Exam 8: Cash and Internal Controls

The following information is available to reconcile Cloy Company's book balance of cash with its bank statement cash balance as of June 30. The June 30 cash balance according to the accounting records is $58,542, and the bank statement cash balance for that date is $68,047. a. The bank erroneously cleared a $395 check against the account in June that was not issued by Cloy. The check documentation included with the bank statement indicates the check was actually issued by Clare Co. b. On June 30, the bank issued a credit memorandum for $35 interest earned on Cloy's account. c. When the June checks are compared with entries in the accounting records, it is found that Check No. 1727 had been correctly drawn for $1,450 to pay for advertising but was erroneously entered in the accounting records as $1,540. d. A credit memorandum indicates that the bank collected $9,000 cash on a note receivable for Cloy, deducted a $30 collection fee, and credited the balance to the company's Cash account. Cloy did not record this transaction before receiving the statement. e. A debit memorandum of $895 is enclosed with the bank statement for an NSF check for $870 received from a customer. The bank assessed a $25 fee for processing it. f. Cloy's June 30 daily cash receipts of $6,325 were placed in the bank's night depository on that date, but do not appear on the June 30 bank statement. g. Cloy's June 30 cash disbursements journal indicates that Check No. 1737 for $4,830 and Check No. 1740 for $3,280 were both written and entered in the accounting records, but are not among the canceled checks. h. A debit memorandum for $85.00 indicates the bank deducted the annual lock box fee for the company. 1. Prepare the bank reconciliation for this company as of June 30. 2. Prepare the journal entries necessary to bring the company's book balance of cash into conformity with the reconciled cash balance as of June 30.

Internal control of cash receipts aims to ensure that all cash received is properly recorded and deposited.

Under the net method an invoice for $2,000 with terms of 2/10, n/30 should be recorded with a debit to Inventory and a credit to Accounts Payable of $2,000. $2,000 x .98 = $1,960

Technologically advanced accounting systems do not need monitoring for errors because computers always process transactions correctly.

All disbursements from petty cash should be documented by a petty cash receipt.

Proper internal control means that responsibility for a task is clearly established and assigned to one person.

Bonding does not discourage loss from theft because employees know that bonding is an insurance policy against loss from theft.

A voucher system is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.

Identify each of the following items 1 through 10 as either (a) cash or (b) cash equivalent.

Maintaining adequate records is an important internal control principle.

Managers place a high priority on internal control systems because the systems assist managers in the:

A set of procedures and approvals designed to control cash disbursements and the acceptance of obligations is referred to as a(n):

A company made a bank deposit on September 30 that did not appear on the bank statement dated as of September 30. In preparing the September 30 bank reconciliation, the company should:

The following information is available for the Edwards Company for its March 31 bank reconciliation: From the March 31 bank statement: NSF: A check from a customer, Cook Co. in payment of their account. IN: Interest earned on the account. From the Edwards Company's accounting records: 1. Based on the above information, prepare a bank reconciliation for the Edwards Company. 2. Prepare the necessary general journal entries to adjust cash to the reconciled balance.

Internal control procedures for cash receipts require that:

The use of internal controls provides guaranteed protection against losses due to operating activities.

The net method for recording purchases records the purchase invoice at its net amount of any cash discount.

Assume that the custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include:

A company plans to decrease a $200 petty cash fund to $75. The current balance in the account includes $45 petty cash payment in receipts and $165 in currency. The entry to reduce the fund will include a:

A company established a petty cash fund in February of the current year and experienced the following transactions affecting the fund during February: Prepare the journal entries to establish the find, reimburse the fund and to reduce its amount on February 28.