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Chapter 7: Q2SE (page 412)

Applying internal control over cash receipts Sandra Kristof sells furniture for McKinney Furniture Company. Kristof has financial problems and takes $650 that she received from a customer. She rang up the sale through the cash register. What will alert Megan McKinney, the controller, that something is wrong?

Short Answer

Expert verified

Cash receipts over the counter alert the controller.

Step by step solution

01

Definition of control over cash receipts

It is a method of internal control that records all the cash receipts in the sale register. In this, method of the internal all the cash receipts are firstly recorded into the cash register and then the amount of the cash is sent to the cash clerk who records it and collects it.

02

Alert if something is wrong

The internal control to alert McKinney is cash receipts over the counter because in this rule all the cash receipts are recorded in the sale register. In this case, the cash receipts are not recorded in the sale register hence this will alert the controller.

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Most popular questions from this chapter

The Scott Sun & Shade Company had the following financial data at December 31, 2018:

Cash and cash equivalents $ 60,000

Total current liabilities 75,000

What is the cash ratio as of December 31, 2018, for Scott Sun & Shade?

Preparing a bank reconciliation and journal entries

The December cash records of Davidson Insurance follow:


Davidson鈥檚 Cash account shows a balance of \(17,450 at December 31. On December

31, Davidson Insurance received the following bank statement:

Additional data for the bank reconciliation follow:

a. The EFT credit was a receipt of rent. The EFT debit was an insurance payment.

b. The NSF check was received from a customer.

c. The \)1,400 bank collection was for a note receivable.

d. The correct amount of check no. 1419, for rent expense, is \(1,930. Davidson鈥檚

controller mistakenly recorded the check for \)1,390.

Requirements

1. Prepare the bank reconciliation of Davidson Insurance at December 31, 2018.

2. Journalize any required entries from the bank reconciliation.

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.

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?

What are the five components of internal control? Briefly explain each component.
See all solutions

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