Chapter 9

Accounts and Financial Services

The accounts office/department is one of the most important offices in an organisation. The function of
the accounts office is to channel the finances of the company in a direction that will increase
profitability. An accounts office records all purchases and sales and the receipt and payment of money.
It also records the expenses of running the business. An account is a record which contains a collection
of similar transactions. A transaction is an exchange between two or more parties: either money for
goods and services or goods and services for goods and services. The accounts may be kept by one
person but in a large organisation there will be a full accounts department, which is headed by the
accounts manager or chief accountant.

Reasons for keeping accounts

i) To ascertain whether a profit (or loss) has been made
ii) To record the value of assets and liabilities
iii) To control the finances
iv) To maintain accurate records of all transactions
v) To provide information to others about the finances of the business

1. Roles and functions of the Accounts Office

The role and function of the accounts office include:

a) Preparation of payroll – The payroll is an important document that is maintained in the
accounts office. Payroll documents need to be updated so that reports can be produced at
regular intervals or when required. Payroll records include employee’s earnings record, and a
record of all the payments made during the payroll period. The records will include details of
statutory deductions taken from employees’ salaries and wages and a record of when the
information was passed on to the government. It is important to note that the payroll is the
total of all the payslips that are given to each employee with their pay.

How to calculate payroll:

Bonus Rate - Bonuses are often used to encourage and reward employees for higher levels of
productivity or quality of work. An extra amount is usually paid if a job is completed within the agreed
time frame or before the agreed time has passed or if the business’ profitability increased. The bonus
rate is divided between the employer and the employees who have achieved such additional profit.
For example:
An employee is paid $200.00 per hour to complete a job
The average time for completing the job is two (2) hours

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Actual time taken to complete the job is 1.5 hours
.
. . the time saved is 30 minutes (1/2 hour)

= 50% of 30 minutes x 25% (1/4) of 1 hour’s pay

= ½ of 30 minutes = 15 minutes which is a ¼ of $200.00
= 25/100 x $200.00 = $50.00
The bonus received would be $50.00 per hour.

Commission - This is paid to employees, (usually sales persons) based on a percentage of the value of
what they sell. It may be in addition to their basic wage/salary and is commonly used as an incentive for
sales persons/representatives. Reward in the form of commission without no salary is known as straight
commission.

Deductions from wages and salaries - Deductions may be statutory or voluntary; statutory deductions
are compulsory and are enforced by government. Examples of statutory deductions include income tax,
national insurance, education tax, NHT contributions. On the other hand, voluntary deductions are
those that are taken from an employee’s salary/wage at their request. These include, pension
contributions, payment for loans from financial institutions, union contributions.
Income tax is deducted by way of the Pay As You Earn (PAYE) system. In order for the taxes to be
calculated, the Accounts/payroll clerk must know or be familiar with certain information such as the
 employee’s code number
 tax tables
 documents used to submit monies to government

Gross pay - This refers to the amount an employee earns before any deductions whether statutory or
voluntary are made.

Net Pay - This is the amount that the employee actually receives after deductions are made.
If an employee’s gross pay is $40,000.00 per month and deductions total $5,000.00; the employee’s net
pay would be $35,000.00.

Basic pay + Overtime + Bonus/commission = Gross Pay

minus

+Statutory =
Voluntary Total
Deductions deductions deductions

Equals
Net pay

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This diagram shows how net pay is calculated.

b) Credit control - This is a method of assigning a suitable credit limit to each customer (the
maximum amount of debt allowed to each customer). The credit limit is used to check all
incoming orders against this limit. When other businesses purchase goods on credit from other
businesses and pay later, this is called trade credit. However, before customers are able to buy
on credit, their credit worthiness needs to be ascertained i.e their ability to pay back the money.
The accounts department will need to investigate the customer’s background income
outstanding debts and monthly commitments.

The information will be gathered by contacting banks and other institutions to determine the
customer’s ability to pay back. Often references are required regarding the customer’s
character and a job letter may be required to ascertain that the potential customer is employed
or information about the business if the person is self-employed. The decision to grant credit is
made by the credit control department or credit controller, which often forms a part of the
accounts department. Accounts of customers who owe money to the business are known as
accounts receivables and the persons (customers) are known as debtors or sundry debtors.

c) Collection of Accounts - This is the recording of payments received from debtors (those who
owe the organisation money) and chasing up those who do not pay the debt they owe. The
accounts office is also responsible for ensuring that money is paid to creditors (those who the
organisation owes money).

In a large organisation a collection department may be responsible for the collection of

outstanding payments of the chasing of debts. It is responsible for carefully looking at
outstanding accounts and sending reminders to those persons who default. The reminder
becomes more forceful as it is sent over a period of time, according to the company’s policy.
Customers may be visited by a debt chaser from the collections department, whose job is to
collect payments. Sometimes a small portion of the payment due is accepted and the chaser
will return regularly for further payments until the entire debt is paid off. Interest is often
charged on the overdue amounts.

d) Treatment of debit and credit notes - For various reasons a customer may owe either more or
less than the amount stated on the original invoice; this will mean that an adjustment will have
to be made to the customer’s account. This will have to be done by issuing either a debit note
or a credit note. A credit note is issued by the Accounts Department to customers who are said
to be in credit. These customers would have previously bought goods from the business on
credit.

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 e) Credit notes rectify an overcharge and are issued when too much has been charged to a
customer’s account or there is an overcharge on the account. The following are some
examples of when a credit note may be issued:
 there is an error on the invoice causing the customer to be overcharged
 some of the goods ordered were returned for fault or damage
 goods are unsuitable
 few goods were delivered
 a refund was given

f) Preparation of audit – An Audit is really just another name for checking the accounts. Some
firms have an internal auditor who examines the organisation’s accounts. An audit is important
because it makes sure that the accounting system in place is working and that entries are being
made correctly. It can detect errors and also fraud, and also helps managers by providing them
with accurate information. It can detect flaws in the accounting system and suggest
improvements for financial control. It makes an accurate valuation of the assets and liabilities of
the organisation. However, original documents and accounts must be updated and made
available for an audit to be conducted.

Ways the accounts office prepares for an audit:

i) Preparing regular management accounts for the board of directors
ii) Preparing the annual accounts for verification by the auditors
iii) Coordinating financial activities especially in relation to preparation of budgets and
maintenance of long-term plans for revenue and expenditure, assets and liabilities
iv) Maintaining accounts records and operation of the accounting system

g) Types of bank accounts

There are two main types of bank accounts and each serves a different purpose:
i) Deposit or savings account
ii) Current or chequing account

Deposit or savings accounts - This type of account earns interest and is used for the safekeeping of
money in the bank, when it is not required for immediate use. There are several types of deposit
accounts serving different needs. However, if the business has a sum of money that is not required for
immediate use it could be deposited to gain some interest/return on the sum.

Current or chequing account - A current account is used to transfer money from one person to another
through the use of a cheque book. However, unlike the deposit/savings account, no interest is paid on
this type of account. In fact, businesses actually pay to use a current account, these charges are called

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bank charges, which are imposed on these accounts. For example, some banks impose a service fee for
the processing of each cheque; a monthly fee or a combination of both.

h) Fixed Deposit Account - A fixed deposit account is an investment account where money is
deposited for a fixed period and interest rate does not fluctuate (fixed) and is paid at the end of
the period. Fixed deposit accounts offer a variety of concessions on bank charges but a
minimum average monthly balance must be maintained. The role of the accounts office is to
monitor bank balances to ensure that bank accounts do not fall below the specified levels. It is a
safer type of investment

2. Duties of a clerk in the accounts office

Persons who work in an accounts office should enjoy working with figures. This is because most
of the work done in this office involves the use of figures. Hence, the following duties are
carried out by the Accounting Clerk:
I) Preparing payroll - The accounts clerk is responsible for payroll records including the
calculation of wages and salaries and deductions such as national insurance and PAYE.
II) Writing cheques – The accounts clerk is responsible for preparing cheques payable to
suppliers, employees or other service providers
III) Reconciling accounts – This is the checking of entries in different documents to make sure
they match or correspond. For example, comparing the items listed in the cash book with
those that appear on the bank statement
IV) Making ledger entries – This involves posting items to the ledger
V) Preparing statement of accounts – At the end of each month the accounts clerk is expected
to prepare statements of accounts for all customers who have received goods on credit. A
statement of account is a summary of transactions on customers’ accounts during a
particular period and acts as a reminder to the consumer to pay any outstanding balance.
VI) Writing up the cash book – The accounts clerk is responsible for maintaining a cash book in
which all cash transactions are recorded on a daily basis. At the end of the month the cash
book is balanced
VII) Preparing final accounts – The accounts clerk may also draw up statements that ascertain
profit and loss and the assets, liabilities and capital of the business.

b)Attributes of the Accounts Clerk

An accounts clerk must pay attention to detail, be meticulous in the preparation of work when doing the
duties described above. In addition to the duties above, the clerk is expected to do filing, answer the
telephone, compose letters and memoranda. To be successful at this type of job, an accounts clerk
should have the following attributes:

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 i) Integrity - he/she must be honest and truthful in all aspects of the work
ii) Reliability – the accounts clerk will carry out his/her duties in a timely manner and
competently
iii) Confidentiality – this means that the accounts clerk should have the ability to identify which
aspect of the work are confidential and must not be divulged to any other person.

3. Documents prepared in the accounts office

The work of the accounts office deals with documents related to payments made to creditors and
received from customers. Most of these documents are initially produced by other departments and
then forwarded to the accounts office.
a) Payslip/payroll – The payroll is an important document maintained in the accounts
office. Information is continually updated on the payroll record so that reports can be
produced at regular intervals or when required. This document includes records of an
employee’s earnings and a record of all payments made during a particular period such
as statutory deductions and when they are passed on to the government. It is the sum
of all the payslips given to each employee with their pay.

b) Where the payments are made in cash, the payroll clerk will have to determine in
advance the appropriate amount of denominations of current (bills and coins). As such
a list of the various denominations of money is required. This list is referred to as a
currency memorandum or currency requisition.

c) Debit and credit notes – A debit note is used in the opposite way to a credit note; it is
used when the business undercharges a customer. A debit note actually corrects an
undercharge; it increases the amount that was already charged to the customer. It is
sometimes referred to as a supplementary invoice. It is issued in the following
situations:
 an invoicing error which resulted in the customer being undercharged
 too many goods were delivered to the customer (for which the customer decided to keep)
A letter is usually sent to the customer explaining the situation as well as apologizing to the customer for
the error.
The credit note on the other hand is issued to rectify or correct an overcharge. For example, if a
customer had bought goods and was over charged on their account for some reason, a credit note
would be issued. Some reasons for issuing a credit note are:
 an invoicing error resulted in the customer being overcharged
 some of the goods bought were returned as damaged or faulty
 goods were returned for a particular reason eg. unsuitable

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 the goods are on sale or return
 too few goods were delivered i.e less goods than what the customer ordered were delivered
 a refund is given on returned packing material etc

d) Statement of accounts – This is a demand for payment. It is a reproduction or summary

of all the customer’s outstanding account showing purchases and payments made by
the customer since the last statement was issued. It also acts as a reminder to the
customer to pay any outstanding amount.
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e) Cheques – A cheque is a written order or instruction to a bank requesting them to pay
the stated amount on the cheque from a particular account to a company or person
named on the cheque. It is used for making payments to employees and to creditors of
the business. Machines are available to create cheques and print them. However, there
are certain rules that govern the writing of cheques. However, there are several ways
to make payments other than using a cheque.

Parts of a cheque
i) Date – this should be the date the cheque is written
ii) Payee (name of person or company to whom the cheque is written)
iii) Amount (in words and figures should correspond/match)
iv) Signature (s) – the person or persons authorized to write the cheque

f) Invoices - These are usually generated by the Accounts Department but from time to
time may be issued by the Sales Department and the information passed on to the
accounts department for processing. The invoice tells the customer how much they are
expected to pay for the goods and/or services supplied. It also advises that the goods
have been despatched but is not necessarily a demand for payment. For example, if
they have an account they would not be expected to pay until they receive a statement
of account.

4. Resources used in the accounts office

There is a number of equipment found in an Accounts Office to carry out the various functions.
Some of the equipment include:

a) Hardware resources:
 Adding machines – used to add a list of figures
 Calculator – used to calculate the hours worked as well as additional pay (overtime)
 Accounting machine – dedicated electronic machine used to prepare invoices

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 Computer – Computers are becoming the main machine used for majority accounting work. A
computer is versatile in automatically processing a wide range of data and storing it for future
use. Spreadsheet and database programmes are very important for the effective functioning of
an accounts office.

b) Software Resources:
i) Accounting Packages - These are resources (software/programmes) read and written by
computers in general. Accounting software is specifically designed to record and process
accounting transactions within the functional areas such as, accounts receivable, accounts
payable, payroll and trial balance. It may be developed in-house or it may be purchased
from a third party or a combination of both.

ii) Spreadsheet Packages - This is a computer application which displays multiple cells that
together make up a grid with rows and columns. Each cell contains either alphanumeric text
or numeric values. It may also contain a formula which defines how the content of a
particular cell is to be calculated from that of another cell or combination of cells, each time
it is updated. Spreadsheets are normally used for accounting and financial information
because of their ability to re-calculate the entire sheet automatically after a change is made.
An example of a spreadsheet is EXCEL.

5. Types of Financial Institutions

a) Credit Union – This is a cooperative financial institution owned and controlled by its members.
It is operated for the purpose of promoting thrift and credit at reasonable rates. It is an
organisation of people who pool their savings in a common fund. Loans are provided to
members for a variety of purposes at low interest rates. The aim of credit unions is to improve
the financial conditions of its members by offering flexible financial services at a reasonable
cost.
b) Commercial Banks –A commercial bank is a financial institution that accepts money deposits
and therefore provides a safe place for saving money. These banks provide services
such as:
 The offering of loans and overdraft facilities to persons who may need financial
assistance
 Accepting deposits
 Providing chequing (current), savings and deposit accounts

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  Assisting customers to easily make payments through standing orders, current
accounts and debit/credit cards
 Providing advisory services to clients who wish to borrow a loan to make
investments and persons who wish to purchase securities
 Providing safety deposit boxes at the bank to safely store items that individuals
deem as highly valuable
 Selling travellers cheques

c) Central Bank – A central bank is a country’s leading bank, which acts as a banker to the
government. It is responsible for implementing the government’s monetary policy. The
functions of the central bank are as follows:
 The Central Bank has the sole authority to issue notes and coins
 It keeps the government accounts.
 It manages the national debt.
 It is a banker to all banks as commercial banks must keep an account with the central bank
 The Central Bank is a lender of last resort, this means that commercial banks and all other
financial institutions can count on the central bank for financial assistance in times of
difficulty (collapse of a bank)
 Carry out government’s economic policies (monetary policies)
d) Insurance companies – Insurance is a form of risk management to hedge against the risk of loss.
A business or individual transfer the risk of loss to the insurance company by paying a fee (called
premiums). An insurance company is the insurer and the person or entity which buys the
insurance is called the insured or policyholder. Insurance companies releases funds to a
business or individual in the event of an accident or disaster based on the premium paid and the
evidence presented.
e) Offshore institutions – These institutions are found in countries that have low tax rates and
offer special corporate and commercial services to non-resident persons. They attract
investments from around the world; many are found in the Caribbean region.
f) Investment companies – An investment company hold securities (negotiable instruments),
which represents a financial value of other companies solely for investment purposes. This is
done through the investing of funds on behalf of shareholders (individuals/companies) who
share in the profits and losses of the company. They support other businesses by lending them
funds to assist their cash flow.
g) Bureau de change/Cambio – This is a business which offers services to its customers by
exchanging one currency for another. For example, if a customer has US$1000 and would like
Jamaican dollars the Cambio would change that Jamaican equivalent amount for the US dollar.
The rate of exchange is set internationally by the foreign exchange market. Businesses earn
from the exchange of currency because of the difference in the buying and selling rates

6. Procedures for making and receiving different types of payments through

financial institutions

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a) Cash and cheques – This are money in the form of notes and coins. Cash is commonly used
as method of payment by consumers; however, businesses also use other methods such
credit/debit cards and cheques. A cheque is a slip of paper filled with information and is
signed by the account holder (person who issues the cheque). It instructs the bank what to
do base on the information represented on the cheque.
b) Credit card – This card enables the holder to make purchases without the use of cash or
cheque and pay at a later time. However, the card attracts an interest rate, which is usually
high.
c) Money order, postal orders – Money orders are purchased from post offices and are used
to make payments that are larger than postal order amounts. It is an order from one post
office to another to pay the named person the amount specified on the application form. A
Postal order is a written order for the payment of a sum of money to a named person
(payee). It can also be purchased from a post office and cashed at another post office or
paid into a bank account. They are usually used for small amounts of money. If it is crossed
it must be paid into a bank account or savings account.

d) Electronic transfers, credit transfer - An electronic transfer occurs when money is

transferred from one account to another electronically. For example, a customer can pay
for goods by directly transferring funds from their account into the seller’s bank account or
your employer can pay you by transferring funds straight into your account. Credit transfer
is the transfer of money from one account to another without the use of cash or cheque.
This is done by filling out a form with the details of the person to be paid. The money will
then be transferred from the drawer’s account to the account of the payee. The transaction
will be shown on both the drawer and payee’s bank statement.
e) Standing orders – A standing order is an instruction to a bank by the drawer to pay a fixed
amount to a named individual or company (payee) each month. The bank will transfer the
funds each month into the payee’s account. Similarly, you can arrange with your accounts
department to deduct a fixed amount each month to pay your life insurance payment.
f) Bank drafts – This is a kind of cheque drawn on a bank instead of an account holder or
business. This means that the payment is guaranteed as the funds have to be purchased in

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 advance from the bank for a fee. They are often used to pay overseas suppliers and are

issued in foreign currency.

g) Letters of credit –This is an undertaking or document from a bank to honour/guarantee
payment to a foreign supplier on behalf of an individual or company. The payment will be
made to the supplier on proof that the goods are despatched. For example, when a
manufacturer in Jamaica gets an order from a new customer overseas, the manufacturer
has no way of knowing whether the customer can or will pay for the goods after they are
produced and shipped. As such, the manufacturer can suggest that a letter of credit be
established. The customer will then need to apply for a letter of credit from his/her bank,
after which the goods will be shipped and upon confirmation that the goods are despatched,
the customer’s bank will then advise the manufacturer by way of letter and release the
funds.

7. Types of cheques

A cheque is a written instruction to a bank (drawee) to pay a sum of money to an account

holder (drawer) or a named person (payee). The types of cheques are:

a) Open cheque – An open cheque is one that is uncrossed. With an open cheque, the payee can
pay (lodge) the cheque into his/her bank accounts, cash it at the bank on which it is drawn or
pass it to someone else by signing the back of the cheque.

b) Certified/managers cheques – A certified/managers cheque is a cheque for which a bank

verifies that the account holder has sufficient funds in the account to cover the amount
required, and the signature is genuine. The funds are set aside until the cheque is cashed by the
payee. Certified cheques are usually required when purchasing certain items like a motor
vehicle, house or something very expensive.

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c) Counter cheques–A counter cheque is a blank cheque given over the counter by the cashier
when an account holder runs out of cheque leaves. The counter cheque can then be used to
make a withdrawal.

d) Crossed cheque – A crossed cheque is one that cannot be cashed immediately, it has to be paid
into an account (lodged) for a period eg. 3 days, 7 days or 21 days depending on the type of
cheque. This period allows the funds to be cleared before it can be accessed. A crossed cheque
has two parallel lines vertically drawn across the top left hand corner with the words A/c payee
only, & Co., or not negotiable written inside the lines. Sometimes it only has the two parallel
lines.

e) Post-dated/stale-dated cheques – A post -dated cheque is one that is given to someone that is
payable for some time in the future other than the date it was written. It cannot be cashed at
the bank until the date written on it comes or has passed. For example, if a person receives a
cheque on January 8 but the date written on it is January 12, it cannot be cashed until January
12 or a date thereafter. A stale-dated cheque is a cheque that is presented to a bank after six
(6) months of its payment date. However, this does not mean that it is invalid but may be
deemed ‘irregular’ unless the drawer (person/company that wrote it) issues a new check or
insert a new date.

8. Identification and interpretation of entries in a bank statement

a) Debit and credit entries –Under the double entry system business transactions are recorded
in at least two accounts. One will receive a debit entry i.e the amount will be entered on the
left side of the account and the other will receive a credit entry, which means that the
amount will be entered on the right side of the account.
Accounts that are generally increased with a debit include dividends (draws), expenses,
assets and losses.

To credit an account means to enter an amount on the right side of the account. Generally,
the types of accounts that are increased with a credit entry include gains, income and
revenue, liabilities and stockholders’ (owner’s) equity accounts.

b) Service charges – These are charges made by banks for the provision of services such as
facilitating overdraft, request for deposit slips or cheques or notarizing a document and
payroll services.

c) Outstanding cheques – These are cheques that have been written but have not yet cleared
by the bank on which they were drawn or posted to an account. Outstanding cheques are

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 deducted from the bank balance in the bank reconciliation statement. In other words,
outstanding cheques are those that were written but not yet cashed before the end of the
bank statement period.

d) Outstanding deposits/deposits in transit– Outstanding depositor deposits in transit are

cheques or cash that have already been received and recorded by the company but are not
yet recorded on the bank statement. A deposit in transit occurs when a deposit arrives at
the bank too late for it to be recorded or the company has not sent the deposit to the bank
at all. For example, a company receives cash and deposits it on July 31, using the night
depository. The bank will process the deposit in the morning on August 1. Therefore, as of
August 1 the bank statement date, the amount becomes a deposit in transit and must be
listed on the bank statement as an increase to the bank balance in order to report the true
amount of cash. Another example is: On June 30 a company received cash and checks from
customers in the amount of $2800. The company should report the $2800 as part of its cash as
of June 30. However, they did not deposit the money into the company’s bank account until
after June 30. Since the money is not on its bank statement as of June 30, the $2800 is
described as an outstanding deposit or deposit in transit as of June 30.

e) Standing orders - A standing order is an instruction to a bank to pay a fixed amount to an

individual or company at a fixed date each month until the end of the fixed period. During
the period the bank will transfer funds automatically from the account holder’s account into
the other party’s account as instructed. Another example of a standing order is the transfer
or deduction of funds from an employee’s salary to a company as per the employee’s
instruction.

f) Credit transfers - This is a method of transferring money from one bank account to another
without the use of cheques. There are two methods of credit transfer namely, single
transfer and multiple transfer. The single credit transfer allows for only one transfer to be
made from the drawer\s account to the account of the payee. The transaction will be
recorded on both the drawer and the payee’s bank statement.

With the multiple credit transfer method, the customer writes a single cheque or gives the
bank permission to withdraw a single amount from his/her account and use it to make
several payments.

g) Interest paid and received– Interest is received on deposit and savings accounts whilst
holders of current /chequing accounts pay interest for operating this type of account.

h) NSF Insufficient funds/Refer to Drawer – This means that there is not enough funds in an
individual or company account to cover the amount to be paid to payee.

9. Procedure for reconciling bank and cash book balances

a) Bank statements with cash book balances
The procedure for reconciling bank statements with cash book balances is:
1. Tick off the items that appear in both the cash book and the bank statement
2. Look for items on the bank statement that are not in the cash book
3. Add the outstanding deposits

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 4. Deduct outstanding checks that do not appear on the bank statement
5. Subtract any bank errors such as incorrect debits or credits and notify the bank
immediately, of these errors.
6. Calculate the adjusted cash book balance by deducting any bank service fees, NSF fees
or cheque printing charges shown on the bank statement. Add interest earned, direct
deposits from customers and receivable collected by the bank. Adjust any errors in the
cash book such as transactions that were omitted or transposed numbers.
7. Compare the adjusted bank statement balance to the adjust cash book balance; these
balances should be equal.
8. Make the proper journal entries in the cash book by crediting any bank service charges,
cheque print fees or NSF fees and debit any addition to cash such as interest earned,
notes receivable and direct deposits from customers

b) Cash book balances with bank statements

The procedure for reconciling cash book balances with bank statements is:
1. Ensure the cash book is up to date by looking in the cash book for items that are not in
the bank statement. This can be done by using the last available bank statement.
2. Enter the bank statement details in the cash book
3. Check all bank statement details against cash book entries
4. List and total all the unpresented cheques
5. Reconcile the cash book balance with the bank statement balance

Petty Cash and the Impress System

Petty cash is a small amount of money used to meet small cash payments for items such as postage,
travelling claims (taxi) etc. The items are usually small hence the name petty cash.

The petty cash imprest system is used to ensure the proper procedures for petty cash. The imprest
system is an internal control tool used to check cash, it usage and for theft. It provides a very efficient
and convenient deterrent on any petty cash theft. Under this system, the amount of money in the petty
cash is kept at a fixed sum eg. $1,000.00 depending on the size of the organization. A float is given to
the cashier or custodian and at each balancing period when the float is depleted by about 50%, a cheque
is issued to reimburse the exact amount of disbursement that was utilized. All petty cash vouchers plus
the remaining cash should tally back to the petty cash float.

[Link] for the payment and control of petty cash using the imprest
system
a) Vouchers
 Vouchers are used to record monies spent and to ensure the correct amounts are paid
out. They are usually issued before the money is spent.
 Authorisation must be sought before any money is spent from the petty cash.
 An official receipt should be attached to the voucher as proof of the amount spent
 Vouchers for multiple items must be checked to ensure the addition is correct
 Completed vouchers are filed in numerical or date order

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 b)Cash disbursement sheets – These sheets are used to enter/record each item of
expenditure on all the petty cash transactions; allocating them to their different budget
headings.

c) Summarising expenses – Expenditure for use of petty cash is usually recorded under
different categories in order to keep check on the amount being spent on different items,
such as postage, travel and stationery etc. However, there is also a miscellaneous heading
for items that do not fit in any of the other categories.

The individual totals for each category should equal the total expenditure of the petty cash.
After the amount spent is claimed back to restore the imprest the amount spent will be
recorded in the main cash book.

Bank Statement

A bank statement is a record of your bank account transactions, typically for one month, prepared by the
bank. A bank statement looks like this:

First Bank Virginia Beach, VA

Customer: My Company

1111 College Way Statement Date September 30

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Virginia Beach, VA

September 1 Beginning Balance $16,850

+ Deposits and other Credits $22,367

– Checks and other Debits ($11,822)

September 30 ENDING BALANCE $27,395

Deposits and Other Credits

1-Sep $1,500 25-Sep $10,000

15-Sep $2,514 29-Sep $4,500

16-Sep $350 Interest $3

20-Sep $500 CM $3,000

Total Deposits $22,367

Checks and Other Debits

2001 9/1 $750

2002 9/5 $980

2003 9/5 $275

2005 9/10 $5,843

2006 9/15 $333

2007 9/21 $480

2010 9/28 $2,571

2011 9/28 $235

SC 9/30 $5

NSF 9/18 $350

Total Checks $11,822

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 Notes:

CM is for collection of a note. Note was for $3500 but bank charged a $500 collection fee.

SC is for bank service charges. NSF is for customer payment that could not be funded due to Non-Sufficient
Funds.

This bank statement is an example of the transactions that occurred during the month. In the Deposit and credits
section, you see the deposits made into the account and a CM which is a collection of a note (seenote at
bottom of statement) and interest the bank has paid to your account. In the Checks and debits section, you
see a bank service charge on your account as well as a NSF (stands for Non-Sufficient Funds) and means we
made a deposit from a customer but the customer did not have enough money to pay the check (bounced
check).

Company’s Records

The company’s records (or books) refers to the general ledger posting and can be in the form of cash
disbursement journal, cash receipt journal, cash general ledger postings or lists of cash transactions.

An example of a cash listing is:

My Company’s Records

Sept 1 Cash Balance

Deposits:

1-Sep $1,500

14-Sep $2,514

15-Sep $350

20-Sep $500

24-Sep $10,000

28-Sep $4,500

30-Sep $6,700

Total Deposits

Checks:

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 2001 1-Sep $750 Payroll

2002 5-Sep $980 Rent

2003 5-Sep $275 Supplies

2004 8-Sep $1,000 Inventory

2005 10-Sep $5,483 Equipment

2006 15-Sep $333 Supplies

2007 20-Sep $480 Inventory

2008 20-Sep $650 Payroll

2009 22-Sep $200 Postage

2010 28-Sep $2,571 Sales Commissions

2011 28-Sep $235 Utilities

2012 30-Sep $5,500 Equipment

Total Checks

Sept 30 Cash Balance

The bank balance on September 30 is $27,395 but according to our records, the ending cash balance is
$24,457. We need to do a bank reconciliation to find out why there is a difference.

Bank Reconciliation

A bank reconciliation compares the bank statement and our company’s records and reconciles or
balances to two account balances. How does it do this? There are several items of information we can
get by comparing the bank statement to our records — anything that doesn’t match or doesn’t exist on
both places is called a reconciling item. A reconciling item will be added or subtracted to the bank or
book side of the reconciliation. The following table will give you some examples of how these reconciling
items apply in a bank reconciliation:

Bank Reconciliation

Ending Cash Balance per Bank Ending Cash Balance per Books

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Add: Deposits in Transit Add: Note Collections

Add: Interest

Subtract: Outstanding Checks Subtract: Customer NSF

Subtract: Bank Service Fees

Add/Subtract Bank errors Add/Subtract Book errors

= Adjusted Bank Balance = Adjusted Book Balance

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