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Chapter 7: Q10RQ (page 411)
What are the steps taken to ensure control over purchases and payments by check?
Control over purchases and payments by checks includes three different steps.
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Preparing a bank reconciliation and journal entries
The May cash records of Donald Insurance follow:
Cash Receipts Cash Payments
Date Cash Debit Check No. Cash Credit
May 4 \( 4,230 1416 \) 890
9 520 1417 120
14 530 1418 630
17 1,950 1419 1,090
31 1,840 1420 1,420
1421 900
1422 670
Donald’s Cash account shows a balance of \(17,750 at May 31. On May 31, Donald
Insurance received the following bank statement:
Deposits and other Credits:
May 10
May 1
May 5
May 15
May 18
May 22
Checks and other Debits:
8
11 (check no. 1416)
19
22 (check no. 1417)
29 (check no. 1418)
31 (check no. 1419)
May
May
May
May
May
May
May 31
Ending Balance
Beginning Balance
EFT \) 450
NSF
EFT
BC
\( 18,730
1,700
890
1,100
120
520
4,230
530
1,950
\) 14,400
9,380
375
630
1,900
35 (5,050)
Bank Statement for May
SC
Explanations: BC–bank collection; EFT–electronic funds transfer;
NSF–nonsufficient funds checks; SC–service charge
Additional data for the bank reconciliation follow:
a. The EFT credit was a receipt of rent. The EFT debit was an insurance
payment.
b. The NSF check was received from a customer.
c. The \(1,700 bank collection was for a note receivable.
d. The correct amount of check 1419, for rent expense, is \)1,900. Donald’s controller
mistakenly recorded the check for $1,090.
Requirements
1. Prepare the bank reconciliation of Donald Insurance at May 31, 2018.
2. Journalize any required entries from the bank reconciliation
Accounting for petty cash Jackie’s Dance Studio created a \(220 imprest petty cash fund. During the month, the fund custodian authorized and signed petty cash tickets as follows: Petty Cash Ticket No. Item Account Debited Amount
1 Delivery of programs to customers Delivery Expense \) 20 2 Mail package Postage Expense 10 3 Newsletter Printing Expense 25 4 Key to closet Miscellaneous Expense 40 5 Copier paper Office Supplies 70
Requirements
1. Make the general journal entry to create the petty cash fund. Include an explanation.
2. Make the general journal entry to record the petty cash fund replenishment. Cash in the fund totals \(40. Include an explanation.
3. Assume that Jackie’s Dance Studio decides to decrease the petty cash fund to \)120. Make the general journal entry to record this decrease.
Conduct an Internet search for information on internal control and the Sarbanes-Oxley Act. Write a report of your findings. In your account, discuss some of the advantages and disadvantages of the Sarbanes-Oxley Act. Present it to your class (if required by your instructor).
Defining internal control
Internal controls are designed to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate accounting records.
Requirements
1. Which objective do you think is most important?
2. Which objective do you think the internal controls must accomplish for the business to survive? Give your reason.
Question: What is the difference between an internal auditor and an external auditor?
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