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Chapter 7: Q15RQ (page 412)
What is a bank reconciliation?
Bank reconciliation is a statement used to adjust the balance of the bank account and company’s books.
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Fill in the missing information concerning how companies control cash received by mail.
a. The ________ opens the mail and sends customer checks to the treasurer.
b. The ________ deposits the customer checks in the bank.
c. The ________ uses the remittance advices to record the journal entries for cash receipts.
d. The ________ compares the bank deposit to the journal entry for cash receipts.
: 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
Controlling petty cash Just Hangin’ Night Club maintains an imprest petty cash fund of \(150, which is under the control of Sandra Morgan. At March 31, the fund holds \)14 cash and petty cash tickets for office supplies, \(128, and delivery expense, \)15.
Requirements
1. Explain how an imprest petty cash system works.
2. Journalize the establishment of the petty cash fund on March 1 and the replenishing of the fund on March 31.
3. Prepare a T-account for Petty Cash and post to the account. What is the balance of the Petty Cash account at all times?
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.
Identifying internal control weakness in cash receipts
Seawind Productions makes all sales on credit. Cash receipts arrive by mail. Justin
Broadway, the mailroom clerk, opens envelopes and separates the checks from
the accompanying remittance advices. Broadway forwards the checks to another
employee, who makes the daily bank deposit but has no access to the accounting
records. Broadway sends the remittance advices, which show cash received, to
the accounting department for entry in the accounts. Broadway’s only other duty
is to grant sales allowances to customers. (A sales allowancedecreases the customer’s
account receivable.) When Broadway receives a customer check for \(600 less a
\)30 allowance, he records the sales allowance and forwards the document to the
accounting department.
Requirements
1. Identify the internal control weakness in this situation.
2. Who should record sales allowances?
3. What is the amount that should be shown in the ledger for cash receipts?
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