175.00 175.0031 128 Cash refund Sales Ret. & Allow. 451 160.00

Sales Tax Payable 231 12.80 172.8031 129 Note paid to Metroplex Notes Payable 201 6000.00

Equipment Company Interest Exp. 691 300.00 6300.0031 130 Establish petty cash fund Petty Cash Fund 105 175.00 175.0031 Totals 15,150.00 24,962.80 136.00 #######

(205) (X) (504) (101)


PAYABLE DEBIT

POST. REF.

DATE CK.NO.


CREDIT

CASH CREDIT

Page303

The amount of $2,865 was posted to Fashion Designs account in the subsidiary ledger.

Name Fashion Designs Terms 2/10, n/30 Address 2313 Belt Lane, Dallas, Texas, 75267-6205

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. 20-- Jan. 1 Balance 2,200 3 Invoice 5819,12/29/-- P1 2865 5,065 13 CP1 2,865 2,200 30 CP1 1,135 1,065

9-46

Advantages of the Cash Payments Journal

Advantages of the Cash Payments Journal

The cash payments journal:

Saves time and effort when recording and posting cash payments

Allows for a division of labor among the accounting staff

Improves the audit trail because all cash payments are recorded in one place and listed by check number

9-47

Most businesses use a petty cash fund to pay for small expenditures

The Petty Cash Fund

The amount of the petty cash fund depends on the needs of the business.

Usually the office manager, cashier, or assistant is in charge of the petty cash fund.

9-48

The Style Shop’s cashier is responsible for petty cash. The Style Shop wrote a $175 check to the cashier, who cashed the check and put the currency in a locked cash box.

Establishing the Fund

9-49


AMOUNT


10 112 Store fixtures Store Equip. 131 2400.00 2400.0011 113 Tax remittance Sales Tax Pay. 231 756.00 756.0011 114 World of Fashions 3935.00 3856.3013 115 Fashion Designs 2865.00 57.30 2807.7014 116 Store supplies Supplies 129 900.00 900.0015 117 Withdrawal M. Amos, Drawing 302 3000.00 3000.0017 118 Electric bill Utilities Exp. 643 318.00 318.0017 119 The Trend Center 4250.00 4250.0021 120 Telephone bill Telephone Exp. 649 276.00 276.0025 121 Newspaper ad Advertising Exp. 614 840.00 840.0027 122 Intl. Apparel Mart 2400.00 2400.0030 123 Fashion Designs 1135.00 1135.0031 124 World of Fashions 565.00 51.20 565.0031 125 January payroll Salaries Exp. 637 4950.00 4950.0031 126 Purchase of goods Purchases 501 3200.00 3200.0031 127 Freight charge Freight In 502 175.00 175.0031 128 Cash refund Sales Ret. & Allow. 451 160.00

Sales Tax Payable 231 12.80 172.8031 129 Note paid to Metroplex Notes Payable 201 6000.00

Equipment Company Interest Exp. 691 300.00 6300.0031 130 Establish petty cash fund Petty Cash Fund 105 175.00 175.0031 Totals 15,150.00 24,962.80 136.00 39,976.80

(205) (X) (504) (101)


PAYABLE DEBIT

POST. REF.

DATE CK.NO.


CREDIT

CASH CREDIT

Debit Petty Cash Fund in the other Accounts Debit section and enter the credit in the Cash Credit column.

9-50

A petty cash voucher is a form used to record the payments made from a petty cash fund.

Petty Cash Voucher

The person receiving the funds signs the voucher.

The person who controls the petty cash fund initials the voucher.

9-51

PETTY CASH VOUCHER 1 NOTE: This form must be computer processed or filled out in black ink.

DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT Office Supplies Supplies 129 16 25

Total 16 25

RECEIVED THE SUM OF Sixteen DOLLARS AND 25/100 CENTS

SIGNED L.T. Green DATE 2/3/-- APPROVED BY M.A. DATE 2/3/-- Metroplex Office Supply Co.

A petty cash voucher shows:

9-52

The total vouchers plus the cash on hand should always equal the amount of the fund–$175 for The Style Shop.

Replenishing the Fund

Replenish the petty cash fund at the end of each month or sooner if the fund is low.

The fund MUST be replenished at the end of the period.

9-53

The following internal control procedures apply to petty cash:The following internal control

procedures apply to petty cash:

1. Use the petty cash fund only for small payments that cannot conveniently be made by check.

2. Limit the amount set aside for petty cash to the approximate amount needed to cover one month's payments from the fund.

3. Write petty cash fund checks to the person in charge of the fund, not to the order of "Cash."

9-54

The following internal control procedures apply to petty cash:The following internal control

procedures apply to petty cash:

4. Assign one person to control the petty cash fund. This person has sole control of the money and is the only one authorized to make payments from the fund.

5. Keep petty cash in a safe, a locked cash box, or a locked drawer.

6. Obtain a petty cash voucher for each payment. The voucher should be signed by the person who receives the money and should show the payment details. This provides an audit trail for the fund.

9-55

The internal control over cash should be tailored to the needs of a business.

Accountants play a vital role in designing, establishing, and monitoring the cash control system.

Internal Control over Cash

9-56

1. Have only designated employees receive and handle cash. In some businesses employees handling cash are bonded.

Bonding is the process by which will insure the business against losses through employee theft or mishandling of funds.

Essential Cash Receipt ControlsEssential Cash Receipt Controls

9-57

2. Keep cash receipts in a cash register, a locked cash drawer, or a safe while they are on the premises.

3. Make a record of all cash receipts as the funds come into the business.

4. Check the funds to be deposited against the record made when the cash was received. The employee who checks the deposit is someone other than the one who receives or records the cash.


9-58

5. Deposit cash receipts in the bank promptly. Deposit the funds intact. The person who makes the bank deposit is someone other than the one who receives and records the funds.


6. Enter cash receipt transactions in the accounting records promptly. The person who records cash receipts is not the one who receives or deposits the funds.

7. Have the monthly bank statement sent to and reconciled by someone other than the employees who handle, record, and deposit the funds.

9-59

Essential Cash Payment ControlsEssential Cash Payment Controls

1. Make all payments by check except for payments from special purpose cash funds such as a petty cash fund.

2. Issue checks only with an approved bill, invoice, or other document that describes the reason for the payment.

3. Have only designated personnel approve bills and invoices.

4. Have checks prepared and recorded in the checkbook or check register by someone other than the person who approves the payments.

9-60

5. Have still another person sign and mail the checks to creditors.

6. Use prenumbered check forms.

7. During the bank reconciliation process, compare the canceled checks to the checkbook or check register. The person responsible for this should be someone other than the person who prepares or records the checks.

8. Enter promptly in the accounting records all cash payment transactions. The person who records cash payments should not be the one who approves payments or the one who writes the checks.

Essential Cash Payment ControlsEssential Cash Payment Controls

9-61

Bank Statement

The Style Shop

Dallas, TX 75268

12,025.50

First Texas National Bank

9-62

Bank Reconciliation Statement

A bank reconciliation statement is a statement that accounts for all differences between the balance on the bank statement and the book balance of cash.

9-63

A credit memorandum is a form that explains any addition, other than a deposit, to a checking account.

A debit memorandum is a form that explains any deduction, other than a check, from a checking account.

9-64

A dishonored check is a check returned to the depositor unpaid because of insufficient funds in the drawer’s account. It is also called an NSF check.

A service charge is a fee charged by a bank to cover the costs of maintaining accounts and providing services.

9-65

When the bank statement is received, it is reconciled with the financial records of the business.

The ending bank balance on January 31 was $21,838.50.

The Bank Reconciliation Process: An Illustration

On January 31 the Cash account, called thebook balance of cash, is $14,390.70.

9-66

Bank Statement

First Dallas National Bank

The Style Shop

Dallas, TX 7526838-19-98867

The ending cash balance according to the bank is $21,838.50.

21,838.50

12,025.50

9-67

Sometimes the difference between the bank balance and the book balance is due to errors.

Errors made by banks Errors made by businesses

Arithmetic errors Arithmetic errors

Giving credit to the wrong depositor

Charging a check against the wrong account

Recording a check or deposit for the wrong amount

Not recording a check or deposit

Many banks require that errors in the bank statement be reported within a short period of time, usually 10 days.

9-68

1. Outstanding checks.

2. Deposit in transit.

3. Service charges and other deductions not recorded in the business records.

4. Deposits, such as the collection of promissory notes, not recorded in the business records.

Other than errors, there are four reasons why the book balance of cash may not agree with the balance on the bank statement.

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Outstanding checks are checks that have been recorded in the cash payments journal but have not yet been paid by the bank.

A deposit in transit is a deposit that is recorded in the cash receipts journal but that reaches the bank too late to be shown on the monthly bank statement.

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Format of a bank reconciliation statement

Bank statement balance Book balance

First Section

+ deposits in transit + deposits not recorded

– outstanding checks – deductions

+ or – bank errors + or – errors in books

Adjusted bank balance Adjusted book balance

Second Section

=

=

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Steps to reconcile bank balance:Steps to reconcile bank balance:

1. Enter the bank balance on the bank statement.

2. Compare the deposits in the checkbook with the deposits on the bank statement.

3. List the outstanding checks.

4. List any bank errors.

5. Compute the adjusted bank balance.

First Section

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The Trend Center Bank Reconciliation Statement January 31, 20--

Bank statement balance 21,838.50

Step 1: Enter the balance on the bank statement, $21,838.50

The Style Shop

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The Style Shop

Step 2: Compare the deposits in the checkbook with the deposits on the bank statement.

On January 31 receipts of $5,940 were placed in the bank's night deposit box.

Additions:

Deposit of January 31 in transit 5,940

The bank recorded the deposit on February 1. The deposit will appear on the February bank statement.

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The Style Shop

Additions:


Deductions for outstanding checks:

Check 124 of January 31 565 Check 125 of January 31 4,950

Check 126 of January 31 3,200 Check 127 of January 31 Check 128 of January 31 Check 129 of January 31 Check 130 of January 31

175172.806,300

175 Total outstanding checks

Step 3: List the outstanding checks. The Style Shop has seven outstanding checks totaling $15,537.80.

15,537.80

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The Style Shop

Additions:





175172.806,300

175 Total outstanding checks 15,537.80

Step 4: List any bank errors.

A $1,600 check was incorrectly deducted from The Style Shop’s account.

Check incorrectly charged to account29,378.50

7,5401,600

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The Style Shop

Additions:





175172.806,300



7,5401,600

Step 5: Compute the adjusted bank balance.

Adjusted bank balance 13,840.70

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Steps to reconcile book balance:Steps to reconcile book balance:

1. Enter the balance in books from the Cash account.

2. Record any deposits made by the bank that have not been recorded in the accounting records.

3. Record deductions made by the bank.

4. Record any errors in the accounting records that were discovered during the reconciliation process.

5. Compute the adjusted book balance.

Second Section

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The Style Shop

Additions:





175172.806,300



7,5401,600


Step 1: Enter the balance in books from the Cash account, $14,390.70.

Book balance 14,390.70

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The Style Shop

Additions:





175172.806,300



7,5401,600



Step 2: Record any deposits made by the bank that have not been recorded in the accounting records.

The Style Shop did not have any.

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The Style Shop

Additions:





175172.806,300



7,5401,600


Deductions:

NSF Check 525

Bank service charge 25 550


Step 3: Record deductions made by the bank. There are two items:

The NSF check for $525

The bank service charge for $25

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The Style Shop

Additions:





175172.806,300



7,5401,600


Step 4: Record any errors in the accounting records that were discovered during the reconciliation process.

The Style Shop did not have any errors in January.

Deductions:

NSF Check 525



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The Style Shop

Additions:





175172.806,300



7,5401,600


Deductions:

NSF Check 525



Adjusted book balance 13,840.70

Step 5: Compute the adjusted book balance.

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The Style Shop

Additions:





175172.806,300



7,5401,600


Deductions:

NSF Check 525



Adjusted book balance 13,840.70

Notice that the adjusted bank balance and the adjusted book balance agree.

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GENERAL JOURNAL PAGE 16

DATE DESCRIPTION POST. DEBIT CREDIT REF. Jan 31 Accts. Rec./David Newhouse 525 Bank Fees Expense 25 Cash 550 To record NSF check and service charge

The first entry is for the NSF check from David Newhouse, a credit customer.

For The Style Shop, two entries must be made.

The effect of the two items is a decrease in the Cash account balance.

The second entry is for the bank service charge.

9-1 Skyline College Chapter 9. 9-2 Journal Flow Chart Does the transaction involve cash? YES Was...

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Transcript of 9-1 Skyline College Chapter 9. 9-2 Journal Flow Chart Does the transaction involve cash? YES Was...