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Chapter 7: Q14RQ (page 411)
What are some common controls used with a bank account?
Some common controls are signature card, check, and deposit ticket.
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Preparing a bank reconciliation and journal entries
The December cash records of Davidson Insurance follow:
Davidson’s Cash account shows a balance of \(17,450 at December 31. On December
31, Davidson Insurance received the following bank statement:
Additional data for the bank reconciliation follow:
a. The EFT credit was a receipt of rent. The EFT debit was an insurance payment.
b. The NSF check was received from a customer.
c. The \)1,400 bank collection was for a note receivable.
d. The correct amount of check no. 1419, for rent expense, is \(1,930. Davidson’s
controller mistakenly recorded the check for \)1,390.
Requirements
1. Prepare the bank reconciliation of Davidson Insurance at December 31, 2018.
2. Journalize any required entries from the bank reconciliation.
Evaluating internal control over cash payments Gary’s Great Cars purchases high-performance auto parts from a Nebraska vendor. Dave Simon, the accountant for Gary’s, verifies receipt of merchandise and then prepares, signs, and mails the check to the vendor.
Requirements
1. Identify the internal control weakness over cash payments.
2. What could the business do to correct the weakness?
Preparing a bank reconciliation and journal entries
The October 31 bank statement of Wyndham’s Healthcare has just arrived from State
Bank. To prepare the bank reconciliation, you gather the following data:
a. The October 31 bank balance is \(6,290.
b. The bank statement includes two charges for NSF checks from customers. One is
for \)370 (#1), and the other is for \(180 (#2).
c. The following Wyndham’s checks are outstanding at October 31:
Check No. Amount
237 \) 120
288 140
291 570
294 570
295 30
296 110
d. Wyndham’s collects from a few customers by EFT. The October bank statement
lists a \(2,200 EFT deposit for a collection on account.
e. The bank statement includes two special deposits that Wyndham’s hasn’t recorded
yet: \)900 for dividend revenue and \(100 for the interest revenue Wyndham’s
earned on its bank balance during October.
f. The bank statement lists a \)80 subtraction for the bank service charge.
g. On October 31, the Wyndham’s treasurer deposited \(270, but this deposit does
does not appear on the bank statement.
h. The bank statement includes a \)750 deduction for a check drawn by Multi-State
Freight Company. Wyndham’s notified the bank of this bank error.
i. Wyndham’s Cash account shows a balance of $3,200 on October 31.
Requirements
1. Prepare the bank reconciliation for Wyndham’s Healthcare at October 31, 2018.
2. Journalize any required entries from the bank reconciliation. Include an explanation for each entry.
What are the steps taken to ensure control over purchases and payments by check?
: Identifying timing differences related to a bank reconciliation
For each timing difference listed, identify whether the difference would be reported on
the book side of the reconciliation or the bank side. In addition,
identify whether the difference would be an addition or subtraction.
a. Deposit in transit
b. Bank collection
c. Debit memorandum from bank
d. EFT cash receipt
e. Outstanding checks
f. \(1,000 deposit erroneously recorded
by the bank as \)100
g. Service charges
h. Interest revenue
i. \(2,500 cash payment for rent
expense erroneously recorded by
the business as \)250
j. Credit memorandum from bank
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