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Chapter 7: Q8RQ (page 411)
How do businesses control cash receipts over the counter?
Cash receipts are controlled with the help of a point-of-sale terminal.
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What does the cash ratio help determine, and how is it calculated?
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.
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.
Applying internal control over cash payments by check
A purchasing agent for Franklin Office Supplies receives the goods that he purchases
and also approves payment for the goods.
Requirements
1. How could this purchasing agent cheat his company?
2. How could Franklin avoid this internal control weakness?
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.
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