voucher system
internal control system made up of records, methods, and procedures
provide documentary evidence and authorization for an obligation to be paid voucher
business paper containing detailed information about a liability to be paid information include
payee
date, amount and reason of payment
signature of parties checking and approving the payment b) Procedures
prepare and approve voucher for each expenditure
record voucher in chronological order – voucher register (similar to purchases journal)
Purchases/any other account xx
Vouchers payable (replaces accounts payable) xx
file unpaid vouchers according to their due dates to control timely payment – unpaid voucher file remove voucher when due and prepare and record check to pay the voucher – check register
(similar to cash payments journal)
Vouchers payable xx
Cash at bank xx
cancel paid voucher (to prevent reuse) and file in paid voucher file post voucher register and check register
5. Bank checking account a) Definitions
bank checking account (bank payment service) - bank account where a company deposits money and issues checks against the account in payment of obligations
statement of bank reconciliation - a schedule prepared by the depositor at the end of each month explaining and analyzing causes for the difference between cash balances per bank statement and per depositor's records
bank statement – a monthly report issued by a bank showing movement in the checking account of a depositor
b) Purpose of bank reconciliation
determine actual cash balance to be reported on the balance sheet identify and record events not yet recorded by the depositor
collection by bank on behalf of the depositor
bank service charges e.g. collection fees, safe deposit rent, check printing costs, stop payment order fees, etc
NSF checks
identify and correct any errors and irregularities recording errors
unauthorized payments
c) Reasons for differences between bank and book balances delay in recording transactions by
bank
deposit in transit outstanding checks depositor
credit memos
i. collection by bank (direct payment by customers to checking account) ii. interest earned on the checking account
iii. proceeds of loans from the bank debit memos
i. service charges (collection fees, safe deposit rent, check printing costs, stop payment order fees, etc)
ii. NSF checks
recording errors by bank and/or depositor irregularities (e.g. unauthorized payments)
unrecorded events, errors and irregularities that affect cash balance per depositor's record need adjusting entries in the accounting records of the depositor so as to up date the cash at bank account d) Formats of statement of bank reconciliation
three formats
reconciling both unadjusted book and bank balances to the correct amount - common
reconciling unadjusted bank balance to unadjusted book balance and then the unadjusted book balance to the correct amount
reconciling beginning and ending bank balances and receipts and payments per bank to the same items per book - proof of cash (four-column bank reconciliation)
usually prepared by auditors when there is a perceived weak cash internal control test of transactions and details of balances
prepared to determine that
i. all recorded cash receipts were deposited ii. all deposits and disbursements were recorded iii. all recorded disbursements were paid by bank Example 6-1
ABC Co needs your help in constructing statement of bank reconciliation for July 31, 2003.
The bank statement for the firm, dated July 31 but received on August 3, shows $168,325.14 balance as of July 31, 2003. The company assembled the following information related to its bank account as of July 31, 2003:
Deposits in transit: July 31 = $18,321.60 Outstanding checks: July 31 = $5,627.30
Note collected by bank (includes $360.00 interest): July = $9,360.00 Interest earned on checking account: July = $526.00
Service charges: July = $225.00
NSF check, ABC informed by bank in July 3's bank statement: July 31 = $75.24
Check to supplier unrecorded in company accounts, discovered by examining bank statement = $156.29 Required:
a. Prepare statement of bank reconciliation for ABC as of July 31, 2003. b. Prepare the journal entries to update the cash at bank account for ABC. Example 6-2
ABC Co needs your help in constructing statement of bank reconciliation for July 31, 2003.
The bank statement for the company, dated July 31 but not received until August 8, contains the following information:
July receipts = $126,201 July payments = $110,275 July 31 balance = $39,909
The company's cash account has the following information for the past thirty days: June 30 balance = $23,909
July debits = $125,600 July credits = $109,956 July 31 balance = $39,553
The company assembled the following information for bank reconciliation as of July 31: Deposits in transit: July 31 = $2,684
Outstanding checks: July 31 = $2,155 Funds collected by bank: July = $1,780 Service charges: July = $155
NSF check, informed by bank on: July 31 = $740
The additional information for a bank reconciliation as of June 30 was: Deposits in transit: June 30 = $3,425
Outstanding checks: June 30 = $1,787 Funds collected by bank: June = $1,630
Payment by customer unrecorded in company records, informed by bank on June 30 = $290 Service charges: June = $125
NSF check, informed by bank on June 30 = $83 Required:Prepare a proof of cash for ABC as of July 31. 6. Petty cash system
a) Definition
relatively small in amount
meant to finance small expenditures for which writing checks in impractical or inconvenient examples
employee transportation costs postage
deliver charges office supplies
customer entertainment b) Establishment
determine time period for which to establish the fund (week, month, etc) determine amount of expenditures for minor items needed
prepare voucher and check for the required amount entry
Petty cash fund xx
Cash at bank xx
balance of the account changes at the time of establishment, when its original amount is revised up/down ward or discontinued
c) Operating
prepare voucher/any other document evidencing expenditures no entry
d) Replenishment
when it reached a certain preset minimum amount or at the end of the accounting period expenditures are recorded at the time of replenishment or at the end of the accounting period entry
Cash at bank xx Example 6-3
Crown Co incurred the following petty cash fund transactions during January 2002. a. Established a petty cash fund in the amount of $500.00
b. Replenished the fund for the following expenditures (cash count indicated $81.60 cash balance) postage expenses... $189.60
office supplies... 122.75 miscellaneous expenses... 104.05 c. Increased the fund to $800.00
d. Replenished the fund for the following expenditures (cash count indicated $59.60 cash balance) postage expenses... $300.60
office supplies... 256.75 miscellaneous expenses... 189.05 Required: Record the above petty cash fund transactions. 7. Change fund
a) Definition
collection of smaller denominations of money maintained to make currency changes b) Establishment
determine the types and amounts of smaller denominations of money needed to make changes in each business day
prepare voucher and check for the required amount entry
Cash change fund xx
Cash at bank xx
c) Operating
make the necessary changes
by the end of each business day, the fund will have larger denominations of money at the beginning of each business day maintain the required denominations of money once established, no need of reimbursement
the fund balance may be revised up or down 6.2 Short-term investments
6.2.1 Characteristics 1. Definition
highly liquid temporary investments that can be converted into cash when needed also called marketable securities