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Chapter 7: Q-7-6TI (page 403)

Question: For each of the following items, determine whether the item would be:

a. added to the bank balance

b. subtracted from the bank balance

c. added to the book balance

d. subtracted from the book balance

11. Interest revenue earned

12. NSF check

13. Deposit in transit

14. Service charge

15. Outstanding check

Short Answer

Expert verified

Answer:

11)added to the book balance

12) subtracted from the book balance

13) added to the bank balance

14) subtracted from the book balance

15) subtracted from the bank balance

Step by step solution

01

Definition of outstanding check

Outstanding checks are those checks that are not presented for the payment.

02

Whether the item is added or subtracted

11. Interest revenue is revenue that increases the balance of the company. Hence, it is added to the book balance.

12. NSF check means checks that do not have sufficient balance in the account. Hence, these checks are deducted from the book balance.

13. Deposit in transit is the balance deposited into the bank but not recorded by the bank; hence, this amount is added to the bank balance.

14. Service charges are the charges collected by the bank hence, it deducted from the book balance as it is not recorded in book balance.

15. Outstanding check is the check that is issued but not presented for the payment. Outstanding checks are deducted from the bank balance.

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Most popular questions from this chapter

Fill in the missing information concerning how companies control cash received by mail.

a. The ________ opens the mail and sends customer checks to the treasurer.

b. The ________ deposits the customer checks in the bank.

c. The ________ uses the remittance advices to record the journal entries for cash receipts.

d. The ________ compares the bank deposit to the journal entry for cash receipts.

Question: How does the Sarbanes-Oxley Act relate to internal controls?

Evaluating internal control over cash payments Gary鈥檚 Great Cars purchases high-performance auto parts from a Nebraska vendor. Dave Simon, the accountant for Gary鈥檚, verifies receipt of merchandise and then prepares, signs, and mails the check to the vendor.

Requirements

1. Identify the internal control weakness over cash payments.

2. What could the business do to correct the weakness?

Understanding the Sarbanes-Oxley Act and identifying internal control strengths and weaknesses. The following situations suggest a strength or a weakness in internal control.

a. Top managers delegate all internal control procedures to the accounting department.

b. Accounting department staff (or the bookkeeper) orders merchandise and approves invoices for payment.

c. Cash received over the counter is controlled by the sales clerk, who rings up the sale and places the cash in the register. The sales clerk matches the total recorded by the register to each day鈥檚 cash sales.

d. The employee who signs checks need not examine the payment packet because he is confident the amounts are correct.

Requirements

1. Define internalcontrol.

2. The system of internal control must be tested by external auditors. What law or rule requires this testing?

3. Identify each item in the list above as either a strength or a weakness in internal control, and give your reason for each answer.

Accounting for petty cash transactions

Suppose that on September 1, Cool Gyrations, a disc jockey service, create a petty

cash fund with an imprest balance of \(350. During September, Ruth Mangan, fund

custodian, signs the following petty cash tickets:

Petty Cash

Ticket Number Item Amount

1 Postage for package received \) 25

2 Office party 10

3 Two boxes of stationery 20

4 Printer cartridges 15

5 Business dinner 65

On September 30, prior to replenishment, the fund contains these tickets plus cash of

\(210. The accounts affected by petty cash payments are Office Supplies, Entertainment

Expense, and Postage Expense.

Requirements

1. On September 30, how much cash should this petty cash fund hold before it is

replenished?

2. Journalize all required entries to (a) create the fund and (b) replenish it. Include

explanations.

3. Make the entry on October 1 to increase the fund balance to \)425. Include an

Explanation
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