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    CHAPTER-13

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    Chapter 13

    Uploaded by

    Lean Park

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    iy CHAPTER 13 CASH CONTRO], yng OUTCOMES ing tise YOU Hou be able ge ees for controling cash hit a leotl, ENUMEAIE and explain tf ef be basic requisites of cash control, git amprest system andthe procedure for contol . principal components » a 1 ope rlevamce ofa petty cash fund and describe the py ; i ing cash recip, rocedure forts operation, books of the depositor, Wrong cash disbursement, bank reconciliation statement and adjust the fe ee voucher system andthe procedure or eon ‘one of Cash Contr. We have heard of company of i petandfaud Experience els us, whether your busin ie when its internal contro is weak. Recall that intemar ae ‘ne of the characteristics of Accounting Information percipnien eae i fopsizaton which includes all the practices, tecniqus and procedures ave sn efietive aocounting system to safeguard asets, check accuracy and wliy ct Fig ta, promote operational liciency and encourage adherence tomanageal pls yaponeats of Internal Control. There are four basic components of internal contol: spianent control, activities control, records control and asset control, Environment control sginistie foundation of internal contol within an organization inludes polis, procedures, seeand attitude ofthe officers and employees ofthe busines, I requires maintaining high trelfintegrty and ethical values and formulating operating strategies that will protect welfare of any and is stakeholders, It i also part of corporate govemance, Another component of jurnal contol is Monitoring Activities which requires a set of procedures o be followed suchas tind specific responsibilities for each employee emphasizing segregation of duties! work among ‘aployess for check and balance. Examples: Cash custodial function should be separate from ‘word fonction, cash receipts function separate from cash disbursement function. Likewise, the fxn of ordering should be separate from the function of purchasing and receiving of stock Foperauthorization procedures and pinpointing of responsibility are requited inthis component, fue that no transaction can take place unless authorized, and duly approved by a designated ie or employee. Record Control is another feature where the company ensures that all twins transactions are properly documented and recorded and that a responsible officer is ‘signted to store or secure all documents. The fourth component is Asset Control where the ‘mbary ensures that assets are physically protected and recorded with thie respective seal tunkes and location code, Doors and computer programs should be logistically protected with feo Likewise, vaults and deposit boxes used for storage of cash and other inp ees should be well sealed. Only authorized personnel should have access over them cers being charged and jailed is big orsmall, that company 343 nis, there san oficer in charge OF the impo aul, ea mal Autor. Otherwise, the responsibilty called the Mr eview of internal control should be done rey «laws and regulations and disen., Maton op, i delepaie larly gato en TARE coy, TOU officers and emPl SoMmisggnt ros, theft or fa "of ‘ imi its discuss is chapter will i f Let Weal ono is tae of ope jon only cash control as internal contro) ip in higher accounting. Overs QUISITES FOR CASH CONTROL BASIC RE : large portion ofthe sy disbursements represent a large por volume of} das os t Cash ei pared tobe ote o pared 10 he business. And as com itis for these reasons that internal control con. fhe theft and manipulate the records. ti OVEr cash is impart it that losses from theft are prevented by ac, Pay rement should see 10 itt ‘curate acegu and that ae isbursements. Ensure that eash in the hands of the designated empy, corel ve operational needs. Allowing so much eash to remain ile isnot ony is foecmie Tenptationdanger to those who are assigned to handle i," tg assets, cash is the most susceptible to thep, IMPREST SYSTEM ‘Theimprestptem san intemal control procedure which aims to protect the cash an sburements of busines. The imprestspstem requires thatno one person shouldbe alone sai al exp of eas transactions. Cash custodial function should be separate fom wots fnsion This means tha those handling eash should not have access tothe booke us and vie vers. The recording funetion should be divided among employees such that. work of one is chesked and verified by another. Cash Receipts Aside from the aforementioned rules, additional intemal control procedures for cash receipts a: The cash register should show visibly to the customers the amount to be recorded. 1b Cash invoices should be prepared in duplicate, the original is given to the customer and the aplcate retained bythe business and compared at the end of the day against the cash reistr ‘ape “rung up”. © Ifcash is received through the mail, an employee who opens it must list down the cheis ‘ceived and give a copy to the accounting department. This and the cash invoices should ‘ual the cash receipts atthe end of the day. < Alleah receipts should be immediately deposited. 7 : Vhen cash is deposited, the accountant prepares the following entry: ‘In Bank or the Name of the B: (Cota Bask or the jank (Cash On Hand ets | some accountants, 0 minimize the number of recordin goa be deposited, immediatly debits the cash in bank ey However. this should be confirmed by requiring hy ng department duplicate copies of deposits made ig and knowing that all cash receipts iecount upon receipt of cash by the fe teasurer or cashier to forward to the cash Disbursements Cash disbursements may also be susceptible to theft and ust therefore be adopted by the company such as the follow ing since itis required that all cash receipts be immediatek should be made except by check. ipulation. Preventive measures a ly deposited, no direct payment of cash nt is to be made, the expendi . Before payment isto be made, the expenditire should be vouchered and v penons must be responsible forthe voucher the one preparing the ene noo an {ne approving it. And all three must affix their signatures on the voucher her and its support F i «or payment, the vou! supporting paper (lke the invoice or the statement fesaun) shouldbe stamped paid across it face. This way, double payment il be vate 4. Persons approving the voucher should not be the ones signing the check. signed at least by two responsible officers. SEPSIS Chess auld be ied. Three i itand the Inthe cash disbursements journal, the cash money colunin sited either as Cash In Bank or fie Name of the Bank. It is not necessary to carry a Cash On Hand column in the cash disbursements journal. Petty Cash Fund Under the imprest system, all cash receipts should be deposited inthe bank and all payments should be by checks. It is impractical however to use checks for small amount of expenses such as ‘opples, transportation fare, postage and small repairs, to name a few. It would be more convenient forthe business to set aside a small sum of cash called the Petty Cash Fumd to take care afsuch expenses. ‘The amount of the petty cash fund depends upon the needs of the business. It could be a smal sum like PS00 or it could be as much as P50,000. The point is it should be sufficient to cover te small expenses over a specific period of time, usually for a month The Pety Cash Fund operation involves the following steps: |. Establishment - To star the fund, a voucher is prepared and a check is drawn payable to the Petty Cashier or Petty Cash Custodian, The check is then encashed and placed ina box ready for disbursements. Disbursements - When cash is taken from the petty cash box, petty cash voucher has to be Prepared and approved by a disbursing officer and then signed by the person receiving the cash. These vouchers are kept by the Petty Cashier as evidences that cash has been paid out of thepety cash fund, Atanytime, these vouchers and the remaining ash should be equal tothe Petty cash fund established. From time to time, a person with authority may make a surprise Count to prove the petty cash fund. 345 3. Replenishment - When the petty cash fund reaches a minis insufficient to take care of the small expenses, then it is time fora replenishmen, bel "ay that whatever amount was paid out of the fund will be reimbursed or eturmed to th his example, assume that a petty cash fund of PSO0 was established but is each cue P50. It means that a total of P450 was paid out of the fund. A. replenishment for = requested by the petty cashier following these procedures: 0, imum balance yy ‘The petty cash vouchers are totaled and the petty cash fund proved, AA voucher is prepared for the replenishment. The petty cash vouchers are attached to the voucher as its su ‘A check is drawn payable to the petty cashier and the petty: ‘The chee PPorting docum ash vouchers stam neashed and placed inthe pety cash box ready again for dat PETTY CASH BOOK ‘This is a memorandum book wl illustrate, assume that: papse here disbursements out ofthe petty cash ae reco Nov 2. A petty cash fund was established in the amount of P1,000, 3 Supplies bought from National and paid for, P1S0. PCV #1. 4 Repair of computer by Cruz, a computer technician for P1S0, PCV 42. 5 Advertisement in Phil Star, P300. PCV #3, 7. Freight of merchandise bought and paid to LBC, P50, PCV #4, & Freight of merchandise sold and paid to Allied, P1S0. PCV #5, 9 Cash withdrawal by the owner, Ms. Roces, P100. PCV #6. 10 Replenishment. 346 347 T 006 auouystuaiday oor souvjea | 1 0001 | 0001 oot sourpea ost ost os | 006 000 1 [p ‘Bupmesgy ‘S900y, oo 9 remeupypin yseg | 6 ost ost s wir poy | 8 os os v 08389 DE1 L oof asuadxg Suisuaapy 00g £ FS [4d UL PV s ost ‘asuadxg seday ost z zm soaoy preg | & ost ost 1 | ag jeuonen prea | ¢ 000 1 Zs9zi ou 9949 “puny poystiqeisy | Z"AON ALLL LNNODDV no NI ‘ON LNNOWY aN sartaans | 4. | uatliaa [ANaNAVa | samo | Oy | NouvNvisxa | diva \ INAWAVd dO NOLLAANLLSI NN HSVO ALLad OOS HSVS ALiaa a | ‘The following procedures are to be observed: 1. Theamount ofcash established is placed under the PCF Receipt (P1,000) with the appropri date and explanation column filled in. “The disbursement is recorded in the Petty Cash Fund Payment column (P150), the same amour eneded (fhe disbursement column atthe dh SUPP PISO) The gg nla nd pty ous er uns a He ie sty cash fund isto be replenished, all the money columns are totaled (stan > ih FSD) Aer ieee ey eed {that itis equal tothe total payment of P90) te distribution columns are double ruled 44 Inthe pety cash fund eceipt and payment column, the eash balance (P100) is placed in the payment column, then totaled and double ruled. (P100) is brought forward to th 5. On replenishment date, after double ruling, the cash balance ( a receipt column and the replenishment amounts entered (P900) making the actual cash equa to the total fund of P1,000, The petty cash book is again ready for another set of payments. ‘The petty cash book is not a book of original entry, hence there are no debit columns o¢ credit columns. The entries are entered in the cash disbursement journal as follows: Nov.2 Petty Cash Fund 1.000 Cash In Bank 1 000 10 Freight In 50 Freight Out 150 Supplies 150 Repair Expense 150 Advertising Expense 300 Roces, Drawing 100 Cash In Bank 900 CHECKING ACCOUNT WITH A BANK AA business opens a current account with a bank where its eash is safely deposited and from which payments are conveniently drawn against. To open a checking or current account, the company will be required to sign a signature card. Refer to Figure 13.1 on the next page. This is used by the bank as a verification when checks are presented to them for payment. Checks not bearing the authorized signature are not honored by the bank. The bank then provides the depositor with a checkbook bearing his or het name or the name of the company, address, account number and serial number of the checks imprinted. A eheck is a written order by a depositor (called the drawer) addressed to the bank telling it to pay the person or entity named on the check (called the payee) and deduct a specific sum of money from the depositor’s account. Refer to Figure 13.2 fora sample of a bank check which is on the next page. Included in the checkbook is a summary form ‘where the cash balance i to be updated whenever a deposit is made ot a check is issued. Refer to Figure 13.3 fora sample of a summary form which is also on the next page. 348 FILIPINAS BANK ACCOUNT NO. 1234567 ‘The signature(s) written below is/are the duly authori eeognize in payment of funds and other business transact ized signature (3) which you will ions for the account ROLDE VERA 5; _ 4488 J.P. Rizal, Makati OFFICE 563-49-48 RESIDENCE 524-56-88 NAME POSITION ROIDEVERA — PROPRIETOR-MANAGER Spee Figure 13.1 Signature Card ‘ACCOUNT NO. ACCOUNT NAME. CHECKNO — R/TNO. 1234567 ROILDE VERA M 208 777 88 0123 0013, 20 PAY TO THE ‘ORDER OF PESOS FILIPINAS BANK Ermita Branch, Ermita, Manila 157696" 0121™"0013,0013081983" Figure 13.2 Bank Check pate] CHECK PARTICULARS peposir | WITHDRAWAL | BALANCE NUMBER Balance brought forward Figure 13.3. Summary Form 349 The following rules are to be observed: |. Update your bank transactions by fillin . ay © last balance new balance by adding deposits made, if any, or deducting the check you Prepared: 88 the patng the summary frm lessens the chances of eros suchas issuing eh ge Which will not be horiored by the bank. "ON hel Always write on the cheek the name ofthe payee in fll and draw a tine rom, thee eso sign so that no insertions can be made. Symbols can be used. ME 10 the 3+ When writing the figures, be sure that there are no spaces in between for adit inserted, especially after the peso sign. Write the amount in words again, te, before the written words and draw a line after the written words, or write the the written amount 12 up the summary form. From th al fittest 2¥iNB no paces Word only a When making deposits, the depositor fills up a deposit slip, a sam Space for filling up depositor’s current account number, customer's ch ‘bank on which itis drawn are provided in the deposit slip. of your deposits: currencies, coins and checks with the n Pe is in Figure 1 week number, names tthe bck saspace listing te ame ofthe bank and check nuh FILIPINAS BANK Ermita, Manila Curent Account No, [ NAME ‘CHECK DRAFT7 ‘CHECK NUMBER CASHIER'S CHECK TOTAL CHECKS TOTAL CASH TOTAL DEPOSITS TELLER'S VALIDATION HIS 1S YOUR RECEIPT WHEN MACHINE VALIDATED” ‘CURRENT ACCOUNT DEPOSIT SLIP FOR * CASH * CHECKS FILIPINAS BANK, Ermita, Manila Curent Account No L NAME Figure 13.4 Deposit Slip 350 uo BANE STATEMENT th, the bank will provide the deposit ch mon ositor with a bank statement, accompanie petorpat checks, The bank statement shows the balane ofthe depositors ascot te month, the deposits made in one column and the checks pid during hema a aid during the month in ink’s debit memo or credit. sing oF aswell as other bank i ne a well as other bank transactions supported by the ba ast Gg of ak semen son Fie 16, page ppprT MEMORANDUM abit memorandum is prepared bythe bank decreasing he deposit’ cash balance sovng esos: acistome”s NSF check, bank seve charge oratank en ee eaea fo gfe fo Figure 135 for an exhibit ofa debit memorandum, ese NSF check is a check received from a customer and deposited wit Cs ay the bank returns the check as itis found to ero ee eee ny the company tothe customer, The bank ssuesa debit memo far thieand eee ik ‘ek siemens check column, Onee a debit memorandum is received bythe depcton sn Mang entry should Be prepared deeressing the cash in bank account and revving customers gevunt tH! ‘Accounts Receivable ee Cash in Bank To adjust bank account for NSF check of eustomer Santos. [A debit memorandum is also prepared by the bank charging the depositor for services dered in handling its cash transactions. Once the company receives the debit memorandum an {any should be prepared, thus: Bank Service Charges xx Cash in Bank a To record bank service charge for the month of June. |Adebit memo is also prepared by the bank charging the depositors cash account when a joan previously extended by the bank is now due for payment. The depositor makes an entry for ttsas follows: Loans Payable Xx Cash In Bank xx To record payment of loan, 351 FILIPINAS BANK Date March 18, 2013 Ermita, Manila PARTICULARS, AMOUNT Cheek No. 04321 of Mr. Panopio, returned for insufficient funds. P-5,000.00 Coe insane eee CHARGED TO THE ACCOUNT OF ROI BOOK CENTER Figure 13.5. Debit Memorandum CREDIT MEMORANDUM Ite company applies fora loan which is approved by the bank, a communication iad the bank through a eredit memorandum. This is shown inthe bank statement under the dep, column inereasing the depositor’ bank balance. An entry should be prepared bythe compan. Ws Cash In Bank 97,000 Interest Expense 3,000 Notes Payable 100,000 To record BDO bank loan discounted at 18% for 60 days. RECONCILING THE BANK ACCOUNT Usually the balance per bank statement does not tally withthe cash balance maintained in the company’s records. Remember that the bank's recording is independent and separate from the depositors recording. There are times that the transaction recorded by the depositor is not immediately picked up by the bank before its eut off date, say at the end of the month. In like ‘manner, it s also possible for some transactions to be recorded ahead by the bank, which may not be immediately recorded by the depositor before the cut off date. For these reasons a bank ‘reconciliation statement must be prepared by the company accountant to bring the bank's recording into agreement with the depositor’ recording, Reconciling Items Examples of transactions that are recorded by the depositor this month but are recorded by the bank in the suceeeding mont 1, Deposit made by the company (therefore already recorded by the company as an increase in the Cash In Bank account) received too late by the bank to be recorded on the same day. The bank has a cut off time, usually at 11:00 am. Check deposits received after this time are recorded the following banking day which may be the start of another month, This is called a Deposit In Transit. This will understate the balance in the bank statement. 2. Check issued by the company to a payee (therefore already recorded by the company a8 @ decrease in the Cash In Bank account) but payee has not presented the check to the bank for ‘encashment, Thus, the bank has not deducted this from the company’s eash account. Ths called an Outstanding Check which will overstate the balance in the bank statement 352 xampl pe dees | idum issued for loan extended reitmemora by the bank o for acus + Gakic was aed tthe account ofthe depositor bt since heron Neeley the tate depositor fil fo sod itinis bck het ges nate MSH oy he a nthe epost books, late. This will understate the morandum issued for NSF check of a customer. et rom the deposfOF account, but the memo was eect piney hae yd in its Dook before the cutoff date, Ths will overstate the cay esi 0 be froks ofthe depositor. shin the bank in the ‘rere is therefore a need to review the cash transactions affe ntant must try 10 sone the balance reported in the bank state ing of the company. To reconcile the balance per bank (re ee books (records of the depositor) the deposit in feats eee ad Cee rian. while the outstanding checks shouldbe subtracted from i. Onthe other hand, the bans memorandum shouldbe added tothe balance per books andthe bank's debit mememaders oul be deducted from it " 1s book are the following: ting the eash in bank. The ment against the cash in bank Errors Another reason why the balance per books will not tally with the balance per bank is when ‘enss are committed by either party. For example: |. The bunk statement showed a check issued to a payee for P1,200 but the depositor's hook erroneously recorded it as P1,000. Effect on the balance per books: Since a check is a deduction from the Cash In Bank account and the company deducted a lesser amount, the balance per books is overstated. To comect this, deduct P200 from the balance per books by making an adjustment in the books of the depos Accounts Payable 200 Cash In bank 200 Thecompany’s record showed a deposit of P1,500, which the bank erroneously entered as PI 200. Effect ofthe error on the Balance per Bank: Since a deposit is an addition and the bank added lesser amount, the depositor’s account in the books of the bank is understated. To correct this, add P300 to the Balance per Bank. The bank makes an adjusting entry for this. STEPS IN PREPARING THE BANK RECONCILIATION STATEMENT |. Determine the balance per bank and the balance per books at cut-off date, which is ‘usually the nd ofthe month. 2 Compare the cash receipts deposited by the company against the deposit column of the bank Sitemen,Tickmark (A) the amounts if found in both books. The amounts without tickmarks ks of the depositor but notin the bank & ether the deposit in transit (if found in the boo ee or the credit memorandum (if found inthe bank statement nt inthe depositors , 353 e a inst the check coh sued and recorded by the company against caltewad ihe ‘amounts if found in both books. The amounts without tok the bang | the books ofthe depositor but notin the bank st in the bank statement but notin the depositors tool) 3. Compare the checks statement. Tickmark. cither the outstanding check (if fo fora debit memorandum (i found is tustrate, assume that Roi De Vera opened the Roi Book Center with a cash oFP10 00d aed merchandise worth PS0,000 on November 2, 2018. He opened a cure forthe bookstore wih Flpinas Bank and deposited thecash investment. ALINE end of hema hank statement was received, showing a balance of P23,030 compared to the depositors book, which showed a balance of P22,250. invest nt 2ecoun FILIPINAS BANK Ermita, Manila Account No, 12335, ROI BOOK CENTER 67 294 Taft. Ave., Manila Period Ending Nov. 30, 2018 CHECKS DEPOSIT BALANCE 10,0000 10,000 200v 9,800 s00v 9,300 4, 0000, 13.300 1,000v 12,300 500% 11,800 2,000¥ 5,0000 14,800 200¥ 3,950 CM 18,550 100% 6.0000 24,450 3007 24,150 120S¢ 24,030 1,000 NSF 23,030 — Your Balance Please examine upon receipt and report any EC Error Correct,

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