PA - #08 - Cash - Handout

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School

Riverside City College *

*We aren’t endorsed by this school

Course

42652

Subject

Accounting

Date

May 24, 2024

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docx

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Uploaded by AmbassadorIceWasp28

HANDOUT Principles of Accounting Cash Handout Video #1 1. Internal Controls and the Sarbanes-Oxley Act (SOX) Internal Controls: Policies and procedures in place to minimize mistakes, errors, and fraud Numerous scandals and corporate debacles that cost investors millions in the early 2000s In early 2000’s: Enron, WorldCom, Tyco, Global Crossing More recently: x SOX enacted to emphasize the importance of effective internal controls Often called "_____________" because of all the regulations and requirements Most new requirements were specifically enacted for public companies Point/Purpose  Reduce scandals and debacles through accountability Page 1

HANDOUT Reporting Examples from Nike a. Annual report from management about Internal Control over Financial Reporting (ICFR) ( Image Credit: 2022 Nike Annual Report) b. Audit of Internal Control over Financial Reporting (ICFR) ( Image Credit: 2022 Nike Annual Report) Page 2

HANDOUT Video #2 2. Internal Controls – Based on the Committee of Sponsoring Organization’s (COSO) Integrated Framework a. Objective of Internal Control Operations Reporting Compliance b. Elements of Internal Control Control Environment Risk Assessment Control Procedures Monitoring Information and Communication Research on the Internet Page 3

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HANDOUT Video #3 3. Internal Control over Cash Payments: Voucher System Example Documents Needed Purchase requisition Purchase order Invoice Receiving document Approval at each level Matching Payment ( Image Credit: Conceptdraw.com) Page 4

HANDOUT Video #4 4. Internal Controls Over Cash Receipts: There are several ways to steal cash in a cash register system . Based on each of the following ways of stealing cash, list ways to ensure cash is not stolen. a. Don’t ring the sale on the cash register and pocket the cash b. Enter the sale on the register, then void the sale and pocket the cash Video #5 Page 5

HANDOUT 5. Banking Terminology & Examples (definitions adapted from Investopedia.com) Bank statement A bank statement is a document (also known as an account statement) that is typically sent by the bank to the account holder every month, summarizing all the transactions of an account during the month. Example of a Bank Statement: ( Image Credit: Warren, 2021. Accounting, 28th edition. Cengage) Banks are "opposite" or "backwards" Our cash (deposit) is a liability Debit is a reduction in their liability Page 6

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HANDOUT Outstanding checks A check payment that is written by someone but has not been cashed or deposited by the payee. Cleared checks A check that has been paid by the bank. Canceled checks A check that has been paid or cleared by the bank and is marked "canceled" so that the check cannot be used again or presented to the bank for payment again. Voided checks A check that can’t be used to make a payment or withdraw money from your checking account. The word "void" should be visible on both sides of the check. Deposit in transit Money that has been received by a company and recorded in the company's accounting system. The deposit has already been sent to the bank, but it has yet to be processed and posted to the bank account by the bank. It is a timing difference in recording the deposit between the company's records and the bank records. Example of a Check: Video #6 6. Bank Reconciliation as a Control – Tie the Bank’s records to our Company’s Records a. Traditional Method: Summary Bank Balance A + Deposits in Transit B Subtotal C - Outstanding Checks D ± Other Items X Actual Cash Balance E Page 7

HANDOUT b. Traditional Method: Template from the Bank Page 8

HANDOUT Video #7 7. Modern Method: Used in Business (and this class!) a. Reconciliation Format – Tie the Bank’s records to our Company’s Records Company Name Bank Reconciliation [Date] Balance per the Bank $ X Balance per the Books $ Y Reconciling items: Reconciling items: - Outstanding checks A + Bank transactions K + Deposits in transit B - Customer NSF transactions L ± Bank errors C - Bank Service Charges M ± Company errors N Adjusted Bank Balance $ Z Adjusted Book Balance $ Z b. Adjusting Journal Entries (AJEs) associated with the bank reconciliation i. Separate Entries. Increase to Cash. Example of 3 reconciling items: Decrease to Cash. Example of 2 reconciling items: ii. Compound Entry Example. Examples of Combined AJE: Page 9

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HANDOUT Video #8 8. Prepare a bank reconciliation for Cartwright Company as of October 31, 20X1, using the following information: a. Cash balance on Oct 31 bank statement 10,410 b. Cash account balance in the general ledger 9,890 c. Deposit made on Oct 31, not recorded on the bank statement 1,865 d. Note collected by bank ($1,200 plus $60 in interest) 1,260 e. Outstanding checks: No. 567 for $800, No. 569 for $452 1,252 f. Debit memorandum from bank for NSF check written by J. Lane in payment of his account 100 In addition, Cartwright recorded Check No. 548 incorrectly. It was written for $152 in payment of the October utility bill but was recorded as $125 in the check register. i. Prepare a bank reconciliation in proper form Cartwright Co Bank Reconciliation October 31, 20X1 Check Errors / When We Don't Balance: Page 10

HANDOUT ii. Based on the information in the bank reconciliation, prepare the necessary adjusting journal entries (AJEs): 1. Separate Entries Increase in Cash (1 of 2 separate entries) Decrease in Cash (2 of 2 separate entries) 2. Compound Entry Increase and Decrease in Cash (1 single Compound entry) Page 11

HANDOUT Video #9 9. Juno Company needed to prepare a bank reconciliation. The following data were accumulated for use in reconciling the bank account of Juno Company for July 20X0: a. Cash balance according to the depositor’s records on July 31 8,530.20 b. Cash balance according to the bank statement on July 31 3,457.25 c. Checks outstanding total 1,276.20 d. Deposit in transit, not recorded by the bank 6,780.40 e. A check for $270 in payment of an account was erroneously recorded in the check register as $720. f. Bank debit memorandum for service charges 18.75 i. Use this information to prepare a bank reconciliation for July in proper format. Juno Co Bank Reconciliation July 31, 20X0 ii. Based on the information in the bank reconciliation, prepare the necessary adjusting journal entries (AJEs): Page 12

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HANDOUT 1. Separate Entries Increase in Cash (1 of 2 separate entries) Decrease in Cash (2 of 2 separate entries) 2. Compound Entry Increase and Decrease in Cash (1 single Compound entry) Video #10.1 Page 13

HANDOUT 10. The cash account for Magneto Co. on August 1, 20X3 indicated a balance of $2,705.37. During August, the total cash deposited was $22,984.25, and checks written totaled $23,676.75. The bank statement indicated a balance of $3,465.50 on August 31. Hint: There are no typos! Comparing the bank statement, the cancelled checks, and the accompanying memorandums with the records revealed the following reconciling items: a. Checks outstanding total 2,003.84 b. A deposit, representing receipts of August 31, had been made too late to appear on the bank statement. 1,148.21 c. The bank had collected for Magneto Co $1,620 on a note left for collections. The face value of the note was $1,500. 1,620.00 d. A check for $110 returned with the statement had been incorrectly charged by the bank as $1,100. e. A check written for $86 returned with the bank statement had been recorded by Magneto Co as $68. The check was for payment of an obligation to Adgate Co. on account. f. Bank service charges for August amounted to $15. 15.00 i. Use this information to prepare a bank reconciliation as of August 31 in proper form for Magneto Co : Magneto Co. Bank Reconciliation August 31, 20X3 Page 14

HANDOUT Video #10.2 ii. Based on the information in the bank reconciliation, prepare the necessary adjusting journal entries (AJEs): 1. Separate Entries Increase in Cash (1 of 2 separate entries) Decrease in Cash (2 of 2 separate entries) 2. Compound Entry Increase and Decrease in Cash (1 single Compound entry) Video #11.1 - Optional 11. Sunshine Interiors deposits all cash receipts each Wednesday and Friday in a night depository after banking hours. The data required to reconcile the bank statement as of July 31 have been taken from various documents and records and Page 15

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HANDOUT are reproduced as follows. The sources of the data are printed in capital letters. All checks were written for payments on account. BANK RECONCILIATION FOR PRECEDING MONTH: SUNSHINE INTERIORS Bank Reconciliation June 30, 20Y5 Cash balance according to bank statement 9,422.80 Add deposit for June, not recorded by bank 780.80 Deduct outstanding checks: No. 580 310.10 No. 602 85.50 No. 612 92.50 No. 613 137.50 625.60 Adjusted balance 9,578.00 Cash balance according to company’s records 9,605.70 Deduct bank service charges 27.70 Adjusted balance 9,578.00 CASH ACCOUNT: Balance as of July 1 $9,578.00 CASH RECEIPTS FOR MONTH OF JULY $6,465.42 Page 16

HANDOUT DUPLICATE DEPOSIT TICKETS: Date and amount of each deposit in July: Date Amount Date Amount Date Amount July 2 $569.50 July 12 $580.70 July 23 $713.45 5 701.80 16 600.10 26 601.50 9 819.24 19 701.26 31 1,177.87 CHECKS WRITTEN: Number and amount of each check issued in July: Check No. Amount Check No. Amount Check No. Amount 614 $243.50 621 $309.50 628 $837.70 615 350.10 622 Void 629 329.90 616 279.90 623 Void 630 882.80 617 395.50 624 707.01 631 1081.56 618 435.40 625 158.63 632 325.40 619 320.10 626 550.03 633 310.08 620 238.87 627 381.73 634 241.71 Total amount of checks issued in July: $8,379.42 JULY BANK STATEMENT: Page 17

HANDOUT a. Prepare a bank reconciliation for Sunshine Interiors as of July 31, 20Y5. Additional Instructions: - If errors in recording deposits or checks are discovered, assume that the errors were made by the company. Page 18

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HANDOUT - Assume that all deposits are from cash sales. - All checks are written to satisfy accounts payable. - Be sure to complete the statement heading. - Refer to the Instructions, Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. - To enter the Check number, please enter “No.” preceding the number. - “Deduct”, “Add”, or colons (:) will automatically appear if required. - Enter all amounts as positive numbers. - Round your answers to two decimal places. Video #11.2 - Optional Video #11.3 - Optional Sunshine Interiors Bank Reconciliation July 31, 20Y5 Page 19

HANDOUT Video #11.4 - Optional b. Journalize the necessary entries. The accounts have not been closed. Round your answers to two decimal places. c. What is the amount of Cash that should appear on the balance sheet as of June 30? Page 20