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CHAPTER 5 Checking Accounts
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CHAPTER 5
Checking Accounts
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5-1 CHECKING ACCOUNTS
In accounting money is usually referred to as cash.
-Most businesses make cash payments by check.-Small cash payments may be made from petty
cash.-Can make errors when dealing with cash. -Cash carries no “ownership” and can be lost
easily.
For safety reasons most of a company’s cash is kept in
the bank in a checking accountA checking account is an account from which payments can be ordered by a depositor.
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DEPOSIT RECORDED ON A CHECK STUBpage 119
To put money into a bank you use a deposit slip.-Cash receipts are journalized at the time cash is received. -Later, the cash is deposited - will not journalize entry for deposit.-Make sure to record the deposit on the check stub.
Deposit Slip
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ENDORSEMENTSpage 120
Blank EndorsementBlank Endorsement
Special EndorsementSpecial Endorsement
Restrictive EndorsementRestrictive Endorsement
Endorsing a check - a signature/stamp on the back of a check transferring ownership.
-Needs to be signed exactly as written-Ownership can be transferred several times.
Endorser’s Signature
Pay to the order of (new owner)
For Deposit Only to Acct #
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5. Write the amount of the check.
2. Write the date of the check.
3. Write to whom the check is to be paid.
4. Record the purpose of the check.
1. Write the amount of the check.
6. Calculate the new checking account balance.
COMPLETED CHECK STUBpage 121
1122
33
44
5566
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COMPLETED CHECK
7. Write the date.
page 121
1111 1212
1010
9988
77
10. Write the amount in words.
8. Write to whom the check is to be paid.9. Write the amount in figures.
11. Write the purpose of the check.12. Sign the check.
To take money out of the bank you write a check - a form ordering the bank to pay cash from your account.
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1. Record the date.
2. Write the word VOID in the Account Title column
3. Write the check number.
4. Place a check mark in the Post. Ref. column.
5. Place a dash in the Cash Credit column.
RECORDING A VOIDED CHECKpage 122
1122
3344
55
5-2 BANK RECONCILIATION
Reconciling is verifying that the information on the bank statement = your checkbook balance.
-Cancelled Checks: Checks that have been processed by
the bank. (deducted from you account)-Outstanding Checks: Checks you’ve written that
have not been processed.-Outstanding Deposits: Deposits you‘ve made that
the bank has not processed.-Bank Service Charge - $ a bank charges for
account each month. (deducted electronically from your account)
ALWAYS Reconcile - Banks DO make mistakes!
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BANK STATEMENTpage 124
Bank Statement - a report with deposits, withdrawals, and a bank balances sent to the depositor.
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5.Bank Statement Balance
BANK STATEMENT RECONCILIATION
1122
33
44
55
66
77
88
99
9.Adjusted Bank Balance
page 125
2.Check Stub Balance
10. Compare Adjusted Balances
1.Date
3.Service Charge4.Adjusted Check Stub Balance
6.Outstanding Deposits7.Subtotal8.Outstanding Checks 1010
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1. Write Service Charge $8.00 on the check stub under the heading “Other.”
RECORDING A BANK SERVICE CHARGE ON A CHECK STUB page 126
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33
2. Write the amount of the service charge in the amount column.
3. Calculate and record the new subtotal on the Subtotal line.
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JOURNALIZING A BANK SERVICE CHARGE
1. Date. Write the date.
page 127
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44
August 31. Received bank statement showing August bank service charge, $8.00. Memorandum No. 3.
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2. Debit. Write the title of the account to be debited. Record the amount debited.
3. Credit. Record the amount credited.
4. Source document. Write the source document number.
5-3 DISHONORED CHECKS AND ELECTRONIC BANKINGDishonored Check - A check that the bank refuses to pay. NSF or other reasons pg. 129
Electronic Funds Transfer (EFT) - Computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents.
Usually used for vendorsMemos are the source document (not a check)
Debit Card - A bank card that automatically deducts the amount of a purchase from the checking acct of the card holder.
Used to make purchasesMemos are the source document (not a check)Biggest mistake is forgetting to record on check stub
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RECORDING A DISHONORED CHECK ON A CHECK STUB
1. Write Dishonored check $105.00 on the line under the heading “Other.”
page 129
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33
2. Write the total of the dishonored check in the amount column.
3. Calculate and record the new subtotal on the Subtotal line.
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JOURNALIZING A DISHONORED CHECK
1. Date. Write the date.
page 130
11
33
44
November 29. Received notice from the bank of a dishonored check from Campus Internet Café, $70.00, plus $35.00 fee; total, $105.00. Memorandum No. 55.
2. Debit. Write the title of the account to be debited.
3. Credit. Write the amount credited.
4. Source document. Write the source document number.
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JOURNALIZING AN ELECTRONIC FUNDS TRANSFER
1. Date. Write the date.
page 131
September 2. Paid cash on account to Kelson Enterprises, $350.00, using EFT. Memorandum No. 10.
11 33
44
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2. Debit. Write the title of the account to be debited. Record the amount debited.
3. Credit. Record the amount credited.
4. Source document. Write the source document number.
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JOURNALIZING A DEBIT CARD TRANSACTION
1. Date. Write the date.
page 132
September 5. Purchased supplies, $24.00, using debit card. Memorandum No. 12.
11 33
44
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2. Debit. Write the title of the account to be debited. Record the amount debited.
3. Credit. Record the amount credited.
4. Source document. Write the source document number.
5-4 PETTY CASH
Petty Cash: Cash kept on hand that is used for making small payments.
-Petty cash has a normal debit balance (asset)-The only time you will use the account name “Petty Cash” is when you establish the fund.
Petty Cash Slip - A form used showing the purpose of the payment (proof). They are kept in the box until it is replenished.
-Will write a check to replenish petty cash and journalize to the accounts where the money was spent.
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ESTABLISHING A PETTY CASH FUND
1. Date. Write the date.
page 134
August 19. Paid cash to establish a petty cash fund, $100.00. Check No. 8.
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44
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2. Debit. Write the title of the account to be debited. Record the amount debited.
3. Credit. Record the amount credited.
4. Source document. Write the source document number.
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MAKING PAYMENTS FROM A PETTY CASH FUND WITH A PETTY CASH SLIP page 135
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REPLENISHING PETTY CASH
1. Date. Write the date.
page 136
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44
33
August 31. Paid cash to replenish the petty cash fund, $30.00: miscellaneous expense, $20.00; advertising, $10.00. Check No. 12.
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4. Source document. Write the source document number.
3. Credit. Record the amount credited.
2. Debit. Write the title of the first account to be debited. Write the amount to be debited. Write the title of the second account to be debited. Record the amount to be debited.
