CHAPTER 8
Cookie Creations
(Note: This is a continuation of the Cookie Creations from Chapters 1 through 6.)
CC8 Part 1 Natalie is struggling to keep up with the recording of her accounting
transactions. She is spending a lot of time marketing and selling mixers and giving her
cookie classes. Her friend John is an accounting student who runs his own accounting
service. He has asked Natalie if she would like to have him do her accounting.
John and Natalie meet and discuss her business. John suggests that he do the
following for Natalie.
1. Hold cash until there is enough to be deposited. (He would keep the cash locked
up in his vehicle). He would also take all of the deposits to the bank at least twice
a month.
2. Write and sign all of the checks.
Instructions
Identify the weaknesses in internal control that you see in the system John is
recommending. Can you suggest any improvements if Natalie hires John to do the
accounting?
Part 2 Natalie decides that she cannot afford to hire John to do her accounting. One way
that she can ensure that her cash account does not have any errors and is accurate and
up–to-date is to prepare a bank reconciliation at the end of each month.
GENERAL LEDGER—COOKIE CREATIONS
Cash
Date
Explanation
Ref.
Debit
Credit
Balance
2017
June 1
Balance
2,657
1
750
3,407
3
Check #600
625
2,782
PREMIER BANK
Statement of Account—Cookie Creations
June 30, 2017
Date
Explanation
Checks and
Deposits
Balance
May 31
Balance
3,256
June 1
Deposit
750
4,066
6
Check #600
625
3,381
6
Check #601
95
3,286
8
Check #602
56
3,230
9
Deposit NSF
1,050
4,280
check NSF—
100
fee Check
4,145
452
3,693
Deposit
125
3,818
3,733
Check #599
361
3,372
charges
Additional information:
1. On May 31, there were two outstanding checks: #595 for $238 and #599 for $361.
3
Check #601
2,687
8
Check #602
2,631
9
1,050
3,681
Check #603
425
3,256
155
3,411
Check #604
3,114
110
3,224
3. The deposit made on June 20 was for $125 that Natalie received for teaching a
class. Natalie made an error in recording this transaction.
4. The electronic funds transfer (EFT) was for Natalie’s cellphone use. Remember that
she uses this phone only for business.
Instructions
(a) Prepare Cookie Creations’ bank reconciliation for June 30.