(10-20 min.) E 4-28B
F. L. Hill
Bank Reconciliation
July 31, 2016
BANK:
Balance, July 31
$ 294
Add: Deposit in transit
1,220
Less: Outstanding checks:
Check No.
626
$ 80
627
280
(360)
Adjusted bank balance
$1,154
BOOKS:
Balance, July 31
$1,252
Less:
Recorded $81 check as $18
NSF check
Service charge
(98)
Adjusted book balance
$1,154
(10-20 min.) E 4-29B
BANK:
Balance, October 31
$ 750
Add: Deposit in transit
1,770
Subtotal
2,520
Less: Outstanding checks
(603)
Adjusted bank balance
$1,917
BOOKS:
Balance, October 31
330
Subtotal
2,327
Less:
Service charge
NSF checks
Charge for printed checks
recorded $310 check as $31
Adjusted book balance
Neal’s actual cash balance is $1,917.
(10-15 min.) E 4-30B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Oct
31
Cash …………………………………………………
330
Rent Revenue ……………………………….
330
EFT collection of rent.
31
Miscellaneous Expense ($10 + $11) …….
21
Cash …………………………………………….
21
Bank service charge and charge
for printed checks.
31
Accounts Receivable …………………………
110
Cash …………………………………………….
110
NSF checks returned by bank.
31
279
Cash …………………………………………….
279
Correction of book error.
(10-15 min.) E 4-31B
TO: Store Manager
FROM: Student
SUBJECT: Evaluation of internal control and plan for improvement
There is a weakness in internal control over cash receipts. The cash
registers do not keep a record of sales. With no record, there is no way
to determine how much cash should be in the cash drawer. This
(10-15 min.) E 4-32B
The main internal control weakness is that the payroll department both
prepares and distributes the paychecks. With both duties, a dishonest
person in the payroll department can create a time sheet for a fictitious
employee and then keep the related paycheck after the treasurer returns
the signed checks to the payroll department.
(20-30 min.) E 4-33B
Ayers Communications, Inc.
Cash Budget
Year Ended December 31, 2017
Millions
Cash balance, December 31, 2016
$ 62
Budgeted cash receipts:
Collections from customers
11,339
Sale of assets
132
11,533
Budgeted cash payments:
Payments for cost of
services and products
$6,193
Payments of operating expenses
2,544
Investment in equipment
1,823
Payment of debt
Payment of dividends
Cash available (needed) before financing
Budgeted cash balance, December 31, 2017
Cash available for additional investments, or
(New financing needed)
Quiz
Q4–34
c
Q4–35
a
Q4–36
d
Q4–37
c
Q4–38
c
Q4–39
b
Q4–41
d
Q4–42
c
Q4–43
d
Problems
(15-20 min.) P 4-46A
The internal control weaknesses in Irish Imports’ system are:
1. Kennedy controls the content of the invoices. With no supervision of
2. Luck has both cash handling and accounting duties. With both
responsibilities, Luck could steal incoming cash and cover her theft
by manipulating the accounting records.
3. Luck prepares the bank reconciliation. Luck has cash handling
duties, recordkeeping duties and prepares the bank reconciliation.
This is not a proper separation of duties.
As with all small businesses, the key to effective internal control is
more owner involvement. O’Malley could:
1. Make the purchase and pay arrangements with the Irish artisans who
2. O’Malley could assign either cash handling or accounting duties to
(10–20 min.) P 4-47A
Requirement 1
Requirement 2
Requirement 3
Missing Internal
Control
Characteristic
Possible Problem
Solution
a.
Separation of
duties
Theft of diamonds
— the purchasing
agent could have
diamonds sent to a
location he controls.
Separate
purchasing,
approval, and
check-signing
duties.
b.
Assignment of
Lost revenue, because
Assign a single
c.
Separation of
duties
Theft of cash.
Separate
accounting and
cash-handling
duties.
(20-30 min.) P 4-48A
Req. 1
Dunlap Automotive
Bank Reconciliation
June 30, 2016
BANK:
Balance, June 30, 2016
$ 8,934
Add: Deposits in transit ($885 + $2,243)
3,128
Subtotal
12,062
Less: Outstanding checks —
Check No.
3119
$ 453
3120
1,013
3121
208
3122
2,408
(4,082)
Adjusted bank balance, June 30, 2016
$ 7,980
BOOKS:
Balance, June 30, 2016
Add: EFT collection of rent
Bank collection of note receivable
Book error — $1,380 check
recorded as $1,830
2,350
Subtotal
8,881
Less: EFT payment of insurance
$ 382
Unauthorized signature check
489
Service charge
Adjusted book balance, June 30, 2016
$ 7,980
(continued) P 4-48A
Req. 2 (entries based on the reconciliation)
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
June
30
Cash ………………………………………………………….
625
Rent Revenue ……………………………………….
625
EFT deposit for rent revenue earned.
30
Cash ………………………………………………………….
Note Receivable ……………………………………
Note receivable collected by bank.
30
Cash ………………………………………………………….
450
Accounts Payable …………………………………
450
30
Insurance Expense …………………………………….
382
Cash …………………………………………………….
382
EFT for payment of insurance.
30
Accounts Receivable ………………………………….
489
Cash …………………………………………………….
489
US customer check returned by bank.
30
Miscellaneous Expense ………………………………
Cash …………………………………………………….
Bank service charge.
(continued) P 4-48A
Req. 3
A bank account helps control cash by providing a place for safekeeping.
The bank also provides a detailed list of the company’s cash
transactions that managers can compare to the company’s own cash
records and thereby correct any book errors quickly.
(30-45 min.) P 4-49A
Keller Wireless
Cash Budget
2017
Thousands
Cash balance, beginning
$ 8,100
Budgeted cash receipts:
Collections from customers ($66,000 × 1.14)
75,240
Receipt of interest
600
83,940
Budgeted cash payments:
Cash paid for inventory ($45,000 × 1.20)
$54,000
Cash paid for operating expenses
13,600
Purchases of equipment
4,600
Purchases of investments
Payment of dividends
Payment of long-term debt
Cash available (needed) before financing
10,840
Budgeted cash balance, ending
Cash available for additional investments, or
(New financing needed)
$ 7,340
(15-20 min.) P 4-50B
The internal control weaknesses in Swedish Imports’ system are:
1. Martin controls the content of the invoices. With no supervision of her
2. Moore has both cash handling and accounting duties. With both
responsibilities, Moore could steal incoming cash and cover her theft
by manipulating the accounting records.
3. Moore prepares the bank reconciliation. Moore has cash handling
duties, accounting duties and prepares the bank reconciliation. This
1. Make the purchase and pay arrangements with the artisans who
supply Swedish Imports’ products. Let Martin keep locating new
products, but don’t let her arrange for the purchases and payment.
2. Gustafson could assign either cash handling or accounting duties to
(10-20 min.) P 4-51B
Requirement 1
Requirement 2
Requirement 3
Missing Internal
Control
Characteristic
Possible Problem
Solution
a.
Separation of duties
Theft of cash or
diamonds by the
purchasing agent.
Have a manager, not
the purchasing agent,
approve invoices for
payment and sign the
checks.
c.
Separation of duties
Theft of cash.
Keep accounting and
cash handling duties
separate.
(20-30 min.) P 4-52B
Req. 1
Duffy Automotive
Bank Reconciliation
July 31, 2016
BANK:
Balance, July 31, 2016
$ 9,652
Add: Deposits in transit ($915 + $2,376)
3,291
Subtotal
12,943
Less: Outstanding checks
Check No.
3119
$ 477
3120
990
3121
183
3122
2,301
(3,951)
Adjusted bank balance, July 31, 2016
$ 8,992
BOOKS:
Balance, July 31, 2016
$ 7,258
Add: EFT collection of rent
$ 800
Bank collection of note receivable
1,275
Subtotal
Less: Unauthorized signature check
$ 430
EFT payment of insurance
351
Service charge
Adjusted book balance, July 31, 2016
$ 8,992
(continued) P 4-52B
Req. 2 (entries based on the reconciliation)
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
July
31
Cash ……………………………………………………….…
800
Rent Revenue ………………………………………..
800
EFT deposit for rent revenue.
31
Cash ……………………………………………………….…
Note Receivable …………………………………….
Note receivable collected by bank.
31
Cash ……………………………………………………….…
450
Accounts Payable ………………………………….
31
Accounts Receivable ………………………………….
430
Cash ……………………………………………………..
430
US customer check returned by bank.
31
Insurance Expense …………………………………….
351
Cash ……………………………………………………..
351
EFT for payment of insurance.
31
Miscellaneous Expense ………………………………
10
Cash ……………………………………………………..
Bank service charge.
(continued) P 4-52B
Req. 3
A bank account helps control cash by providing a place for safekeeping.
The bank also provides a detailed list of the company’s cash
transactions that Duffy Automotive managers can compare to the
company’s own cash records and thus correct any book errors quickly.