Lesson: 59

Topic: Analyzing and Controlling Cash Payment Systems

Objectives:

Students will come to understand that a business can receive "cash" from cash sales via a number of payment methods, including:

• cash,
• credit cards, and
• debit cards.

Thus, students will come to understand the various accounting procedure associated with each of these payment methods. For example, when considering cash payments, students will come to appreciate a number of basic procedures that are utilized in an effort to control the cash received, including:

• pre-numbering source documents,
• setting up a business chequing account,
• depositing cash receipts intact,
• depositing cash daily,
• completing a daily "proof,"
• dividing responsibilities amongst employees, and
• using a special journal to record cash receipts.

When considering debit cards and credit cards, students will learn how to account for the expense incurred when accepting payment via such methods. In general, this expense is often referred to as a "discount" expense. 

Instructional Methods and Evaluation:

Students will complete the assignment below.

Journalize the following sales for Ted's Flower Shop:

January 19: Sold $35.00 of cut flowers. PST is calculated at $2.80. GST is calculated at $2.45. The customer paid cash. 

January 19: Sold a $20.00 plant. PST is calculated at $1.60. GST is calculated at $1.40. The customer paid using a VISA card. (The business pays a 4% fee to VISA for the total amount charged on each VISA sale.) 

January 19: Sold $40.00 of cut flowers. PST is calculated at $3.20. GST is calculated at $2.80. The customer paid using a debit card. (The business pays a flat $0.15 fee to the bank any sale using a debit card.) 

Expectations Addressed:

The "Internal Control, Financial Analysis, and Decision Making" strand of the BAF3M Ministry of Education Curriculum Guidelines outlines all of the following specific expectations. The expectations addressed by this lesson have been highlighted below.

• Internal Control Procedures:
  • describe the basic elements of an internal control system (e.g., separation of duties, prenumbered documents, rotation of staff);
  • apply appropriate control measures used in accounting for assets (e.g., petty cash procedures, bank reconciliation procedures);
  • describe the role of budgeted financial statements in planning, controlling, and evaluating business results (e.g., difference between budgeted and actual income statements);
  • describe the role and work of an auditor.
• Financial Analysis:
  • explain the importance of current assets and current liabilities when interpreting a balance sheet;
  • analyse a company’s liquidity and solvency by using simple financial ratios (e.g., current ratio, debt ratio) and other financial analysis tools (e.g., comparative statements, trend analysis, common size statements);
  • analyse a company’s profitability by using simple financial ratios (e.g., gross profit percentage, return on equity) and other financial analysis tools (e.g., comparative statements, trend analysis, common size statements).
• Decision Making:
  • describe how accounting information is used by company personnel (e.g., department managers, owners) in making decisions;
  • explain the role of financial analysis in decision making from the standpoint of potential investors (e.g., mutual fund managers, institutional investors, individual investors);
  • describe how accounting information is used by individuals or organizations outside the company (e.g., governments, Ontario Securities Commission, police, forensic accountants) in making decisions.

Reference:

Please read this topic (pages 373 - 382) in preparation for the class.