ACC120 Lecture Notes - Lecture 7: Petty Cash, Bank Reconciliation, Internal Control

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greenmuskrat329

12 Mar 2019

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Limitations of internal control: cash controls. Internal controls over cash receipts and payments, including petty cash. What is cash: coins, currency, cheques, money orders, travellers" cheques and money on deposit in a bank or similar depository. Compliance with laws and regulations: control activities the company. Design policies and procedures to address the risks faced by: establishment of responsibility. Make specific employees responsible for specific tasks, including authorization: segregation of duties, documentation procedures. Duties are divided in a manner that eliminates the ability to commit a fraud and cover it up. Rules covering the handling and control of documents (such. Control activities 2 as pre-numbering: physical and it controls, independent checks of performance. Over access to and use of assets and records. Reviews of records and performance by independent employees or external parties: human resource controls. Bonding, rotation of duties, requiring vacations, background checks. Cash controls: effective control over cash is essential to:

Related Questions

Solve the following QS and Exercises from your textbook in chapter 8.

QS 8-1

Internal control objectives

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

____	1.	Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud.
____	2.	The primary objective of internal control procedures is to safeguard the business against theft from government agencies.
____	3.	The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.
____	4.	Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

QS 8-2

Cash and equivalents

Choose from the following list of terms/phrases to best complete the following statements.

a.	Cash
b.	Cash equivalents
c.	Outstanding check
d.	Liquidity
e.	Bank reconciliation
f.	Current assets

____	1.	The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts.
____	2.	The term __________ refers to a companyâs ability to pay for its near-term obligations
____	3.	The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes.

QS 8-3

Internal control for cash

A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.

____	a.	A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
____	b.	A voucher system of control is a control system exclusively for cash receipts.
____	c.	A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.
____	d.	A petty cash system is not a control procedure for safeguarding cash.

QS 8-4

Petty cash accounting

The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

____	a.	Fund amount is being reduced
____	b.	Fund amount is being increased
____	c.	Fund is being eliminated
____	d.	Fund is being established

Exercise 8-13^A

Documents in a voucher system

Match each document in a voucher system in column one with its description in column two.

Document

1.	Purchase requisition
2.	Purchase order
3.	Invoice
4.	Receiving report
5.	Invoice approval
6.	Voucher

Description

____	A.	An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	C.	A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
____	D.	A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
____	E.	A document used by department managers to inform the purchasing department to place an order with a vendor.
____	F.	A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Exercise 8-14^B

Record invoices at gross or net amounts

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct.	2	Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30.
	10	Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2.
	17	Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30.
	27	Paid for the merchandise purchased on October 17, less the discount.
		31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you

tanmouse0

Question 14 pts

The five components to a system of internal controls include all of the following except:

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Question 24 pts

An automobile company testing brakes on new vehicles is part of:

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Question 34 pts

Which account would we debit to open a new petty cash fund?

cash

petty cash

miscellaneous expense

petty cash expense

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Question 44 pts

Our company established a petty cash fund with a balance of $200. We have petty cash receipts for travel expenses that total $125. We have counted petty cash and found that we were $2 short. Which of the following would be included in the entry to replenish the fund?

a credit to petty cash for $127

a debit to travel expenses for $125

a credit to cash over and short for $2

a credit to cash for $125

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Question 54 pts

On a bank reconciliation, which of the following will not appear as a deduction on a bank statement?

deposit

NSF check (non-sufficient funds)

service charge

Payments made by EFT (electronic fund transfer)

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Question 64 pts

Our company received a bank statement with a balance of $10,000. The reconciling items include outstanding checks that totaled $2,000 and a deposit in transit of $1,000. What is the adjusted bank balance after we complete the bank reconciliation?

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Question 74 pts

Our company has decided to write off an uncollectible account of $3,000. What account would we credit to record bad debt expense if our company uses the direct write-off method for bad debts?

bad debt expense

accounts receivable

allowance for doubtful accounts

cash

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Question 84 pts

Where does allowance for doubtful accounts appear on our financial statements?

on balance sheet as a current liability

on income statement as part of cost of goods sold

on balance sheet as a contra asset related to accounts receivable

on the statement of retained earnings as a deduction from net income

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Question 94 pts

At the end of 2018, we have a credit balance of $10,000 in allowance for doubtful accounts before the adjusting entry for bad debts expense. The company uses the percentage of sales method to estimate bad debt expense. The company estimates that 3% of net credit sales will be uncollectible for the year. Net credit sales for the year amounted to $1,000,000. What account and amount would we debit to record the adjusting entry for bad debt expense?

bad debt expense, $30,000

allowance for doubtful accounts, $30,000

bad debt expense, $20,000

accounts receivable, $20,000

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Question 104 pts

On July 1, 2017, our company accepts a 9-month 5% note for $12,000. What account and amount would we debit when we record the year-end adjusting entry on December 31, 2017?

interest revenue, $300

interest revenue, $350

interest receivable, $300

interest receivable, $350

sangriadonkey143

Evaluating The policies and procedures used to safeguard assets,ensure accurate business information, and ensure compliance withlaws and regulations.Internal Control of Coins, currency (papermoney), checks, money orders, and money on deposit that isavailable for unrestricted withdrawal from banks and otherfinancial institutions.Cash

The following procedures were recently installed by RaspberryCreek Company:

1)After necessary approvals have been obtained for the paymentof a A special form for recording relevant data about a liabilityand the details of its payment.voucher, the treasurer signs andmails the check. The treasurer then stamps the voucher andsupporting documentation as paid and returns the voucher andsupporting documentation to the accounts payable clerk forfiling.

2)The accounts payable clerk prepares a voucher for eachdisbursement. The voucher along with the supporting documentationis forwarded to the treasurer's office for approval.

3)Along with petty cash expense receipts for postage, officesupplies, etc., several postdated employee checks are in the Aspecial cash fund to pay relatively small amounts.petty cashfund.

4)At the end of the day, cash register clerks are required touse their own funds to make up any cash shortages in theirregisters.

5)At the end of each day, all cash receipts are placed in thebank's night depository.

6)At the end of each day, an accounting clerk compares theduplicate copy of the daily cash deposit slip with the depositreceipt obtained from the bank.

7)All mail is opened by the mail clerk, who forwards all cashremittances to the cashier. The cashier prepares a listing of thecash receipts and forwards a copy of the list to the accountsreceivable clerk for recording in the accounts.

8)The The analysis that details the items responsible for thedifference between the cash balance reported in the bank statementand the balance of the cash account in the ledger.bankreconciliation is prepared by the cashier, who works under thesupervision of the treasurer.

Required:

Indicate whether each of the procedures of internal control overcash listed above represents (1) a strength or (2) a weakness.

ACC120 Lecture Notes - Lecture 7: Petty Cash, Bank Reconciliation, Internal Control

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