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Chapter 7: Q10SE (page 414)

Recording transactions from a bank reconciliation Review your results from preparing Guard Dog Security Systems鈥� bank reconciliation in Short Exercise S7-9. Journalize the company鈥檚 transactions that arise from the bank reconciliation. Include an explanation with each entry.

Short Answer

Expert verified

The Cash account was debited with $510.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of accounts receivable

Accounts receivable is the amount that is earned but not received.

02

Journal entries

Date

Particulars

Debit

Credit

December 31

Cash

$510

Accounts Receivable

$510

(Being entry for the accounts receivable collected by the bank)

December 31

Cash

$20

Interest Revenue

$20

(Being entry of interest revenue received on bank balance)

December 31

Bank Expense

$30

Cash

$30

(Being entry for the service charge expense)

The first entry is passed on by recording the amount of the accounts receivable that the bank collects. Hence, the cash account is debited, and the accounts receivable account is credited.

The second entry is passed on by recording the interest revenue earned from the bank balance.

The third entry is passed to the service charge that the bank deducts from the bank account.

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Most popular questions from this chapter

Conduct an Internet search for information on internal control and the Sarbanes-Oxley Act. Write a report of your findings. In your account, discuss some of the advantages and disadvantages of the Sarbanes-Oxley Act. Present it to your class (if required by your instructor).

Identifying internal control weakness in cash receipts

Seawind Productions makes all sales on credit. Cash receipts arrive by mail. Justin

Broadway, the mailroom clerk, opens envelopes and separates the checks from

the accompanying remittance advices. Broadway forwards the checks to another

employee, who makes the daily bank deposit but has no access to the accounting

records. Broadway sends the remittance advices, which show cash received, to

the accounting department for entry in the accounts. Broadway鈥檚 only other duty

is to grant sales allowances to customers. (A sales allowancedecreases the customer鈥檚

account receivable.) When Broadway receives a customer check for \(600 less a

\)30 allowance, he records the sales allowance and forwards the document to the

accounting department.

Requirements

1. Identify the internal control weakness in this situation.

2. Who should record sales allowances?

3. What is the amount that should be shown in the ledger for cash receipts?

Preparing a bank reconciliation and journal entries

The October 31 bank statement of Wyndham鈥檚 Healthcare has just arrived from State

Bank. To prepare the bank reconciliation, you gather the following data:

a. The October 31 bank balance is \(6,290.

b. The bank statement includes two charges for NSF checks from customers. One is

for \)370 (#1), and the other is for \(180 (#2).

c. The following Wyndham鈥檚 checks are outstanding at October 31:

Check No. Amount

237 \) 120

288 140

291 570

294 570

295 30

296 110

d. Wyndham鈥檚 collects from a few customers by EFT. The October bank statement

lists a \(2,200 EFT deposit for a collection on account.

e. The bank statement includes two special deposits that Wyndham鈥檚 hasn鈥檛 recorded

yet: \)900 for dividend revenue and \(100 for the interest revenue Wyndham鈥檚

earned on its bank balance during October.

f. The bank statement lists a \)80 subtraction for the bank service charge.

g. On October 31, the Wyndham鈥檚 treasurer deposited \(270, but this deposit does

does not appear on the bank statement.

h. The bank statement includes a \)750 deduction for a check drawn by Multi-State

Freight Company. Wyndham鈥檚 notified the bank of this bank error.

i. Wyndham鈥檚 Cash account shows a balance of $3,200 on October 31.

Requirements

1. Prepare the bank reconciliation for Wyndham鈥檚 Healthcare at October 31, 2018.

2. Journalize any required entries from the bank reconciliation. Include an explanation for each entry.

Accounting for petty cash transactions

On September 1, Party Salad Dressings creates a little cash fund with an imprest

balance of \(600. During September, Michael Martell, the fund custodian, signs the

following petty cash tickets:

Petty Cash

Ticket Number Item Amount

101 Office supplies \) 60

102 Cab fare for executive 25

103 Delivery of package across town 45

104 Business dinner 55

105 Merchandise inventory 75

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

of \(355. The accounts affected by petty cash payments are Office Supplies, Travel

Expense, Delivery Expense, Entertainment Expense, and Merchandise Inventory.

Requirements

1. Explain the characteristics and the internal control features of an imprest fund.

2. On September 30, how much cash should the petty cash fund hold before it isreplenished?

3. Journalize all required entries to create the fund and replenish it. Include explanations.

4. Make the October 1 entry to increase the fund balance to \)800. Include an explanationand briefly describe what the custodian does.

Question: Understanding bank account controls

Answer the following questions about the controls in bank accounts:

Requirements

1. Which bank control protects against forgery?

2. Which bank control reports the activity in the customer鈥檚 account each period?

3. Which bank control confirms the amount of money put into the bank account?
See all solutions

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