Page 342 - Accounting Principles (A Business Perspective)

8. Control of cash

An accounting perspective:

Uses of technology

Many companies are using Electronic Data Interchange (EDI) to transmit business documents
such as purchase orders, invoices, and even payments for goods and services. Instead of mailing
paper copies of these documents, the entire transaction is done electronically. This procedure
speeds up the transaction and eliminates the expense of sending paper copies. One concern of such
procedures is the security of the transaction. Since this issue is being successfully addressed by
various methods, including encrypting the data, we can expect the use of EDI to continue to
increase in the future.

The bank checking account
Banks earn income by providing a variety of services to individuals, businesses, and other entities such as

churches or libraries. One of these services is the checking account. A checking account is a money balance
maintained in the bank; it is subject to withdrawal by the depositor, or owner of the money, on demand. To provide
depositors with an accurate record of depositor funds received and disbursed, a bank uses the business documents
discussed in this section. 28
A bank requires a new depositor to complete a signature card, which provides the signatures of persons
authorized to sign checks drawn on an account. The bank retains the card and uses it to identify signatures on
checks it pays. The bank does not compare every check with this signature card. Usually, it makes a comparison
only when the depositor disputes the validity of a check paid by the bank or when someone presents a check for an
unusually large sum for payment.

When depositors make a bank deposit, they prepare a deposit ticket or slip. A deposit ticket is a form that
shows the date and the items that make up the deposit (Exhibit 71). Often, the ticket is pre-printed to show the
depositor's name, address, and account number. A depositor enters the items constituting the deposit—cash and a
list of checks—on the ticket when making the deposit. The depositor receives a receipt showing the date of deposit
and the amount deposited.
A check is a written order to a bank to pay a specific sum of money to the party designated as the payee by the
party issuing the check. Thus, every check transaction involves three parties: the bank, the payee (party to whom

the check is made payable), and the drawer (depositor). Most depositors use serially numbered checks pre-printed
with information about the depositor, such as name, address, and telephone number. Often a business check has an
attached remittance advice. A remittance advice informs the payee why the drawer (or maker) of the check is
making this payment. Before cashing or depositing it, the payee detaches the remittance advice from the check
(Exhibit 72).

28 Due to relaxed federal regulations, institutions other than banks—such as savings and loan associations and
credit unions—now offer checking account services. All of these institutions function somewhat similarly; but,

for simplicity's sake, we discuss only banks here.

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