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Chapter 7: Q16RQ (page 412)
List some examples of timing differences, and for each difference, determine if it would affect the book side of the reconciliation or the bank side of the reconciliation.
Examples of bank reconciliation statements are check deposits, EFT payments, and cash deposits.
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Question: What is the difference between an internal auditor and an external auditor?
Preparing a bank reconciliation and journal entries
The August 31 bank statement of Well Healthcare has just arrived from United Bank.
To prepare the bank reconciliation, you gather the following data:
a. The August 31 bank balance is \(4,540.
b. The bank statement includes two charges for NSF checks from customers. One is
for \)380 (#1), and the other is for \(180 (#2).
c. The following Well Healthcare checks are outstanding at August 31:
Check No. Amount
237 \) 80
288 190
291 570
294 600
295 30
296 70
d. Well collects from a few customers by EFT. The August bank statement lists a
\(1,200 EFT deposit for a collection on account.
e. The bank statement includes two special deposits that Well hasn’t recorded yet:
\)800 for dividend revenue, and \(120 for the interest revenue Well earned on its
bank balance during August.
f. The bank statement lists a \)50 subtraction for the bank service charge.
g. On August 31, the Well treasurer deposited \(260, but this deposit does not appear
on the bank statement.
h. The bank statement includes a \)1,050 deduction for a check drawn by Multi-State
Freight Company. Well notified the bank of this bank error.
i. Well’s Cash account shows a balance of $2,800 on August 31.
Requirements
1. Prepare the bank reconciliation for Well Healthcare at August 31, 2018.
2. Journalize any required entries from the bank reconciliation. Include anexplanation for each entry.
Phoenix Restaurants accepts credit and debit cards as forms of payment. Assume Phoenix had $12,000 of credit and debit card
sales on June 30, 2017.
9. Suppose Phoenix’s processor charges a 2% fee and deposits sales net of the fee. Journalize the sale transaction for the
restaurant.
10. Suppose Phoenix’s processor charges a 2% fee and deposits sales using the gross method. Journalize the sale transaction for
the restaurant.
What is a bank reconciliation?
Understanding the Sarbanes-Oxley Act and identifying internal control strengths and weaknesses. The following situations suggest a strength or a weakness in internal control.
a. Top managers delegate all internal control procedures to the accounting department.
b. Accounting department staff (or the bookkeeper) orders merchandise and approves invoices for payment.
c. Cash received over the counter is controlled by the sales clerk, who rings up the sale and places the cash in the register. The sales clerk matches the total recorded by the register to each day’s cash sales.
d. The employee who signs checks need not examine the payment packet because he is confident the amounts are correct.
Requirements
1. Define internalcontrol.
2. The system of internal control must be tested by external auditors. What law or rule requires this testing?
3. Identify each item in the list above as either a strength or a weakness in internal control, and give your reason for each answer.
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