Chapter 7Chapter 7 Appendix 7AAppendix 7A

Cash ControlsCash Controls

Prepared by:

Dragan Stojanovic, CARotman School of Management, University of Toronto

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Using Bank Accounts

• Using different bank accounts for different purposes– General chequing account

• Used for day-to-day activities– Imprest bank accounts

• Used for specific purposes– Lockbox accounts

• Used for collections in subsidiary locations• Arrangements made with a local bank to pick-up

and deposit funds received• Allows for quicker collection and availability of

cash

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Imprest Petty Cash System• Designed for disbursements where payment by

cheque is impractical• Control processes/procedures include the

following:– Designate a petty cash custodian– Custodian is responsible for getting a receipt

for each authorized disbursement– Custodian prepares a summary of petty cash

receipts and disbursements each time the fund requires reimbursement

– Cheque is prepared and transactions recorded by someone other than the custodian

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Imprest Petty Cash System

• Cash Over and Short account used when the cash in the fund plus dollar amount of receipts does not equal the balance of the petty cash fund

• Additional control procedures include:– Unscheduled fund counts to ensure fund

balance is maintained– Receipts are marked (after being

submitted for reimbursement) in some way to ensure they cannot be used again

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Imprest Petty Cash System: Example

A petty cash fund is established for $300. A cheque is issued (for cash), with the following entry made:

Petty Cash 300

Cash (Bank) 300

No entries are required when petty cash disbursements are made

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Imprest Petty Cash System: Example

Petty cash is reconciled and replenished when the fund is low enough to warrant a cheque being issued or at the end of an accounting period

The following disbursements were made:Office Supplies $ 42Postage 53Entertainment 76Total $171

The custodian counts the cash and finds there is $127 cash.The fund is $2 short ($300 – $171 = $129).Once the custodian has ensured that all receipts and cash have been accounted for, the $2 difference is considered Cash Over and Short.

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Imprest Petty Cash System: Example

A cheque is written for the required amount of $173 ($171 + $2). The entry to record the cheque is:

Office Supplies Expense 42Postage Expense 53Entertainment Expense 76Cash Over and Short 2

Cash (Bank) 173

What would the entry have been if it was decided to decrease the fund to $250?

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Reconciliation of Bank Balances

• Ensures there are no errors • Ensures no omissions have occurred during

the month• Ensures unusual transactions are properly

recorded• Should not be completed by the same person

who writes cheques or completes the deposits

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Bank Reconciliation:Reconciling Items

1. Deposits in Transit: deposits that have been recorded in the books of account, but not yet by the bank

2. Outstanding Cheques: cheques that have been recorded in the books of account, but have not yet cleared the bank

3. Bank Charges: service, and other charges, made by the bank, but not yet recorded in the books of account

4. Bank Credits: collections or deposits made by the bank, but not yet recorded in the books of account

5. Bank or Depositor Errors: any unrecorded errors by either the bank or the company

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Bank Reconciliation:Form and Content

Balance per bank statement (end of period) $$$Add: Deposits in transit $$

Undeposited receipts $$Bank errors $$ $$

$$$Deduct: Outstanding cheques $$

Bank errors $$ $$Correct cash balance $$$Balance per depositor’s books $$$Add: Unrecorded bank credits $$

Book errors $$ $$$$$

Deduct: Unrecorded bank charges $$Book errors $$ $$

Correct book balance $$$

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