YOUR NAME
ACCT-2150 SPRING 2023
Week 12 Assignment: Chapter 10
10-1
10-2
Sycamore Resorts has the following internal control procedures over cash receipts.
Identify the internal control principle that is applicable to each procedure.
1. All over-the-counter receipts are registered
on cash registers
Physical Control
2. All cashiers are bonded.
Human Resource control
3. Daily cash counts are made by cashier
department supervisors.
Independent internal verification
4. The duties of receiving cash, recording cash,
and having custody of cash are assigned to
different individuals.
Segregation of duties
5. Only cashiers may operate cash registers.
Establishment of responsibility
George Hunting Lodge has the following internal control procedures over cash
disbursements.
Identify the internal control principle that is applicable to each procedure.
1. Company checks are prenumbered.
Documentation procedures
2. The bank statement is reconciled monthly by
an internal auditor.
Independent internal verification
3. Blank checks are stored in a safe in the
treasurer’s office.
Physical control
4. Only the treasurer or the assistant treasurer
may sign checks.
Establishment of responsibility
5. Check signers are not allowed to record cash
disbursement transactions.
Segregation of duties
10-3
Sue Ernesto is the owner of Ernesto’s Pizza. Ernesto’s is operated strictly on a
carryout basis. Customers pick up their orders at a counter where a clerk exchanges
the pizza for cash. While at the counter, the customer can see other employees
making the pizzas and the large ovens in which the pizzas are baked.
Instructions
Identify the six principles of internal control, and give an example of each principle
that you might observe when picking up your pizza. (Note: It may not be possible to
observe all the principles.)
10-4
Independent internal verification:
The clerk who exchanges the pizza for
cash inspects the pizza to see if it’s the
correct order for the customer.
Establishment of responsibility:
The employees should be familiar with
their responsibilities. So, as the
employees are making pizza in the
back, the clerk is handling the
transaction with the customer.
Segregation of duties:
Multiple employees is involved in
completing an order. Employees are
assigned to responsibilities to make the
pizza while the clerk is responsible for
delivering the pizza.
Physical control:
The pizzeria is operating on a carryout
basis. This protects company’s
property.
Documentation Procedures:
Clerk maintains a proper record of all
sales and uses order invoice to register
the sale.
Other controls:
Customers can see employees making
pizza. This shows control over quality.
The following control procedures are used at Sandwich Company for over-thecounter cash receipts.
1. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché
case in the stock room until it is deposited in the bank.
2. All over-the-counter receipts are registered by three clerks who use a cash register with a
single cash drawer.
3. The company accountant makes the bank deposit and then records the day’s receipts.
4. At the end of each day, the total receipts are counted by the cashier on duty and
reconciled to the cash register total.
5. Cashiers are experienced; they are not bonded.
Instructions
(a) For each procedure, explain the weakness in internal control, and identify the
control principle that is violated.
(b) For each weakness, suggest a change in procedure that will result in good
internal control
Weakness in Internal Control
Control Principle
Recommended Change in Procedure
1.
The cash is not fully secured since it
is unlocked and is accessible to being
robbed
Safeguard of assets
Having restrictions on which employee can have
access to the safe and to have a set password for
the safe
2.
Having multiple clerks handling one
register can be difficult due to the
accountability
Accountability
Having three registers and assign each clerk to
them. This will help show who’s accountable and
who’s not
3.
The company is having is having the
same person make bank deposits
which can lead to fraud
Segregation of Duties
Give the responsibility to someone else since an
accountant should be handling the money in that
way. The company can also have another person
keep track of the records
4.
Having the same person verify the
receipts and reconciled them to the
cash register can cause the person to
create errors or possible fraud
Segregation of duties
Have two cashiers: one is responsible with
counting the receipts, the other is responsible
with reconciling them to the cash register
5.
The cash is not protected from theft
Safeguard of assets
Employees (cashiers) who handles a heavy load
of money, should be bonded
10-5
The following control procedures are used in Morgan’s Fishing Excursions for cash
disbursements:
1. The company accountant prepares the bank reconciliation and reports any discrepancies
to the owner.
2. The store manager personally approves all payments before signing and issuing checks.
3. Each week, Morgan leaves 100 company checks in an unmarked envelope on a shelf
behind the cash register.
4. After payment, bills are filed in a paid invoice folder.
5. The company checks are unnumbered.
Instructions
(a) For each procedure, explain the weakness in internal control, and identify the internal
control principle that is violated.
(b) For each weakness, suggest a change in the procedure that will result in good internal
control.
Weakness in Internal Control
Control Principle
Recommended Change in Procedure
1.
The bank reconciliation is prepared
but not independently. The accountant
has a specific responsibility
Independent internal verification
An employee with no cash responsibility should
be in charge of preparing the bank reconciliation.
2.
The store manager is the only one
approving all payments
Segregation of duties
The treasurer of the store should be the one
issuing the checks. The store clerk should be
approving bills for payment instead.
3.
The checks are not correctly and
safely stored in a secured spot
Physical, mechanical, and electronic control
Having a well secured safe to keep the checks
away from and theft issue
4.
Bills could be paid more than once
due to filing
Other controls
Bills should have a signature stamp to signify and
assure that it was paid
5.
Checks are not prenumbered
Documentation procedure
Checks should be prenumbered
10-6 Lisa Ceja is unable to reconcile the bank balance for her catering company on
January 31. Lisa’s reconciliation is as follows:
Cash balance per bank
Add: NSF check
Less: Bank service charge
Adjusted balance per bank
$3,660.20
590.00
25.00
$4,225.20
Cash balance per books
Less: Deposits in transit
Add: Outstanding checks
Adjusted balance per books
$3,875.20
530.00
930.00
$4,275.20
Instructions
(a) Prepare a correct bank reconciliation.
Lisa Ceja
Date
Accounts Titles and explanation
Debit
Bank Reconciliation
N/A
Service charge
Cash
Accounts Receivable
$ 25.00
Balance per bank
$3,660.20
Add: Deposit
$ 530.00
Total
$ 4,190.20
Less: Outstanding Checks
$ 930.00
Adjusted balance per bank $3,260.20
$ 590.00
(b) Journalize the entries required by the reconciliation.
Checks Cleared in May
Date
10-7 On April 30, the bank reconciliation of Ottawa Travel shows three outstanding
checks: no. 254, $650; no. 255, $720; and no. 257, $410. The May bank statement and the
May cash payments journal show the following:
Date
5/4
5/2
5/17
5/12
5/20
5/29
5/30
Bank Statement
Checks Paid
Check No.
Amount
254
650
257
410
258
159
259
275
261
500
263
480
262
750
Cash Payments Journal
Checks Issued
Date
Check No.
Amount
5/2
258
159
5/5
259
275
5/10
260
790
5/15
261
500
5/22
262
750
5/24
263
480
5/29
264
560
Instructions:
Using step 2 in the reconciliation procedure, list the outstanding checks on May 31.
Outstanding Checks on 31 May
Date
Check No.
May 31
255
May 31
260
May 31
264
10-8
Amount
The following information pertains to Worthy Tours:
1.
Cash balance per bank, July 31, $7,263.
2.
July bank service charge not recorded by the depositor $28.
3.
Cash balance per books, July 31, $7,284.
4.
Deposits in transit, July 31, $1,500.
5.
Bank collected $800 note for Worthy in July, plus interest $36, less collection fee
$20. The collection has not been recorded by Worthy, and no interest has been accrued.
6.
Outstanding checks, July 31, $691.
Instructions
(a) Prepare a bank reconciliation at July 31.
WORTHY TOURS
Bank Reconciliation
July 31
Cash Balance per Bank Statement
Add: Deposits in Transit
Less: Outstanding Checks
Adjusted cash balance per bank
Cash balance per books
Add: Collection of note receivable
($800 plus accrued interest $36,
less collection fee $20)
Less: Bank Service Charge
Adjusted cash balance per books
(b) Journalize the adjusting entries at July 31 on the books of Worthy Tours.
July 31 Cash
Miscellaneous Expense……………………………………………………
Notes Receivable…………………………………………………..
Interest Revenue……………………………………………………
31
Miscellaneous Expense……………………………………………………
Cash…………………………………………………………………….
10-9 The following information relates to the Cash account in the ledger of Dick Wasson
Company:
Balance September 1—$17,150; Cash deposited—$64,000
Balance September 30—$17,404; Checks written—-$63,746
The September bank statement shows a balance of $16,422 on September 30 and the following
memoranda:
Credits
Collection of $1,500 note plus Interest $30
Interest earned on checking amount
$1,530
$ 45
Debits
NSF Check J.E. Hoover
Safety Deposit Box Rent
On September 30, deposits in transit were $4,150, and outstanding checks totaled $2,383.
Instructions
(a) Prepare the bank reconciliation at September 30.
DICK WASSON COMPANY
Bank Reconciliation
September 30
Cash Balance per Bank Statement
Add: Deposits in transit
Less: Outstanding Checks
Adjusted Cash Balance per Bank
Cash Balance per Books
Add: Collection of Note Receivable
($1,500 + $30)
Interest Earned
Less: NSF Check
Safety Deposit Box Rent
Adjusted Cash Balance per Books
(b) Prepare the adjusting entries at September 30, assuming
(1) the NSF check was from a customer on account, and
$ 725
$ 65
(2) no interest had been accrued on the note.
Sept. 30
Cash ……………………………………………………………….
Notes Receivable………………………………………………
Interest Revenue……………………………………………….
30
Cash ……………………………………………………………….
Interest Revenue……………………………………………….
30
Miscellaneous Expense……………………………………………….
Cash………………………………………………………………..
30
Accounts Receivable-J. E. Hoover……………………………..
Cash
10-10 The cash records of Sugar Land Country Club (SLCC) show the following four
situations:
Compute deposits in transit
1. The June 30 bank reconciliation indicated that deposits in transit total $920. During July
the general ledger account Cash shows deposits of $15,750, but the bank statement
indicates that only $15,600 in deposits was received during the month.
2. The June, 30 bank reconciliation also reported outstanding checks of $880. During the
month of July, SLCC books show that $17,200 of checks were issued. The bank statement
showed that $16,400 of checks cleared the bank in July.
3. In September, deposits per bank statement totaled $26,700; deposits per books were
$25,400; and deposits in transit at September 30 were $2,600.
4. In September, cash disbursements per books were $23,700; checks clearing the banks
were $24,000; and outstanding checks at September 30 were $2,100.
There were no bank debit or credit memoranda. No errors were made by either the bank
or SLCC.
Instructions
Answer the following questions.
(a) In situation (1), what were the deposits in transit at July 31?
Deposits in transit:
Deposits per books in July……………………………………………..
Less: Deposits per bank in July………………………………………
Deposits in transit, June 30……………………………….
July receipts deposited in July………………………………………..
Deposits in transit, July 31……………………………………………..
(b) In situation (2), what were the outstanding checks at July 31?
Outstanding checks:
Checks per books in July……………………………………………….
Less: Checks clearing bank in July…………………………………
Outstanding checks, June 30…………………………….
July checks cleared in July……………………………………………..
Outstanding checks, July 31…………………………………………..
(c)
In situation (3), what were the deposits in transit at August 31?
Deposits in transit:
Deposits per bank statement in September……………………………………………..
Add: Deposits in transit, September 30……………………………………………….
Total deposits to be accounted for………………………………………………………..
Less: Deposits per books…………………………………………………………………….
Deposits in transit, August 31………………………………………………………………
(d) In situation (4), what were the outstanding checks at August 31?
Outstanding checks:
Checks clearing bank in September……………………………………………………….
Add: Outstanding checks, September 30……………………………………………..
Total checks to be accounted for…………………………………………………………..
Less: Cash disbursements per books……………………………………………………..
Outstanding checks, August 31…………………………………………………………….
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