DPK30113 OFFICE

ADMINISTRATION 2

CHAPTER 2:
FINANCIAL
INFORMATION PROCESS
PREPARED BY:
MRS. ZURINA AHMAD 1
 CONTENT
PART 1: PROCEDURES FOR PROCESSING
CASH TRANSACTIONS &
SAFEGUARDS FOR CASH
PART 2: BANK RECONCILIATION
PART 3: MAINTAINING A PETTY CASH FUND
PART 4: PURPOSE OF BUDGET, INCOME
STATEMENT & BALANCE SHEET
 PART 1:
PROCEDURES FOR PROCESSING
CASH TRANSACTIONS
&
SAFEGUARDS FOR CASH
 INTRODUCTION
 In business world, cash refer to currency
(coins & bills), checks, money orders, & funds
in checking accounts in banks.
 Supermarket & retail stores handle large
volumes of currency.
 Almost all transactions are paid by check,
credit card, debit card @ electronic funds
transfer.
Continued...
Check
 A written order to a bank to make a
payment using funds from the depositor’s
back account

Debit card
 A kind of back card used to make payments
from a depositor’s bank account
SAFEGUARDING CASH
 Checks can be stolen & cashed with some
ease using forged signatures
 Method business uses to safeguard assets
known as Internal Control
 Three categories for internal control methods:
1. Preventive
2. Detective
3. Corrective

*Forged
- Imitate or counterfeit for illegal purpose
1. Preventive Internal Control
 To reduce loss of cash due to employee error,
fraud @ theft
 Accuracy checks also help prevent error
(refer textbook)
 This control most important because it is
designed to prevent loss of cash

* Fraud = intentional deception to cause a person @ business

to give up property (assets) @ some lawful right
2. Detective Internal
Control
 Tries to find losses that have taken place
 Losses may be found by reviewing reports &
customer account
 Audits- done to see whether internal controls
are being applied correctly
 Example: Bank Reconciliation
Example : Bank Reconciliation
 3. Corrective Internal
Control
 Used to restore assets after a loss has occurred
 Example = i) changing poor procedures that lead to a
loss
ii) Money received from insurance policies
may be used to replace losses caused by
employee theft

 Bonding = insurance for financial loss due to

employee theft or fraud
BILLING PROCEDURES
 Customer may pay for the goods with credit
with seller

 Sales Invoice @ Statement of Account is the

form of payment

* Credit = permission to pay later for goods @ services

Continued...
 Sales Invoice - usually created at the time company
ships products.
 Sometimes invoice gives discount if buyer make
payment within a period of time

 Statement of Account - listing of unpaid invoices as of a

certain date, usually the end of a month
RECEIVING PAYMENTS
* Accounts Receivable = short-term debts owned to a
company by others, such as its customers

1. HANDLING THE CASH DRAWER

 Employee who deal with customer in person, receiving
payments & making change
 Proving Cash = Total should match the amount in the cash
drawer
 Pay own money to make up shortage when cash drawer not
balance
 Frequently shortage in cash drawer may lead to poor job
evaluation, not receive promotion @ even be fired if problem
continues
Continued...
2. PREPARING DEPOSITS

 Endorsement
- A name placed on the back of a check that authorizes a
bank to cash or deposit the check

- It authorize the bank to cash @ deposit the check

- Required before a check is transferred form the company

@ person to whom the check is written to another person,
company @ bank

 Payee = a person to whom a check is written

Continued...
FORMS OF ENDORSEMENT
1. Blank endorsement
- Signature of the payee is written on the back of the check
- Provide little protection because anyone who has check can easily
transfer it to another person @ cash the check

2. Restrictive endorsements
- Purpose of the transfer of the check is indicated in the endorsement
- Example: check may be marked “For Deposit Only”

3. Special endorsements
- Signature of the payee is placed after the name of the person or
company to whom the check is being transferred
- Also refer as an “Endorsement in full”
Blank Endorsement
 If you want a check cashed or deposited into
your account. It includes your signature and
account number
Restrictive
Endorsement
 Check can only be deposited into your account
and not made out to cash
Special Endorsement

 Third party may cash the check. It

will include a specific notation as to
who may cash the check, as well as
your signature and account number
Continued...

When completing a deposit slip, do the following:

 Write the current date in space provided

 Write amount of each checks

 Write the amount of cash received from the deposit

 Write the net deposit amount

Continued...
3. MAKING DEPOSITS
Advantages of using a lockbox to collect payments
include:

 Company employees do not have to spend as much

processing checks & preparing deposits.

 The checks received in a lockbox are processed each

day by bank employees. Payments are deposited in
the company’s bank account right away. Funds are
usually available for use at least one day sooner than
when checks are deposited by company employees.

 Having the checks sent directly to the bank improves

internal control by reducing the possibility of
employee theft @ errors.
MAKING PAYMENTS
*Accounts Payable = short-term debts a company owes

1. Review Documents
= Employees should review all the documents & their
usefulness in making payment as follows:
 A Purchase requisition – shows the items requested & an
approval to make the purchases
 A Purchase order – shows exactly what was ordered & to
what address it was to be shipped
 A Receiving report – shows that goods were actually received
by the company
 An Invoice – a vendor shows what is owed for the purchases
 A Credit Memorandum – shows any reduction in the amount
owed due to return of goods @ to allowance for goods not
received @ of poor quality
Continued...
2. Prepare Vouchers

*Voucher = a document that provides information & approval

to make a payment
*Tickler file = Notes @ records arranged by date for keeping
track of future actions

Steps in Preparing Vouchers:

1. Checks all the document related to the purchase are present
2. Prepare voucher, checking every details required on the
form
3. Obtain the authorized signature
4. File the vouchers appropriately. Vouchers typically filed by
the dates on which they must be processed in order to meet
the payment due dates. Filing vouchers in this way create a
Tickler File
Continued...

3. Prepare Checks

Suggestion for writing checks using checkbook:

Read carefully the name of company @ individual

to whom payment is made
Fill in the checkbook stub @ check register
Prepare check (example: see figure 6-1.8)
Continued...
SPECIAL CHECKS
 Certified Check = an ordinary check that bank marks
“certified” after establishing that the funds are in the
account of the party drawing the check. The funds are
immediately subtracted from the depositor’s account

 Cashier’s Check = A check written by a bank on its own

funds. It can be purchase with cash @ with an ordinary
check

 Bank Draft = an order drawn by one bank on its deposits

in another bank to pay a third party. Such a draft can be
purchased with cash @ with an ordinary check

*Computer Generated Checks = use computer to prepare checks,

Continued...
4. Electronic Funds Transfer

 Exchange of money by sending bank records

via a computer network
 Many companies use EFT to deposit wage &
salary payment for employees
 PART 2:
BANK
RECONCILIATION
BANK RECONCILIATION
*Bank Reconciliation = A report used to compare bank &
company account records

Bank Statement & Company Records ( see figure6-1.9)

- Gives the following information:

 The balance as of the opening date of the statement
 Checks listed by number & amount that the bank has received
& honored
 Automated teller machine transactions & miscellaneous
charges
 Deposit
 The balance on the closing date of the statement
Continued...
Purposes for Reconciliation:
i) Determine that all deposits made have been recorded by the
bank, as indicated on the bank statement

ii) Verify that all the checks that cleared the bank were written
by authorized persons in the company

iii) Determine which checks have not yet cleared the bank

iv) Identify additional bank charges, as indicated on the bank

statement, that need to be recorded in the books of the company

v) Determine the cash balance as of the date of the bank statement

Continued...
STEPS IN PREPARING BANK RECONCILIATION
1. Compare the ending balance on last 7. Compare each canceled check with
month’s BR with beginning balance on related information in the check
this month’s bank statement register
2. Record on reconciliation worksheet 8. Record on worksheet the number,
the balance in check register date & amount for each check that was
written but had not cleared as of the
bank statement date
3. Record the ending balance as shown 9. Review last month’s outstanding
on the bank statement checks as listed on the bank
reconciliation to determine which ones
are still outstanding
4. Compare each deposit shown on the 10. Record on worksheet any charges
bank statement with the deposits shown on the statement that are not
recorded on the check register recorded in company’s records
5. Arrange in numeric order the checks 11. Complete the calculations required
returned with the bank statement on worksheet
6. Compare the amount of each check 12. Prepare a clean, correct copy of the
with that shown on the bank statement bank reconciliation
* Once completed bank reconciliation, obtain any required approval signature
 PART 3:
MAINTAINING A PETTY
CASH FUND
PETTY CASH FUND
*Petty Cash = money kept on hand for paying small
expenses
1. Establishing the Fund
 Decide how much money will be kept in petty cash fund
– approve by officer for payment – check is written
payable to petty cashier – cash the check – keep the cash
in locked cash box – petty cashier has access to the key

2. Making Payments
Procedures in making payment:
 Ask person who seek payment from petty cash fund to
submit sales receipt show item purchased & price paid
 Prepare petty cash receipt for each payment
 Attach the sales receipt @ other document related &
place in the cash box
Continued...
3. Keeping a Record
 Petty cash record is kept for receipts & payments
 Spreadsheet software also can be used to record petty cash transaction
4. Replenishing the Fund
Procedure when replenish the petty cash fund:
 Count the money in the cash box & total receipts in the petty cash box
 Compare petty cash box total to the petty cash receipts total. It should
be same. Determine why if there is differ
 Add the amount of the petty cash receipts to the amount of petty cash
remaining in the cash box
 Investigate any differences. (short @ exceed)
 Prepare voucher for a check for the amount needed to replenish the fund
 Submit petty cash record report, receipt & check voucher for approval
 Sending a copy of report to Accounting Department
 Cash the check & immediately place the cash in the cash box
 PART 4:
PURPOSE OF BUDGET,
INCOME STATEMENT &
BALANCE SHEET
BUDGET

*Budget = a plan for allocating resources

*Fiscal Year = a 12-month period used for

financial accounting purposes
Continued...
1. Preparing Budget
 Review expenses from past year
 Income statements & balance sheets provide valuable information for
creating a new budget
 Depends upon the size & nature of the business
 Separate budgets may be created for completing specific projects
 Some suggestion will help in preparing budget:

i) Learn all you can about company’s budget process. Study form, data
& deadlines
ii) Prepare first draft of budget as soon as the budget information &
instruction received. Refer some guideline if needed
iii) Consider needs in relation to the company priorities for the coming
year. Example, new project @ additional expenses
iv) Collect data to support your request
v) Be prepared to answer question related to the date you helped
prepare
Continued...

2. Monitoring Budget
 Budget for shorter period are developed from
the annual budget.
 The budget report prepared monthly @
quarterly
 If expenses in any category are too high, steps
are taken to limit spending
INCOME STATEMENT
*Income Statement
= show the results of operations for a period of time
= revenue, expenses & income @ loss are shown

*Balance Sheet
= show the condition of a company as of a specific date
= show assets, liabilities & owner’ equity @ capital
projected for the end of the plan period
= assets include goods & property owned by the firm
= liabilities are debt the company owned
= see figure 6-2.3
PAYMENT FOR WAGES & SALARIES
PAYROLL = list of employees & amount of salary @
wages due to each employees

Common task related to handling payroll include:

 Keeping employee payroll records up to date

 Calculating deductions & changes in salary,
commissions @ overtime
 Updating attendance, vacation & sick leave data
 Processing, printing & distributing paychecks
 Creating tax report to payroll that must be
submitted to local, state & federal agencies
COMPENSATION PLAN
- Usually, all employees are compensated in the same way
such as salary, hourly, commission & combination plan.
1. Gross Salary
 money earned before any deductions are made
2. Overtime
 hours worked beyond the standard number in a workweek
 Overtime rates are commonly 1.5 to 2 times the standard
hourly rate
3. Commissions
 payment based on the price items sold
 The percentage may vary by volume of sales
4. Combination Plans
 Refer to bonus, may be given to employees who are
successful beyond some established standard
DEDUCTIONS FROM EARNINGS
Deductions required by law including:

i) Federal Income Tax

ii) Federal Insurance Contributions
iii) State Income Tax
iv) City Income Tax

Voluntary Deduction:

i) Health Insurance
ii) Savings Plan
iii) Retirement Plan
iv) Others
RECORD FOR PAYROLL &
PAYROLL CHECK DISTRIBUTION
Earnings record show earnings, deductions @ net pay

*Net Pay = final earnings amount after all deductions

*Refer Manual (example of net earnings for the year)

 Company may distribute checks in person @ mail them

to employees. Others use direct deposit.

*Direct Deposit = placing money in a bank account by

electronic means rather than issuing a check
END...THANK YOU.