Banking and Accounting Procedures

Banking and AccountingProcedures

Banking and Accounting Procedures

Banking Procedures

Accounting Procedures

Ethics in Accounting Procedures

International Currency Exchange

Banking Procedures

Checks

Establish checking account at bank

Transfer of funds–ordinary checks

Check–written by depositor

Drawer–also called maker; person who writes a check

Drawee–bank from which check is drawn

Payee–person to whom the check is written

Banking Procedures (continued)

Cashier’s Check Also known as treasurer’s check or official check

Written by an authorized officer of bank on its own funds

Guarantees payment to payee by drawer’s bank

Depositor obtains official check by writing bank a check on his/her funds for amount plus fee


Bank Draft

Check drawn by bank on its own funds in another bank located either in same city or another city

Made payable to third party, and upon endorsement, may be cashed at bank on which it is drawn


Bank Money Order

Requires endorsement of payee

May be cashed at any bank

Purchaser charged small fee

Amount of money may be limited


Traveler’s Check

Used in place of cash

Must obtain in person and sign in presence of selling agent

Purchased from banks and credit unions

If lost or stolen, will usually be refunded


Electronic funds transfer (EFT)

Delivery system for electronic transactions

No lost or stolen checks

Payment made quickly and on time

Major services—EFT, ATMs, centers for electronic funds transfers, payment by telephone


Automated teller machines (ATMs)

Many convenient locations

Customers can obtain cash or make deposits

Requires EFT card and personal identification number (PIN) or password


Debit card

Used in place of checks

Money is taken directly from the individual or company’s checking account

May be used as debit card or credit card

When used as a debit card, requires a pin number or password; when used as a credit card must sign sales slip


Direct Payroll Deposit

Organization pays employees without checks

Organization provides bank with magnetic tape description of payroll disbursements made to the employees

Employee receives statement from company or third party

Statement shows gross payment, type and amount of deductions, and net payment


Automatic deposits

Funds automatically deposited

Electronic routing number and account number are needed for deposit

Routing number and bank account number is usually printed on bottom of checks


Automatic debits

Preauthorized automated transfer of funds from one account to another account within same financial institution

For an individual or company

From checking or savings

Example: Payment of utilities

Copy of canceled check, account number and signature authorizing transfer is required


Web banking

Must have access to Internet

Primary functions

Easy online management of banking transactions

Ability to make electronic transfers

Provides real-time information

Software/password to access may be needed

Requires ID


Telephone transfers

Call the company, provide nine-digit routing number of bank, bank account number, check number, and amount

May be charged a fee

Company will draft the amount from your checking account and bank honors check

Payment can be made on exact due date, avoiding late charges


Bank checks

Stop-payment notification

Used when check is lost or stolen

Used when check is written for incorrect amount

Conditions of agreement are not met

Check endorsement


Endorsing Checks Check presented for cash or deposit must be signed (endorsed)

By the payee

On reverse side of check

Bank will accept for deposit checks that have been endorsed by representative of payee

Endorsement can be rubber stamped or handwritten in ink


Three types of endorsements

Blank endorsement

Restrictive endorsement

Full endorsement


Blank endorsement

Consists only of signature of payee

Payable to bearer

Use with caution when depositing or cashing checks


Restrictive endorsement

Limits use of check

Words such as “For deposit only” or “Pay to” are written before organization’s name or depositor’s signature

Use when deposits are sent to bank by mail


Full endorsement

Also called a two-party check

Transfer check to specified person or organization

“Pay to the order of” followed by name of person/organization receiving funds is written on check preceding signature of endorser


Bank deposits

Preparing the cash/coin

Coin values per roll

Currency preparation

Separate by denomination

Arrange all president’s faces going in same direction

Strap all currency that meets required amounts

Each strap must contain same denomination

Preparing the deposit slip

Bank Statement Reconciliation

Statement issued by bank to depositor Shows previous month’s balance, deposits, checks paid, bank charges,

and ending balance

Comparison of bank balance on the statement with the checkbook balance To make comparison, checks listed on statement are checked off in

check register

Bank Statement Reconciliation (continued)

Steps to reconcile bank statement

Record in the company’s checkbook all automatic transactions not previously entered

+ any interest earned

+ automatic deposits

- service charges

- automatic payments

- telephone transfers and charges


Enter in company’s checkbook register a check mark for each canceled check and all deposits received by the bank listed on the bank statement

Total all outstanding checks (not paid by bank) Total all deposits shown in checkbook register

that are not on bank statement


Adjust the bank statement balance Enter the checking account balance shown on front of

bank statement

Add any deposits not yet shown on statement

Subtract the total of outstanding checks

The adjusted bank statement balance from the reconciliation should agree with the adjusted checkbook balance


If the adjusted bank statement balance and checkbook balance do not agree, follow these steps:

Find the difference between the two

Check the bank statement balance for errors

Look for omission of checks and deposits

Check for a math error in the check stubs

Accounting Procedures Petty cash fund

Established for small office expenditures

Used for things such as

Messenger service, postage due on a package, or emergency purchase of office supplies

All expenses must be accounted for

Balance petty cash fund regularly

Keep the cash and completed vouchers in a box or envelope and put them in a safe place

Prepare a petty cash voucher for each expenditure made Keep an accurate petty cash record, book, or distribution

sheet for each period; record each transaction in this record

Accounting Procedures (continued)

Replenish the petty cash fund periodically or soon enough to keep an adequate supply of cash on hand

To replenish the petty cash fund, balance the petty cash record, formally request a check for the amount needed to bring the fund amount back to its beginning balance

Submit records called for by the accounting department

Cash the check and enter the beginning amount on the first line of the “Explanation” column of the petty cash record


Payroll

Payroll register used to summarize each employee’s pay for a particular period

Summarizes each employee status

Wages earned

Payroll deductions

Final take-home pay


Completing a payroll register In the payroll register, enter the employee’s

information—name, marital status, number of withholding allowances, hourly rate, regular hours worked and overtime hours worked

Calculate regular earnings

Calculate overtime earnings

Add regular and overtime earnings to determine gross earnings


Calculate social security (OASDI) by multiplying gross earnings by 6.2%

Calculate Medicare by multiplying gross earnings by 1.45%

Look up federal income tax in tax tables obtained from Circular E Employer’s Tax Guide if not provided for you

Enter any other deductions in the payroll register Total all deductions Subtract deductions from gross pay to determine net

pay Checks are written for the net pay amount to each

employee


Financial statements Income Statement

Operating statement also called profit and loss statement showing money earned and expenses incurred

Balance Sheet Summarizes the balances of the assets

Reports what a company is worth on any one given day

Assets, liabilities, and owner’s equity


Budgeting

Process of planning future business operations and defining those plans, expressed in financial terms in a formal report

Estimate of income and expenses of all areas of organization for a certain period of time (month or year)


Budget reports

Provides the basis for analyzing and revising spending activities

Compares actual sales or costs with figures budgeted

Follow the budget by not overspending the budgeted amount


Office supplies inventory

Record of supplies on hand

Perpetual inventory record

Inventory each item

Keep balance accurate

Add to item when ordering more

Subtract from item when removing

Decide if balance on hand is sufficient or if time to replenish


Accounting department Handles cost control for company

Budgets have account titles and numbers

Typically, managers are responsible for their area Which accounts are used most often?

How accounts may be used?

Correct procedures for ordering and spending Allowable expenses

Department code to use

Ethics in Accounting Procedures

Auditors and accountants create the financial statements and must be the watch-dogs for accurately reporting information

Ethics is stressed in the accounting field by requiring CPAs to take an ethics course once every three years

High ethical standards are required in every phase of the office professional’s job

International Currency Exchange

Necessary when manager travels abroad

Locate current exchange rate

Available via Internet

Call local banks

At airports with international flights

Exchange rates are quoted per $1 U.S

Education

Banking and Accounting Procedures