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Chapter 08 - Cash and Internal Controls
Exercise 8-6 (20 minutes)
1.
Jan. 1 Petty Cash............................................................... 200
Cash................................................................... 200
To establish a petty cash fund.
2.
Jan. 8 Postage Expense.................................................... 74
Merchandise Inventory*......................................... 29
3.
Jan. 8 Postage Expense.................................................... 74
Jan. 8 Petty Cash............................................................... 250
Cash................................................................... 250
To increase the petty cash fund.**
** The two January 8 entries can be combined into one entry.
Exercise 8-7 (10 minutes)
1. The voucher system of control establishes procedures for: (a) Verifying,
2. All expenditures should be overseen by a voucher system of control
(not only the purchase of merchandise).
3. The voucher is initially prepared by the accounting department when it
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Chapter 08 - Cash and Internal Controls
Exercise 8-8 (20 minutes)
Bank
Balance
Book Balance Not Shown
on
Add Deduct Add Deduct Adjust Reconciliation
1. NSF check from customer returned
on Sept. 25 but not recorded by this
company.
x Cr.
6. Checks outstanding on August 31
that cleared the bank in September. x
7. Check written against the company
account and cleared by the bank;
erroneously not recorded by the
company recordkeeper.
x Cr.
8. Principal and interest on a note
receivable to this company is
collected by the bank but not yet
recorded by the company.
x Dr.
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Chapter 08 - Cash and Internal Controls
Exercise 8-9 (25 minutes)
DEL GATO CLINIC
Bank Reconciliation
June 30, 2015
Bank statement balance. . $10,555 Book balance.......................................................................................$11,589
Add Add
Chapter 08 - Cash and Internal Controls
Exercise 8-12 (15 minutes)
(a) Days' sales uncollected on December 31, 2014:
x 365 = 32.5 days
Days' sales uncollected on December 31, 2015:
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$65,000
$730,000
Chapter 08 - Cash and Internal Controls
Exercise 8-13A (10 minutes)
Exercise 8-14B (25 minutes)
a. Recording inventory at gross amounts
Oct. 2 Merchandise Inventory................................................3,000
Accounts Payable................................................... 3,000
To record merchandise purchases.
27 Accounts Payable........................................................5,400
Merchandise Inventory*......................................... 108
Cash......................................................................... 5,292
To record payment for merchandise less the
discount. *($5,400 x .02)
($3,000 - $500).
Exercise 8-14B (Concluded)
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Chapter 08 - Cash and Internal Controls
b. Recording inventory at net amounts
Oct. 2 Merchandise Inventory................................................2,940
Accounts Payable................................................... 2,940
To record merchandise purchases less
discount [$3,000 - ($3,000 x .02) = $2,940].
17 Merchandise Inventory................................................5,292
Accounts Payable................................................... 5,292
To record merchandise purchases less
discount [$5,400 - ($5,400 x .02) = $5,292].
PROBLEM SET A
Problem 8-1A (20 minutes)
1. Violates separation of duties. The company should implement a policy
2. Violates the principle of establishing responsibility. Only Julia should
have access to the petty cash fund since she is the custodian. The
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Chapter 08 - Cash and Internal Controls
3. Violates the proper application of technological controls. While the daily
backup is a very good internal control, the tape needs to be taken off the
premises every night. If the building and computer are destroyed, the
4. Violates regular and independent review. Benedict Shales needs to
5. Violates the insuring of assets and the bonding of key employees. We
do not have enough information to know if the company can afford the
move to the higher deductible on the property insurance. However, we
Problem 8-2A (20 minutes)
Part 1
May 1 Petty Cash.....................................................................300.00
Cash......................................................................... 300.00
To establish the $300 petty cash fund.
May 15 Janitorial Expenses...................................................... 88.00
Miscellaneous Expenses............................................. 53.68
May 16 Petty Cash.....................................................................200.00
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Chapter 08 - Cash and Internal Controls
May 31 Postage Expenses........................................................147.36
Mileage Expense.......................................................... 23.50
May 31 Cash...............................................................................100.00
Part 2
If the May 31 replenishment is not made and no entry is recorded, then
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Chapter 08 - Cash and Internal Controls
Problem 8-3A (30 minutes)
Part 1
Part 2
Nakashima Gallery
Petty Cash Payments Report (for February)
Delivery expense
Feb. 23 Delivery of customer's merchandise.......................... $ 20.00
Office supplies expense
Feb. 5 Purchased paper for copier.........................................14.15
Feb. 20 Purchased stationery................................................... 67.77 81.92
Total $277.47
* Transportation-in costs are included in Merchandise Inventory under a perpetual system.
Part 3
Office Supplies Expense.............................................81.92
Cash Over and Short.................................................... 2.11
Cash......................................................................... 279.58
To reimburse the petty cash fund.
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Chapter 08 - Cash and Internal Controls
Problem 8-4A (30 minutes)
Part 1
BRANCH COMPANY
Bank Reconciliation
July 31, 2015
Deduct Deduct
Checks No. 3031....$1,482 NSF check..............$ 805
3065.... 382 Service charge....... 25
3069.... 2,281
4,145
Error (Check 3056). 20 850
Adjusted bank balance....... $34,602
Adjusted book balance........................................................................$34,602
Part 2
July 31 Cash...............................................................................7,955
Collection Expense...................................................... 45
Notes Receivable.................................................... 8,000
To record note collection less fees.
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