Exam 8: Cash and Internal Controls

Havermill Co. establishes a $250 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $73 for Office Supplies, $137 for merchandise inventory, and $22 for miscellaneous expenses. The fund has a balance of $18. On October 1, the accountant determines that the fund should be increased by $50. - The journal entry to record the establishment of the fund on September 1 is:

Great Falls Co.'s bank reconciliation as of February 28 is shown below. Bank balance \ 37,643 Book balance \ 38,153 + Deposit in transit 2,950 Note collection +745 - Outstanding checks -1,730 Check printing -35 Adjusted bank balance \ 38,863 Adjusted book balance \ 38,863 One of the adjusting journal entries that Great Falls must record as a result of the bank reconciliation includes:

The days' sales uncollected ratio measures the liquidity of accounts receivable.

A company had net sales of $21,500 and ending accounts receivable of $2,700 for the current period. Its days' sales uncollected equals: (Use 365 days a year.)

The following information is available for the Topper Company for the month of July. a. On July 31, after all transactions have been recorded, the balance in the company's Cash account has a balance of $15,244. b. The company's bank statement shows a balance on July of $16,450. c. Outstanding checks at July total $2,063. d. A credit memo included with the bank statement indicates that the bank collected $570 on a note receivable for Topper. The $570 includes $550 principle and $20 interest. e. A debit memo included with the bank statement shows a $107 NSF check from a customer, P. Flank. f. A deposit placed in the bank's night depository on July 31 totaling $1,275 did not appear on the bank statement. h. Included with the bank statement was a debit memorandum in the amount of $45 for check printing charges that have not been recorded on the company's books. Prepare the July bank reconciliation for the Topper Company.

The means of recording purchases under the assumption that the cash discount for prompt payment ^{will be taken is called the ________}.

Basic bank services such as bank accounts, bank deposits, and checking contribute to the control of cash.

The internal document prepared to notify the appropriate persons that goods ordered have been received, describing the quantities and condition of the goods is the:

Insuring assets and requiring all accounting personnel to have CPA licenses are two important principles of internal control.

A credit memorandum on a bank statement indicates:

The internal document prepared by a department manager that informs the purchasing department of its merchandise needs and requests that the merchandise be purchased is the:

Outstanding checks, deposits in transit, deductions for bank fees, additions for interest, and errors are all factors that can cause the bank statement balance for a checking account to be different from the company's checking account balance.

Following are seven items a through g that would cause Rembrandt Company's book balance of cash to differ from its bank statement balance of cash. a. A service charge imposed by the bank. b. A check listed as outstanding on the previous period's reconciliation and still outstanding at the end of this month. c. A customer's check returned by the bank is marked "Not Sufficient Funds (NSF)". d. A deposit mailed to the bank on the last day of the current month and not recorded on this month's bank statement. e. A check paid by the bank at its correct $190 amount recorded in error in the company's check register at $109. f. An unrecorded credit memorandum indicating that bank collected a note receivable for Rembrandt Company and deposited the proceeds in the company's account. g. A check written in the current period that is not yet paid or returned by the bank. Indicate where each item, letters a-g, would appear on Rembrandt Company's bank reconciliation by placing its identifying letter in the parentheses in the proper section of the form below. Bank statement cash balance Book balance of cash Add: 0 Add: 0 0 0 Deduct: 0 0 0 Deduct: 0 0 0 0 0 Reconciled balance Reconciled balance

Discuss how the principles of internal control apply to cash receipts through the mail by giving several examples of good control measures that should be implemented.

The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared.

Clearly establishing responsibilities and assigning all accounting activities to one person is an important principle of internal control.

The following information is available for the Savvy Company for the month of June. a. On June 30, after all transactions have been recorded, the balance in the company's Cash account has a balance of $17,202. b. The company's bank statement shows a balance on June 30 of $19,279. c. Outstanding checks at June 30 total $2,984. d. A credit memo included with the bank statement indicates that the bank collected $770 on a noninterest-bearing note receivable for Savvy. e. A debit memo included with the bank statement shows a $67 NSF check from a customer, J. Maroon. f. A deposit placed in the bank's night depository on June 30 totaling $1,675 did not appear on the bank statement. g. Comparing the checks on the bank statement with the entries in the accounting records reveals that check #3445 for the payment of an account payable was correctly written for $2,450, but was recorded in the accounting records as $2,540. h. Included with the bank statement was a debit memorandum in the amount of $25 for bank service charges. It has not been recorded on the company's books. 1. Prepare the June bank reconciliation for the Savvy Company. 2. Prepare the general journal entries to bring the company's book balance of cash into conformity with the reconciled balance as of June 30.

The days' sales uncollected ratio measures a company's ability to manage its debt.

Human fraud is driven by the triple-threat of fraud: Opportunity, collusion, and rationalization.