Accounting Chapter 6 Separation Custody From Recordkeeping Asset Encourages The

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Problem 6-5A (50 minutes)

Part 1

CHAVEZ COMPANY

Bank Reconciliation

September 30

Bank statement balance ……..

$18,453

Book balance …………………………..

$17,404

Add

Interest earned ….. $ 12

Part 2

Sept. 30

Cash ……………………………………………………….

12

Interest Earned ……………………………………………….

12

Record interest earned.

Cash ……………………………………………………….

Notes Receivable ……………………………………………

Record note collection.

Accounts Receivable— S.Nilson …………………………..

Cash ……………………………………………………….

Charge the account for NSF check.

Computer Equipment ……………………………………………

Cash ……………………………………………………….

30

Correct an entry error.

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

PROBLEM SET B

Problem 6-1B (20 minutes)

Part 1

a. Maintain adequate records.

Part 2

a. Good recordkeeping helps protect assets from theft or loss and helps

managers monitor company activities. Keeping poor records of its

b. The company’s system needs to be backed up at least daily, not yearly.

The company needs to change the backup policy and make sure the

backup copies are stored off premises (or alternatively, stored in the

cloud/online).

c. The company needs to have three employees handle these functions

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

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Problem 6-2B (20 minutes)

Jan. 3

Petty Cash …………………………………………………………..

150.00

Cash ………………………………………………………………

150.00

Establish the petty cash fund.

Jan. 14

Office Supplies Expense ………………………………………

14.29

Merchandise Inventory* ……………………………………….

19.60

Repairs Expense—Computer ……………………………….

38.57

Miscellaneous Expenses ……………………………………..

12.82

Cash Over and Short ……………………………………………

Cash ………………………………………………………………

87.72

Jan. 15

Petty Cash …………………………………………………………..

50.00

Cash ………………………………………………………………

50.00

Increase the petty cash fund.

Jan. 31

Advertising Expense ……………………………………………

50.00

Postage Expenses ……………………………………………….

48.19

Delivery Expense …………………………………………………

78.00

Cash Over and Short ……………………………………………

6.46

Cash ………………………………………………………………

182.65

Reimburse the petty cash fund.**

Jan. 31

Petty Cash …………………………………………………………..

50.00

Cash ………………………………………………………………

50.00

Increase the petty cash fund.**

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

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Problem 6-3B (30 minutes)

Part 1

Mar. 5

Petty Cash ……………………………………………………….

250

Part 2

Blues Music Center

Petty Cash Payments Report (for March)

Delivery expense

Mar. 11

Delivery of customer’s merchandise ……………………..

$ 10.75

Mileage expense

Mar. 30

Reimbursement for mileage …………………………..

56.80

Postage expense

Mar. 28

Paid postage ……………………………………………………….

18.00

Merchandise inventory (transportation-in)*

Mar. 6

Mar. 27

57.60

Mar. 12

Purchased file folders …………………………………………..

14.13

Mar. 14

Reimbursement for office supplies ……………………….

11.65

Mar. 18

Purchased paper ………………………………………………….

Part 3

a. Mar. 31

Delivery Expense ………………………………………………….

10.75

Mileage Expense …………………………..……………………..

56.80

Postage Expense ………………………………………………….

18.00

Merchandise Inventory …………………………………………

57.60

46.32

Petty Cash ……………………………………………………….

50.00

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

Problem 6-4B (30 minutes)

Part 1

SEVERINO CO.

Bank Reconciliation

December 31

Bank statement balance ……..

$46,822.40

Book balance …………………………..

$32,878.30

Add

Deduct

Part 2

Dec. 31

Cash …………………………………………………………………….

9.00

Office Supplies ……………………………………………….

9.00

Correct an entry error.

31

Cash …………………………………………………………………….

18,980.00

Notes Receivable …………………………………………….

Record note collection.

31

Accounts Receivable—Titus Industries …………………

Cash ……………………………………………………….

Charge the account for NSF check.

31

Miscellaneous Expenses ………………………………………

Cash ……………………………………………………….

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

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Problem 6-5B (50 minutes)

Part 1

SHAMARA SYSTEMS

Bank Reconciliation

May 31

Bank statement balance ………

$21,762.70

Book balance …………………………..

$15,177.30

Add

Deduct

Part 2

May 31

Cash ……………………………………………………………………

7,350.00

Notes Receivable ……………………………………………

7,350.00

Record note collection.

Cash ……………………………………………………….

Charge the account for NSF check.

Cash ……………………………………………………….

Record bank service fee.

Cash ……………………………………………………….

Correct an entry error.

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

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SERIAL PROBLEM — SP 6

Serial Problem — Business Solutions (50 minutes)

Part 1

BUSINESS SOLUTIONS

Bank Reconciliation

March 31, 2022

Bank statement balance …..

$67,566

Book balance …………………………..

$68,057

Add

Part 2

Mar. 25

Miscellaneous Expenses ……………………………………..

677

50

Cash ……………………………………………………….

101

50

Record safety deposit box rental.

Miscellaneous Expenses ……………………………………..

677

Cash ……………………………………………………….

101

Record charge for printing checks

101

33

Interest Revenue ……………………………………………

404

33

Record interest earned.

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

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Company Analysis — AA 6-1

$ millions

2.

$ millions

Balance

September

28, 2019

Cash and

equivalents

as % of:

Balance

September

29, 2018

Cash and

equivalent

s as % of:

Cash and cash

equivalents ……………

$ 48,844

—

$ 25,913

—

3. (a) Cash and cash equivalents as reported on the balance sheet at

September 28, 2019 ($ millions):

Cash and equivalents, beginning-year …………… $25,913

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

Company Analysis (Concluded)

4. Days’ Sales Uncollected ($ millions)

Days’ sales uncollected = x 365

5. Unfavorable

Explanation: The number of days of uncollected sales in accounts

receivable increased. This increase indicates Apple’s assets are being

Accounts receivable

Net sales

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

Comparative Analysis — AA 6-2

Days’ sales uncollected = x 365

1.*

(a) Apple ($ millions)

Current Year: ($22,926 / $260,174) x 365 = 32.2 days

2. Apple

Explanation: Apple had more success than Google in collecting

Accounts receivable

Net sales

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

Extended Analysis — AA 6-3

1.

($ millions)

Current

year

balance

Cash as

percent

of:

Prior year

balance

Cash as

percent

of:

Cash …………………………..

23,069

—

26,033

—

2. Cash, beginning-year ($ millions) ……………………….. 26,033

3. Days’ Sales Uncollected Formula ($ millions)

Days’ sales uncollected = x 365

4. Unfavorable

Explanation: The number of days of uncollected sales in accounts

Accounts receivable

Net sales

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

DISCUSSION QUESTIONS

1. The seven broad principles are: Establish responsibilities; Maintain adequate records;

2. Internal control procedures are especially critical when the manager of a business can

no longer control the business through personal supervision and direct participation.

3. Responsibility for related transactions should be divided so that the work of one

department or individual acts as a check on that of another.

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

7. Cash is most liquid; and least liquid is a building. The four assets ordered from most to

least liquid are: cash, accounts receivable, inventory, and building.

8. A petty cash receipt is a document showing that a payment has been made from petty

9. Depositing all receipts on the day of receipt (1) creates an independent record of the

10. Evaluation: The company’s internal control system failed to require separation of asset

custody from asset recordkeeping.

11. (a) A cash register (with a locked record) should be used at the sales stand—it should

also be anchored to the stand. If a cash register cannot be used, the total sales value of

the towels, coolers, and sunglasses given to the employee each day should be

calculated. The employee should sign a receipt for the merchandise and the amount of

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12. (a) Internal Control Problems:

1. A major internal control problem is that the recordkeeper (who has control over the

accounting records also) has physical control over the cash receipts. Nothing in the

system prevents the recordkeeper from taking cash from the mail and using it

personally.

2. The recordkeeper might also delay recording a cash receipt from a customer until

13. Companies usually invest idle cash in cash equivalents to earn a higher return on these

assets.

14. (a) The voucher system of control establishes procedures for: (1) Verifying, approving,

and recording obligations for eventual cash payment, and (2) Issuing checks for

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

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Ethics Challenge — BTN 6-1

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

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.

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

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Communicating in Practice — BTN 6-2

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.]

This means that the amount of any discounts lost is not reported in any

account or on the income statement. Consequently, discounts lost are

unlikely to come to the attention of management. However, when

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

Teamwork in Action — BTN 6-3

Common internal controls visible in a typical retail store include:

1. Door locks and roll–down screens for after-hours lock-up.

6. Separate cash drawers or transaction codes to identify clerks at

registers.

7. Bar coding on merchandise.

Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 6

Entrepreneurial Decision — BTN 6-4

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

responsible for preparing the orders and helping customers. There

also should be employees assigned responsibilities such as

maintaining inventories, cleaning premises, clerical duties, locking

doors, etc.

customer slipping on the floor.

d. Separate recordkeeping from custody of assets. The employee

who is responsible for inventory should not be in control of the

recordkeeping for the inventory. Similar separation should exist

for all important assets.

e. Divide responsibility for related transactions. The employee

2. As the business grows, controls will become more important. The

owner will have more employees and will have to delegate more

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