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Chapter 7: Problem 4

The actual cash received from cash sales was \(\$ 17,572.40\), and the amount indicated by the cash register total was \(\$ 17,589\).65. Journalize the entry to record the cash receipts and cash sales.

Short Answer

Expert verified
Record the cash received and a discrepancy of $17.25 under "Cash Over and Short" in the journal entry.

Step by step solution

01

Determine the Cash Register Discrepancy

First, find the difference between the cash recorded in the register and the actual cash received. Subtract the actual cash received from the cash register total: \[\text{Discrepancy} = 17589.65 - 17572.40 = 17.25.\] This discrepancy of $17.25 indicates an over-recording in the cash register.
02

Prepare the Journal Entry

Now, prepare the journal entry to record the cash sales. We will need to debit and credit the correct accounts:- Debit the Cash account by the actual amount received: \[\text{Debit: Cash} \quad \\(17,572.40.\]- Since there is an over-recording in the cash register by \)17.25, credit the Sales account with the register amount:\[\text{Credit: Sales} \quad \\(17,589.65.\]- The difference should go to the Cash Over and Short account, which will be debited to reflect the shortage:\[\text{Debit: Cash Over and Short} \quad \\)17.25.\]The complete journal entry therefore is:- Debit the Cash account: \(17,572.40- Debit the Cash Over and Short: \)17.25- Credit the Sales account: $17,589.65
03

Verify and Document the Journal Entry

Review the journal entry to ensure accuracy. The debits should match the credits, confirming the entry is balanced: - Total Debits: $17,572.40 (Cash) + $17.25 (Cash Over and Short) = $17,589.65 - Total Credit: $17,589.65 (Sales) The journal entry is balanced. Document it in the accounting records for reference and reporting.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Understanding Cash Register Discrepancy
In day-to-day business activities, discrepancies between actual cash received and recorded sales can sometimes occur. This is known as a cash register discrepancy. It might happen due to administrative errors, theft, or incorrect change being given back to customers.
To identify a discrepancy, compare the cash shown in the register with the actual cash counted. In our exercise, the register showed $17,589.65, whereas the actual cash received was $17,572.40.
The difference of $17.25 suggests an over-recording in the cash register.
  • Frequent discrepancies can indicate training needs for staff or potential theft issues.
  • Always document such events consistently to track trends over time.
Exploring Cash Over and Short
The Cash Over and Short account is a special accounting record that helps businesses track discrepancies like the one we observed.
When there's a mismatch between expected cash inflow and actual counts, this account steps in to journalize the difference. In our example, the cash discrepancy of $17.25 needs to be recorded.

Why Use the Cash Over and Short Account?

This account offers an insightful snapshot into company operations, revealing patterns in cash handling efficiency. Whether the shortfall or surplus was due to human or systemic error, having a reliable way to document these differences is invaluable.
  • Recording discrepancies regularly helps to identify persistent issues.
  • An over amount means more cash in the register than expected, while a short amount indicates less.
Role of Accounting Records
Accounting records are essential for ensuring all business activities are accurately documented. Journal entries, such as the one discussed in the exercise, serve as crucial components of these records.
They provide not only a financial snapshot but also ensure compliance and accountability within the business.
In our solution, we recorded a journal entry to document the actual cash received, over-recording, and eventual sales values.
Here's why maintaining precise records is vital:
  • They serve as evidence for auditing and tax purposes.
  • They help in decision-making by showing past financial performance.
  • Good record-keeping bolsters company credibility and transparency.
Understanding Cash Sales
Cash sales are transactions where payment is received at the point of sale. These transactions are straightforward but require careful handling to ensure accuracy.
Inaccuracies can affect the business's financial statements, under or overstating revenues.
In the exercise, the cash sales recorded in the journal entry reflect the total cash recorded by the register, despite the actual cash being different.
  • Cash sales require rigorous controls to prevent errors.
  • Ensure cashiers accurately record each transaction to prevent discrepancies.
  • Instant payments lead to immediate revenue recognition.

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Most popular questions from this chapter

The mailroom employees send all remittances and remittance advices to the cashier. The cashier deposits the cash in the bank and forwards the remittance advices and duplicate deposit slips to the Accounting Department. a. In Indicate the weak link in internal control in the handling of cash receipts. b. I_ How can the weakness be corrected?

For a recent fiscal year, Circuit City's quarterly balances of cash and cash equivalents were as follows: \(\begin{array}{lr}\text { End of February } & \$ 885 \text { million } \\\ \text { End of May } & \$ 1,176 \text { million } \\ \text { End of August } & \$ 847 \text { million } \\ \text { End of November } & \$ 438 \text { million }\end{array}\) What would you expect would be the cause of the variation in Circuit City's balances of cash and cash equivalents?

Deana Crisman works at the drive-through window of Awesome Burgers. Occasionally, when a drive-through customer orders, Deana fills the order and pockets the customer's money. She does not ring up the order on the cash register. 1\. Identify the internal control weaknesses that exist at Awesome Burgers, and discuss what can be done to prevent this theft.

Satchell Company, a communications equipment manufacturer, recently fell victim to an embezzlement scheme masterminded by one of its employees. To understand the scheme, it is necessary to review Satchell's procedures for the purchase of services. The purchasing agent is responsible for ordering services (such as repairs to a photocopy machine or office cleaning) after receiving a service requisition from an authorized manager. However, since no tangible goods are delivered, a receiving report is not prepared. When the Accounting Department receives an invoice billing Satchell for a service call, the accounts payable clerk calls the manager who requested the service in order to verify that it was performed. The embezzlement scheme involves Drew Brogan, the manager of plant and facilities. Drew arranged for his uncle's company, Brogan Industrial Supply and Service, to be placed on Satchell's approved vendor list. Drew did not disclose the family relationship. On several occasions, Drew would submit a requisition for services to be provided by Brogan Industrial Supply and Service. However, the service requested was really not needed, and it was never performed. Brogan would bill Satchell for the service and then split the cash payment with Drew. 1\. Explain what changes should be made to Satchell's procedures for ordering and paying for services in order to prevent such occurrences in the future.

Accompanying a bank statement for Covershot Company is a credit memorandum for \(\$ 15,300\), representing the principal \((\$ 15,000)\) and interest \((\$ 300)\) on a note that had been collected by the bank. The depositor had been notified by the bank at the time of the collection, but had made no entries. Journalize the entry that should be made by the depositor to bring the accounting records up to date.
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