Chapter 08 – Cash and Internal Controls
Problem 8-5B (Concluded)
Part 3
There are several possible reasons why some prenumbered checks are
missing from the sequence of canceled checks returned with a bank
statement. Reasons include:
(1) Some of the checks in the numbered sequence may have cleared the
bank in a previous period and were returned with the bank statement
in that previous period.
(4) Occasionally, a check will reach the bank but the bank will incorrectly
charge the check to the wrong account. When the bank detects the
error, it will return the check separately with a note of explanation to
the depositor.
SERIAL PROBLEM — SP 8
Serial Problem — SP 8, Business Solutions (50 minutes)
Part 1
BUSINESS SOLUTIONS
Bank Reconciliation
March 31, 2016
Bank statement balance..... $67,566 Book balance…………………………………………………..............................$68,057
68,066 68,090
Deduct Deduct
Outstanding Check........... 128 Safety deposit rental $ 50
______ Charge for checks.. . 102 152
Adjusted bank balance....... $67,938
Adjusted book balance……………………………………..............................$67,938
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Chapter 08 – Cash and Internal Controls
Part 2
To record safety deposit box rental.
26 Miscellaneous Expenses………………………….………..…677 102
Cash…………………………………………………………….…101 102
To record charge for printing checks
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Chapter 08 – Cash and Internal Controls
Reporting in Action — BTN 8-1
1.
($ in millions)
Balance
September
28, 2013
Cash and
equivalents
as % of:
Balance
September
29, 2012
Cash and
equivalent
s as % of:
Cash and cash
equivalents…………… $ 14,259 — $ 10,746 —
Current assets........... 73,286 19.5% 57,653 18.6%
Analysis comment: Cash and cash equivalents have slightly increased
2. Per the statement of cash flows for year ended September 28, 2013
($ millions):
Cash and equivalents, beginning-year.…..…...… $10,746
Cash and equivalents, year-end………….…..………$14,259
Percent change*………………………………….…..…..…….32.7% increase
*[($14,259 – $10,746) / $10,746]
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Chapter 08 – Cash and Internal Controls
Reporting in Action (Concluded)
3. Days’ Sales Uncollected ($ thousands)
Days’ sales uncollected = x 365
September 28, 2013: $13,102 / $170,910 x 365 = 27.98 days
4. Solution depends on the annual report information obtained.
Comparative Analysis — BTN 8-2
Days’ sales uncollected = x 365
Apple ($ millions)
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Accounts receivable
Net sales
Accounts receivable
Net sales
Chapter 08 – Cash and Internal Controls
Google ($ millions)
Current Year: $8,882 / $59,825 x 365 = 54.19 days
Comparative Analysis: Google’s decrease in days’ sales uncollected is
(5.5)%, while Apple’s increase in days’ sales uncollected is 9.8%. For the
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Chapter 08 – Cash and Internal Controls
Ethics Challenge — BTN 8-3
1. In a small business office it is very important that the owner of the
2. Unfortunately, due to collusion of the employees, the bank
3. Despite the collusion, the scheme is not foolproof. For example, some
ways in which the scheme might be uncovered or prevented include the
following:
A bank employee may become suspicious and call Dr. Conrad and
ask if she is aware that occasionally her employees cash patient
checks for cash.
Deposit Only’ when they are received.
4. Dr. Conrad should review her salary schedules for employees to make
sure that she is at least offering market pay. She may want to consider
bonding her employees to insure herself against material losses. Dr.
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Chapter 08 – Cash and Internal Controls
Communicating in Practice — BTN 8-4B
Memorandum
To: “Owner”
From: “Consultant”
Date: __________
Subject: Advice on monitoring purchase discounts
[Instructor’s Note: The response should acknowledge the owner’s concern and
recommend the net method of recording purchases. It should explain how this method
results in the recording of “Discounts Lost,” which will flow through to the income
statement, thus providing the information desired. The memo might look something like
the following.]
account or on the income statement. Consequently, discounts lost are
unlikely to come to the attention of management. However, when
purchases are recorded at net amounts, a discounts lost expense is
Taking It to the Net — BTN 8-5
[Instructor Note: These answers were taken from the ACFE’s 2014 Report to the Nations.]
http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf
1. The median loss caused by the frauds in our study was $145,000.
Additionally, 22% of the cases involved losses of at least $1 million.
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Chapter 08 – Cash and Internal Controls
2. The typical organization loses 5% of revenues each year to fraud; this
translates to a potential projected global fraud loss of nearly $3.7 trillion.
3. The median duration — the amount of time from when the fraud
4. Asset misappropriations are the most common fraud, occurring in 85% of
5. Only 9% of cases involved financial statement fraud, but those cases had
6. Over 40% of all cases were detected by a tip — more than twice the rate of
any other detection method.
7. Owners/executives only accounted for 19% of all cases, but they caused a
8. Approximately 77% of the frauds in our study were committed by
9. The vast majority of occupational fraudsters are first-time offenders; only
5% had been convicted of a fraud-related offense prior to committing the
Teamwork in Action — BTN 8-6
Common internal controls visible in a typical retail store include:
1. Door locks and roll-down screens for after-hours lock-up.
3. Security cameras.
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Chapter 08 – Cash and Internal Controls
8. Limited number of apparel items allowed in a dressing room.
9. Dressing room attendants.
Entrepreneurial Decision — BTN 8-7
1. Seven principles of internal control along with examples are:
a. Establish responsibilities. The clerks at the counter should be
responsible for handling cash. The other employees should be
b. Maintain adequate records. The clerks at the counter should enter
all sales on the cash registers. The cash registers should include a
locked record of all sales rung up for subsequent verification
procedures. Other records should include those for inventories,
supplies, payroll time records, and so on.
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Education.
Chapter 08 – Cash and Internal Controls
theft.
g. Perform regular and independent reviews. The owner should
implement regular reviews of all operating and control procedures.
2. As the business grows, controls will become more important. The
owner will have more employees and will have to delegate more
Hitting the Road — BTN 8-8
No formal solution exists for this activity. It is usually interesting for the
class to exchange their discoveries via class discussion. This is
particularly the case with respect to popular college service/product
centers. Common controls found in college units include:
1. Door locks and roll-down screens for after-hours lock-up.
Global Decision — BTN 8-9
1.
(KRW millions)
Current
year
balance
Cash as
percent
of:
Prior
year
balance
Cash as
percent
of:
Cash (and equivalents)….……..
16,284,780 — 18,791,460 —
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Chapter 08 – Cash and Internal Controls
Analysis comment: Cash has decreased as a percent of current assets
Global Decision (Concluded)
2. Cash, beginning-year (KRW millions)………..………..…..…..………18,791,460
3. Days’ Sales Uncollected Formula (KRW millions)
Days’ sales uncollected = x 365
Current Year: x 365 = 44.5 days
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Accounts receivable
Net sales
27,875,934
228,692,667