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Chapter 7: Q8RQ (page 411)
How do businesses control cash receipts over the counter?
Cash receipts are controlled with the help of a point-of-sale terminal.
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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?
What are some limitations of internal controls?
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?
Preparing a bank reconciliation and journal entries
The May cash records of Donald Insurance follow:
Cash Receipts Cash Payments
Date Cash Debit Check No. Cash Credit
May 4 \( 4,230 1416 \) 890
9 520 1417 120
14 530 1418 630
17 1,950 1419 1,090
31 1,840 1420 1,420
1421 900
1422 670
Donald鈥檚 Cash account shows a balance of \(17,750 at May 31. On May 31, Donald
Insurance received the following bank statement:
Deposits and other Credits:
May 10
May 1
May 5
May 15
May 18
May 22
Checks and other Debits:
8
11 (check no. 1416)
19
22 (check no. 1417)
29 (check no. 1418)
31 (check no. 1419)
May
May
May
May
May
May
May 31
Ending Balance
Beginning Balance
EFT \) 450
NSF
EFT
BC
\( 18,730
1,700
890
1,100
120
520
4,230
530
1,950
\) 14,400
9,380
375
630
1,900
35 (5,050)
Bank Statement for May
SC
Explanations: BC鈥揵ank collection; EFT鈥揺lectronic funds transfer;
NSF鈥搉onsufficient funds checks; SC鈥搒ervice charge
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 \(1,700 bank collection was for a note receivable.
d. The correct amount of check 1419, for rent expense, is \)1,900. Donald鈥檚 controller
mistakenly recorded the check for $1,090.
Requirements
1. Prepare the bank reconciliation of Donald Insurance at May 31, 2018.
2. Journalize any required entries from the bank reconciliation
Computing the cash ratio Smythe Banners reported the following figures in its financial statements:
Cash $ 26,500 Cash Equivalents 5,000 Total Current Liabilities 30,000 Compute the cash ratio for Smythe Banners.
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