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Chapter 7: 2RQ (page 411)
Question: How does the Sarbanes-Oxley Act relate to internal controls?
Answer:
Sarbanes-Oxley Act revamped corporate governance in the United States and was introduced to establish the internal control system in an organization to prevent the accounting scandals.
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When are the only times the Petty Cash account is used in a journal entry?
Preparing a bank reconciliation and journal entries
This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and
continued through Chapter 6.
In March 2019, Crystal Clear Cleaning opened a new checking account at First
Regional Bank. The bank statement dated March 31, 2019, for Crystal Clear
Cleaning follows:
Beginning Balance, March 1, 2019
Deposits and other credits:
Mar. 2
10
18
20
23 EFT Peg’s Restaurant(1)
(1) Peg’s Restaurant is a customer making a payment on account.
(3) Texas Energy is a utility provider.
(2) Check Art is a company that prints business checks (considered a
bank expense) for Crystal Clear Cleaning.
\(33,000
900
19,000
50,000
350
Checks and other debits:
Mar. 2 EFT to Check Art(2)
Ending balance, March 31, 2019
\) 0
31 Interest Revenue 50
5 Ck#235
9 Ck#237
9 Ck#236
26 Ck#239
10
2,400
1,500
2,900
2,000
28 EFT to Texas Energy(3) 130
29 Ck#240 300
31 Bank service charge 25
103,300
(9,265)
$ 94,035
Crystal Clear Cleaning’s Cash account in the general ledger shows the following
transactions for March:
Cash—First Regional Bank Checking Account
Balance
Deposit
Deposit
Deposit
Deposit
2,400
2,900
1,500
400
2,000
94,870
Mar. 2
10
18
20
31 Deposit
33,000
900
19,000
50,000
1,770
Mar. 2
4
5
10
21
Ck#235
Ck#236
Ck#237
Ck#238
Ck#239
300
300
23
29
Ck#240
Ck#241
Balance
Requirements
1. Prepare the bank reconciliation at March 31, 2019.
2. Journalize any required entries from the bank reconciliation. Post to the CashT-account to verify the balance of the account matches the adjusted book balancefrom the bank reconciliation.
Match the accounting terminology to the definitions.
1. Sarbanes-Oxley Act
2. Internal control
3. Encryption
4. Separation of duties
5. Internal auditors
a. Organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records.
b. Employees of the business who ensure that the company’s employees are following company policies and meeting legal requirements and that operations are running efficiently.
c. Rearranging plain-text messages by a mathematical process—the primary method of achieving security in e-commerce.
d. Requires companies to review internal control and take responsibility for the accuracy and
completeness of their financial reports.
e. Dividing responsibilities between two or more people.
In 100 words or fewer, explain why there may be a difference between the bank statement ending cash balance and the ending balance in the Cash account. Give at least two examples of adjustments to the bank balance and the book balance.
What are the steps taken to ensure control over purchases and payments by check?
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