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Chapter 7: Q7SE (page 413)

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?

Short Answer

Expert verified
  1. Signature card
  2. Bank statement
  3. Deposit ticket

Step by step solution

01

Definition of the bank

A bank is a type of association that provides the facility of money deposit to its customer.

02

Bank control protects against forgery

The signature card is the document that protects against forgery. Because in signature cash, the signature of the authorised person is taken, and without the signature of the authorised person, no transaction is made.

03

Bank controls report the activity of the customer

The bank statement is the document that reports the activity of the customer. It reports each deposit and withdrawal made by the customer of the period. A complete record of the customer activity is kept by the bank. Hence, in this way, the bank statement reports customers鈥� activity.

04

Bank control confirms the amount of money put into the bank account

The deposit ticket is the bank control that confirms the amount of money put into the bank account. The customer fills this ticket while he deposits the money, and the cashier also attests this ticket. Hence, this control confirms the money put into a 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).

What does the cash ratio help determine, and how is it calculated?

Preparing a bank reconciliation

Jim Root Corporation operates four bowling alleys. The business just received the

On October 31, 2018, bank statement from City National Bank, and the statement shows

an ending balance of \(910. Listed on the statement are an EFT rent collection of

\)440, a service charge of \(7, NSF checks totaling \)50, and a \(23 charge for printed

checks. In reviewing the cash records, the business identified outstanding checks totaling

\)440 and a deposit in transit of \(1,800. During October, the business recorded a

\)260 check by debiting Salaries Expense and crediting Cash for \(26. The business鈥檚

Cash account shows an October 31 balance of \)2,144.

Requirements

1. Prepare the bank reconciliation at October 31.

2. Journalize any transactions required from the bank reconciliation.

Levon Helm was a kind of one-person mortgage broker. He would drive around Tennessee looking for homes that had second mortgages, and if the criteria were favorable, he would offer to buy the second mortgage for 鈥渃ash on the barrelhead.鈥� Helm bought low and sold high, making sizable profits. Being a small operation, he employed one person, Cindy Patterson, who did all his bookkeeping. Patterson was an old family friend, and he trusted her so implicitly that he never checked up on the ledgers or the bank reconciliations. At some point, Patterson started 鈥渂orrowing鈥� from the business and concealing her transactions by booking phony expenses. She intended to pay it back someday, but she got used to the extra cash and couldn鈥檛 stop. By the time the scam was discovered, she had drained the company of funds that it owed to many of its creditors. The company went bankrupt, Patterson did some jail time, and Helm lost everything

Requirements

  1. What was the key control weakness in this case?
  2. Many small businesses cannot afford to hire enough people for adequate separation of duties. What can they do to compensate for this?

Evaluating internal control over cash receipts Dogtopia sells pet supplies and food and handles all sales with a cash register. The cash register displays the amount of the sale. It also shows the cash received and any change returned to the customer. The register also produces a customer receipt butkeeps no internal record of the transactions. At the end of the day, the clerk counts the cash in the register and gives it to the cashier for deposit in the company bank account.

Requirements

1. Identify the internal control weakness over cash receipts.

2. What could you do to correct the weakness?
See all solutions

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