Chapter 06 – Reporting and Analyzing Cash and Internal Controls
Chapter 6
1. The seven broad principles are: Establish responsibilities; Maintain adequate records;
2. Internal control procedures become especially critical when the manager of a business
3. Responsibility for related transactions should be divided so that the work of one
4. Separation of custody from recordkeeping of an asset encourages the asset custodian to
5. If individual departments were permitted to deal directly with suppliers, the amount of
6. The limitations of internal control arise from two sources: the human element (human
7. Cash is most liquid; and least liquid is a building. The four assets ordered from most to
8. A petty cash receipt is a document stating that a payment has been made from petty
receipt.
9. Depositing all receipts on the day of receipt (1) creates an independent record of the
10. During the year ended September 29, 2012, cash (and equivalents) of $48,227 million is
11. Google’s net income for 2012 was $10,737 million. Further, it reported a net increase in
cash (and equivalents) of $4,795 million. These two figures are different because (1) net
12. Samsung’s cash (liquid assets) at December 31, 2012, equals ₩18,791,460 (all in KRW
millions). It is the second largest current asset and makes up about 21.5% of its current
assets.
13. Samsung’s cash and equivalents increased by ₩4,099,699 million during 2012;
(3) ₩1,864,508 used by financing activities.
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Solutions Manual, Chapter 6
3
Quick Study 6-1 (10 minutes)
1. True
2. False
3. True
4. False
Quick Study 6-2 (10 minutes)
1. a (cash)
2. d (liquidity)
3. b (cash equivalents)
Quick Study 6-3 (10 minutes)
Quick Study 6-4 (15 minutes)
(1)
(2)
a. (i) Book (ii) Addition Adjusting entry required
b. (i) Book (ii) Subtraction Adjusting entry required
Quick Study 6-5 (10 minutes)
1. (a) Petty Cash …………………………………………………. 150
Cash ……………………………………………………. 150
2. The Petty Cash account is credited when either (1) the dollar amount of
Quick Study 6-6 (25 minutes)
NOLAN COMPANY
Bank Reconciliation
Quick Study 6-8 (15 minutes)
11.6 days 12.3 days
Quick Study 6-9A (10 minutes)
Documents prepared as part of a voucher system include: a, c, d. More
Accounts receivable
$2,691,855
$2,396,858
EXERCISES
Exercise 6-1 (10 minutes)
Evaluation
(1) The recordkeeper should not have been allowed to sign the company’s
checks.
(2) Since a loss was incurred, the company apparently had not bonded its
employee. If it had, the bonding company would have insured the loss.
Exercise 6-2 (15 minutes)
(1) A major internal control problem is that the recordkeeper (who has
(2) The recordkeeper might also delay recording a cash receipt from a
customer until more cash comes in at a later date from a second
(3) The recordkeeper also could pocket cash and claim that a payment was
(1) If only one person is present when the mail is opened, that person may
steal cash and claim it was never received. If possible, two people
(2) It is important the recordkeeper not have physical control over cash.
Exercise 6-5 (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
Delivery Expense ………………………………………….…
16
Miscellaneous Expenses …………………………..….…
43
Cash ……………………………………………………….…
162
To reimburse the petty cash fund.
* Transportation-in costs are included in Merchandise
Inventory under a perpetual system.
3.
Jan. 8
Postage Expense ………………………………………….…
74
Merchandise Inventory ……………………………………
29
Delivery Expense ………………………………………….…
16
Miscellaneous Expenses …………………………..….…
43
Cash ……………………………………………………….…
162
To reimburse the petty cash fund.**
Jan. 8
Petty Cash ………………………………………………………
250
Cash ……………………………………………………….…
250
To increase the petty cash fund.**
** The two January 8 entries can be combined into one entry.