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AC 211 Lecture 11: Fraud, Internal Control, and Cash (Part 3)

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School
Central, CCSU
Department
Accounting
Course
AC 211
Professor
Juan Wang

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Document Summary

Bank reconciliation: process of using both the bank statement and the cash accounts of a business to determine the appropriate amount of cash in a bank account, after taking into consideration delays or errors in processing cash transactions. Key internal control because it provides independent verification of all cash transactions that the bank has processed for the company. Check is cleared when financial institution contacts the check writer"s bank, which in turn withdraws the amount of the check from the check writer"s account and reports it as a deduction on the bank statement. Deposits are listed on the bank statement in the order in which the bank processes them. Other transactions the bank statement is presented from the bank"s point of view. Banks typically explain the reasons for these increases (credits) and decreases (debits) with symbols or in a short memo, appropriately called a credit memo or debit memo.

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Related Questions

Problem 7-5A (Part Level Submission)

Ivanhoe Company of Emporia, Kansas, spreads herbicides andapplies liquid fertilizer for local farmers. On May 31, 2017, thecompany’s Cash account per its general ledger showed a balance of$6,858.90.

The bank statement from Emporia State Bank on that date showed thefollowing balance.

EMPORIA STATE BANK

Checks and Debits

Deposits and Credits

Daily Balance
XXX XXX 5-31 7,088.00


A comparison of the details on the bank statement with the detailsin the Cash account revealed the following facts.

1. The statement included a debit memo of $64.00 for the printingof additional company checks.
2. Cash sales of $907.15 on May 12 were deposited in the bank. Thecash receipts journal entry and the deposit slip were incorrectlymade for $957.15. The bank credited Ivanhoe Company for the correctamount.
3. Outstanding checks at May 31 totaled $267.25, and deposits intransit were $1,904.15.
4. On May 18, the company issued check No. 1181 for $686.00 to H.Moses, on account. The check, which cleared the bank in May, wasincorrectly journalized and posted by Ivanhoe Company for$668.00.
5. A $2,834.00 note receivable was collected by the bank forIvanhoe Company on May 31 through electronic funds transfer.
6. Included with the canceled checks was a check issued by TominsCompany to C. Pernod for $336.00 that was incorrectly charged toIvanhoe Company by the bank.
7. On May 31, the bank statement showed an NSF charge of $500.00for a check issued by Sara Ballard, a customer, to Ivanhoe Companyon account.

a.)Prepare the bank reconciliation at May 31, 2017

b.) Prepare the necessary adjusting entries for Blossom Companyat May 31, 2017. (Credit account titles areautomatically indented when amount is entered. Do not indentmanually.)

The following information is available for the Avisa Company forthe month of November:

a. On November 30, after all transactions have been recorded,the balance in the company's Cash account has a balance of$27,202.

b. The company's bank statement shows a balance on November 30of $29,279.

c. Outstanding checks at November 30 include check #3030 in theamount of $1,525 and check #3556 in the amount of $1,459.

d. A credit memo included with the bank statement indicates thatthe bank collected $780 on a noninterest-bearing note receivablefor Avisa. The bank deducted a $10 collection fee, and credited theremainder of $770 to Avisa's account.

e. A debit memo included with the bank statement shows a $67 NSFcheck from a customer, J. Brown.

f. A deposit placed in the bank's night depository on November30 totaled $1,675, and did not appear on the bank statement.

g. Examination of the checks on the bank statement with theentries in the accounting records reveals that check #3445 for thepayment of an account payable was correctly written for $2,450, butwas recorded in the accounting records as $2,540.

h. Included with the bank statement was a debit memorandum inthe amount of $25 for bank service charges. It has not beenrecorded on the company's books.

Prepare a bank reconciliation and any adjusting entriesneeded.

The following Bankinformation is available for Cooter's Garage for March, 2002
BANK STATEMENT
HAZARD COUNTY STATE BANK
215 Main Street
Hazard, GA 30321
Cooter's Garage Account Number
629 Main Street 62-00062
Hazard, GA 30321 March 31, 2002
BeginningBalance 3/1/2002 $ 15,000.00
TotalDeposits and Other Credits 7,050.00
Total Checksand Other Debits 6,005.00
EndingBalance 3/31/2002 $ 16,045.00
Checks and Debits Deposits and Credits
Date Check No. Amount of Check Date
03/01/02 1462 $ 1,163.00 3/1/2002 $ 1,000.00
03/05/02 1463 62.00 3/2/2002 1,340.00
03/06/02 1464 1,235.00 3/6/2002 210.00
03/09/02 1465 750.00 3/12/2002 1,940.00
03/10/02 1466 1,111.00 3/17/2002 855.00
03/14/02 1467 964.00 3/22/2002 1,480.00
03/19/02 Debit Memo 20.00 Credit Memo 225.00
03/28/02 1468 700.00
The following is a list ofchecks and deposits recorded on the books of Cooter's Garagefor
March, 2002
Date Check Number Amount of Check Date Amount of Deposit
3/1/2002 1463 $ 62.00 3/1/2002 $ 1,340.00
3/5/2002 1464 1,235.00 3/5/2002 210.00
3/6/2002 1465 750.00
3/9/2002 1466 1,111.00 3/10/2002 1,940.00
3/10/2002 1467 964.00
3/14/2002 1468 70.00 3/16/2002 855.00
3/19/2002 1469 1,500.00 3/19/2002 1,480.00
3/28/2002 1470 102.00 3/29/2002 1,500.00
Other Information
1 Check no. 1462 was outstanding from February.(Hint: Not Applicable to current month.)
2 A credit memo for collection of accounts receivablewas included in the bank statement.
3 All checks were paid by the bank at the correctamount.
4 The bank statement included a debit memo forservice charges.
5 The February 28 bank reconciliation showed adeposit in transit of $1,000.
6 Check no. 1468 was for the purchase ofequipment.
7 The unadjusted Cash account balance at March 31 was$16,368.
Required
a. Prepare the bank reconciliation for Cooters Garageat the end of March.
b. Record in general journal form any necessaryentries to the Cash account to adjust it to
the true cash balance.
COOTER'S GARAGE TAccounts
Cash COOTER'S BANK RECONCILIATION
Ending Bank Balance
Add:
Less:
True Cash Balance -
Accounts Receivable
Book Balance
Add:
Less:
Bank Charges
True Cash Balance -
Equipment Expense
Horizontal Model
Cash Acct Rec Bank Chg Equip Exp