BRIEF EXERCISE 7-9
Mar. 20 Postage Expense …………………………………………………. 52
Freight-Out ………………………………………………………….. 26
BRIEF EXERCISE 7-10
BRIEF EXERCISE 7-11
BRIEF EXERCISE 7-12
BRIEF EXERCISE 7-13
Cash balance per bank …………………………..………………………………. $7,420
BRIEF EXERCISE 7-14
Cash balance per books …………………………………………………………. $9,500
BRIEF EXERCISE 7-15
the next year.
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 7-1
1. Violates the control activity of documentation procedures. Source docu-
ments should be promptly forwarded to the accounting department so
DO IT! 7-1 (Continued)
2. Violates the control activity of segregation of duties. Different individuals
tions of delivered goods; approving fictitious invoices for payment.
3. Violates the control activity of establishment of responsibility. Great
DO IT! 7-2
used to confirm that all receipts were deposited and recorded. The clerks
also keep a copy.
DO IT! 7-3
Cash ………………………………………………. 100
31 Postage Expense ………………………………….. 31
DO IT! 7-4
Roger should treat the reconciling items as follows:
SOLUTIONS TO EXERCISES
EXERCISE 7-1
2. Segregation of duties. Employees who make the pizzas do not handle cash.
produces a tape of all sales.
5. Independent internal verification. The counter clerk, in handling the pizza,
EXERCISE 7-2
(a)
(b)
Procedure
Weakness
Principle
Recommended
Change
1.
Cash is not
adequately
protected
from theft.
Physical
controls.
Cash should be
stored in a safe
until it is deposited
in bank.
2.
Inability to
establish
responsibility
for cash with
a specific clerk.
Establishment
of responsibility.
There should be
separate cash
drawers and
register codes
for each clerk.
EXERCISE 7-2 (Continued)
(a)
(b)
Procedure
Weakness
Principle
Recommended
Change
3.
The accountant
should not
handle cash.
Segregation
of duties.
The cashier’s
department should
make the deposits.
4.
Cash is not
independently
counted.
Independent
internal
verification.
A cashier office
supervisor should
count cash.
5.
Cashiers are
not bonded.
Human resource
controls.
All cashiers should
be bonded.
EXERCISE 7-3
(a)
(b)
Procedure
Weakness
Principle
Recommended
Change
1.
The bank
reconciliation
is not
independently
prepared.
Independent
internal
verification.
Someone with no
other cash
responsibilities
should prepare the
bank reconciliation.
2.
The approval
and payment
of bills is done
by the same
individual.
Segregation
of duties.
The store manager
should approve bills
for payment and the
treasurer should sign
and issue checks.
3.
Checks are
not stored in
a secure area.
Physical
controls.
Checks should be
stored in a safe or
locked file drawer.
EXERCISE 7-3 (Continued)
(a)
(b)
Procedure
Weakness
Principle
Recommended
Change
4.
After payment,
bills are simply
filed in a folder.
Documentation
procedures.
Bills should be stamped
PAID before being placed
in the folder.
5.
Checks are not
prenumbered.
Documentation
procedures.
Checks should
be prenumbered
and subsequently
accounted for.
EXERCISE 7-4
(a) Weaknesses
(b) Suggested Improvement
1. Checks are not prenumbered.
Use prenumbered checks.
2. The purchasing agent signs
checks.
Only the treasurer’s department
personnel should sign checks.
3. Unissued checks are stored in
unlocked file cabinet.
Unissued checks should be stored
in a locked file cabinet with access
restricted to authorized personnel.
4. After payment, bills are simply
filed in a folder.
Bills should be stamped PAID
before being placed in the folder.
5. After payment, the invoice is
filed.
The invoice should be stamped
PAID.
6. The purchasing agent records
payments in cash disburse-
ments journal.
Only accounting department
personnel should record cash
disbursements.
EXERCISE 7-4 (Continued)
(a) Weaknesses
(b) Suggested Improvement
7. The treasurer records the
checks in cash disbursements
journal.
Same as answer to No. 6 above.
8. The treasurer reconciles the
bank statement.
An internal auditor should
reconcile the bank statement.
(b) To: Treasurer, Danner Company
From: Accounting Student
1. Danner Company should use prenumbered checks. These should
2. The purchasing department should approve bills for payment. The
3. Only the accounting department personnel should record cash
disbursements.
contact me.
EXERCISE 7-5
Procedure
IC good or weak?
Related internal control principle
1.
Weak
Establishment of Responsibility
2.
Good
Independent Internal Verification
3.
Weak
Segregation of Duties
4.
Good
Segregation of Duties
5.
Weak
Documentation Procedures
EXERCISE 7-6
Procedure
IC good or weak?
Related internal control principle
1.
Good
Human Resource Controls
2.
Weak
Establishment of Responsibility
3.
Weak
Segregation of Duties
4.
Good
Independent Internal Verification
5.
Good
Physical Controls
EXERCISE 7-7
May 1 Petty Cash ……………………………………………… 100.00
June 1 Delivery Expense ……………………………………. 31.25
Postage Expense ……………………………………. 39.00
July 1 Delivery Expense …………………………..……….. 21.00
July 10 Petty Cash ……………………………………………… 30.00
EXERCISE 7-8
Mar. 1 Petty Cash……………………………………………………….. 100
Cash …………………………………………………………. 100
15 Postage Expense………………………………………………. 39
Freight-Out ……………………………………………………….. 21
20 Petty Cash………………………………………………………… 75
EXERCISE 7-9
(a) Cash balance per bank statement ……………… $3,560.20
Add: Deposits in transit …………………………... 530.00
4,090.20
(b) Accounts Receivable ………………………………… 490.00
Miscellaneous Expense …………………………….. 25.00