PR 8-5B Bank reconciliation and entries

Sunshine Interiors deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours. The data required to reconcile the bank statement as of July 31 have been taken from various documents and records and are reproduced as follows. The sources of the data are printed in capital letters. All checks were written for payments on account.




BANK RECONCILIATION FOR PRECEDING MONTH (DATED JUNE 30):
Cash balance according to bank statement . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,422.80
Add deposit of June 30, not recorded by bank . . . . . . . . . . . . . . . . . . . . . . . 780.80
$10,203.60
Deduct outstanding checks:
No. 580 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $310.10
No. 602 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85.50
No. 612 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.50
No. 613 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137.50 625.60
Adjusted balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,578.00
Cash balance according to company’s records . . . . . . . . . . . . . . . . . . . . . . . $ 9,605.70
Deduct service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.70
Adjusted balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,578.00
CASH ACCOUNT:
Balance as of July 1 $ 9,578.00
Cash Receipts for Month of July 6,465.42
Duplicate Deposit Tickets:
Date and amount of each deposit in July:
Date Amount Date Amount Date Amount
July 2 $569.50 July 12 $580.70 July 23 $ 713.45
5 701.80 16 600.10 26 601.50
9 819.24 19 701.26 31 1,177.87
CHECKS WRITTEN:
Number and amount of each check issued in July:
Check No. Amount Check No. Amount Check No. Amount
614 $243.50 621 $309.50 628 $ 837.70
615 350.10 622 Void 629 329.90
616 279.90 623 Void 630 882.80
617 395.50 624 707.01 631 1,081.56
618 435.40 625 158.63 632 325.40
619 320.10 626 550.03 633 310.08
620 238.87 627 381.73 634 241.71
Total amount of checks issued in July $8,379.42
JULY BANK STATEMENT:
AMERICAN NATIONAL BANK
 OF DETROIT
DETROIT, MI 48201-2500 (313)933-8547
MEMBER FDIC
ACCOUNT NUMBER
FROM 7/01/20– TO 7/31/20–
BALANCE 9,422.80
DEPOSITS 6,086.35
WITHDRAWALS 7,656.74
OTHER DEBITS
AND CREDITS 3,749.00CR
NEW BALANCE 11,601.41
9
20
4 SUNSHINE INTERIORS
* – – – – – CHECKS AND OTHER DEBITS – – – – – * – DEPOSITS – * – DATE – * – BALANCE– *
No.580 310.10 No.612 92.50 780.80 07/01 9,801.00
No.602 85.50 No.614 243.50 569.50 07/03 10,041.50
No.615 350.10 No.616 279.90 701.80 07/06 10,113.30
No.617 395.50 No.618 435.40 819.24 07/11 10,101.64
No.619 320.10 No.620 238.87 580.70 07/13 10,123.37
No.621 309.50 No.624 707.01 MS 4,000.00 07/14 13,106.86
No.625 158.63 No.626 550.03 MS 160.00 07/14 12,558.20
No.627 318.73 No.629 329.90 600.10 07/17 12,509.67
No.630 882.80 No.631 1,081.56 NSF 375.00 07/20 10,170.31
No.632 325.40 No.634 241.71 701.26 07/21 10,304.46
 731.45 07/24 11,035.91
 601.50 07/28 11,637.41
 SC 36.00 07/31 11,601.41
EC –– ERROR CORRECTION OD –– OVERDRAFT
MS –– MISCELLANEOUS PS –– PAYMENT STOPPED
NSF –– NOT SUFFICIENT FUNDS SC –– SERVICE CHARGE
* * * * * * * * *
THE RECONCILEMENT OF THIS STATEMENT WITH YOUR RECORDS IS ESSENTIAL.
ANY ERROR OR EXCEPTION SHOULD BE REPORTED IMMEDIATELY.




Instructions
1. Prepare a bank reconciliation as of July 31. If errors in recording deposits or checks are discovered, assume that the errors were made by the company. Assume that all deposits are from cash sales. All checks are written to satisfy accounts payable.
2. Journalize the necessary entries. The accounts have not been closed.
3. What is the amount of Cash that should appear on the balance sheet as of July 31?
4. Assume that a canceled check for $180 has been incorrectly recorded by the bank as $1,800. Briefly explain how the error would be included in a bank reconciliation and how it should be corrected.


Answers:


1.

SUNSHINE INTERIORS
Bank Reconciliation
July 31, 20—
Cash balance according to bank statement $11,601.41
Add deposit of July 31, not recorded by bank 1,177.87
$12,779.28
Deduct outstanding checks:
No. 613 $ 137.50
628 837.70
633 310.08 1,285.28
Adjusted balance $11,494.00
Cash balance according to company’s records* $ 7,664.00
Add proceeds of note collected by bank:
Principal $4,000.00
Interest 160.00
Add error in recording July 23 deposit 18.00
Add error in recording Check No. 627 63.00 4,241.00
$11,905.00
Deduct: Check returned because of insufficient funds $ 375.00
Service charges 36.00 411.00
Adjusted balance $11,494.00
* Balance per cash in bank account, July 1……………… $ 9,578.00
Add July receipts…………………………………………… 6,465.42
Deduct July disbursements……………………………… (8,379.42)
Balance per cash in bank account, July 31…………… $ 7,664.00
2.

Cash 4,241.00
Notes Receivable 4,000.00
Interest Revenue 160.00
Sales 18.00
Accounts Payable 63.00
Accounts Receivable 375.00
Miscellaneous Expense 36.00
Cash 411.00
3. $11,494.00
4. The error of $1,620 ($1,800 – $180) in the canceled check should be added to the
“balance according to bank statement” on the bank reconciliation. The canceled
check should be presented to the bank, with a request that the bank balance be
corrected.

PR 8-4B Bank reconciliation and entries

The cash account for Collegiate Sports Co. on November 1, 2014, indicated a balance of $81,145. During November, the total cash deposited was $293,150, and checks written totaled $307,360. The bank statement indicated a balance of $112,675 on November 30, 2014. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:

a. Checks outstanding totaled $41,840.
b. A deposit of $12,200, representing receipts of November 30, had been made too late to appear on the bank statement.
c. A check for $7,250 had been incorrectly charged by the bank as $2,750.
d. A check for $760 returned with the statement had been recorded by Collegiate Sports Co. as $7,600. The check was for the payment of an obligation to Ramirez Co. on account.
e. The bank had collected for Collegiate Sports Co. $7,385 on a note left for collection. The face of the note was $7,000.
f. Bank service charges for November amounted to $125.
g. A check for $2,500 from Hallen Academy was returned by the bank because of insufficient funds.

Instructions
1. Prepare a bank reconciliation as of November 30.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Collegiate Sports Co. on November 30, 2014, what amount should be reported as cash?


Answers:

1.

COLLEGIATE SPORTS CO.
Bank Reconciliation
November 30, 2014
Cash balance according to bank statement $112,675
Add deposit of November 30, not recorded by bank 12,200
$124,875
Deduct: Outstanding checks $41,840
Bank error in charging check as $2,750 instead
of $7,250 4,500 46,340
Adjusted balance $ 78,535
Cash balance according to company’s records* $ 66,935
Add: Proceeds of note collected by bank, including
$385 interest $ 7,385
Error in recording check as $7,600 instead of $760 6,840 14,225
$ 81,160
Deduct: Check returned because of insufficient funds $ 2,500
Bank service charges 125 2,625
Adjusted balance $ 78,535
 Cash balance, November 1………………………………………… $ 81,145
Plus cash deposited in November……………………………… 293,150
Less checks written in November………………………………… (307,360)
Balance per company’s records, November 30………………… $ 66,935
2.

Cash 14,225
Notes Receivable 7,000
Interest Revenue 385
Accounts Payable—Ramirez Co. 6,840
Accounts Receivable—Hallen Academy 2,500
Miscellaneous Expense 125
Cash 2,625
3. $78,535; the adjusted balance from the bank reconciliation should be reported
as cash on the November 30, 2014, balance sheet for Collegiate Sports Co.

PR 8-3B Bank reconciliation and entries

The cash account for Stone Systems at July 31, 2014, indicated a balance of $17,750. The bank statement indicated a balance of $33,650 on July 31, 2014. Comparing the bank statement and the accompanying canceled checks and memos with the records reveals the following reconciling items:

a. Checks outstanding totaled $17,865.
b. A deposit of $9,150, representing receipts of July 31, had been made too late to appear on the bank statement.
c. The bank had collected $6,095 on a note left for collection. The face of the note was $5,750.
d. A check for $390 returned with the statement had been incorrectly recorded by Stone Systems as $930. The check was for the payment of an obligation to Holland Co. for the purchase of office supplies on account.
e. A check drawn for $1,810 had been incorrectly charged by the bank as $1,180.
f. Bank service charges for July amounted to $80.

Instructions
1. Prepare a bank reconciliation.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Stone Systems on July 31, 2014, what amount should be reported as cash?


Answers:

1.

STONE SYSTEMS
Bank Reconciliation
July 31, 2014
Cash balance according to bank statement $33,650
Add deposit of July 31, not recorded by bank 9,150
$42,800
Deduct: Outstanding checks $17,865
Bank error in charging check as $1,180 instead
of $1,810 630 18,495
Adjusted balance $24,305
Cash balance according to company’s records $17,750
Add: Proceeds of note collected by bank, including
$345 interest $ 6,095
Error in recording check 540 6,635
$24,385
Deduct bank service charges 80
Adjusted balance $24,305
2.

Cash 6,635
Notes Receivable 5,750
Interest Revenue 345
Accounts Payable—Holland Co. 540
Miscellaneous Expense 80
Cash 80
3. $24,305; the adjusted balance from the bank reconciliation should be reported
as cash on the July 31, 2014, balance sheet for Stone Systems.

PR 8-2B Transactions for petty cash, cash short and over

Cedar Springs Company completed the following selected transactions during June 2014:

June 1. Established a petty cash fund of $1,000.
12. The cash sales for the day, according to the cash register records, totaled $9,440. The actual cash received from cash sales was $9,506.
30. Petty cash on hand was $46. Replenished the petty cash fund for the following disbursements, each evidenced by a petty cash receipt:
 June 2. Store supplies, $375.
 10. Express charges on merchandise purchased, $105 (Merchandise Inventory).
 14. Office supplies, $85.
 15. Office supplies, $90.
 18. Postage stamps, $33 (Office Supplies).
 20. Repair to fax, $100 (Miscellaneous Administrative Expense).
 21. Repair to office door lock, $25 (Miscellaneous Administrative Expense).
 22. Postage due on special delivery letter, $9 (Miscellaneous Administrative Expense).
 28. Express charges on merchandise purchased, $110 (Merchandise Inventory).
30. The cash sales for the day, according to the cash register records, totaled $13,390. The actual cash received from cash sales was $13,350.
30. Increased the petty cash fund by $200.

Instructions
Journalize the transactions.

Answers:


2014
June 1 Petty Cash 1,000
Cash 1,000
12 Cash 9,506
Cash Short and Over 66
Sales 9,440
30 Store Supplies 375
Merchandise Inventory 215
Office Supplies 208
Miscellaneous Administrative Expense 134
Cash Short and Over 22
Cash 954
30 Cash 13,350
Cash Short and Over 40
Sales 13,390
30 Petty Cash 200
Cash 200

PR 8-5A Bank reconciliation and entries

Beeler Furniture Company deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours. The data required to reconcile the bank statement as of June 30 have been taken from various documents and records and are reproduced as follows. The sources of the data are printed in capital letters. All checks were written for payments on account.




CASH ACCOUNT:
Balance as of June 1 $9,317.40
CASH RECEIPTS FOR MONTH OF JUNE $9,223.76
DUPLICATE DEPOSIT TICKETS:
Date and amount of each deposit in June:
Date Amount Date Amount Date Amount
June 1 $1,080.50 June 10 $ 996.61 June 22 $ 897.34
3 854.17 15 882.95 24 947.21
8 840.50 17 1,606.74 30 1,117.74
CHECKS WRITTEN:
Number and amount of each check issued in June:
Check No. Amount Check No. Amount Check No. Amount
740 $237.50 747 Void 754 $ 449.75
741 495.15 748 $450.90 755 272.75
742 501.90 749 640.13 756 113.95
743 761.30 750 276.77 757 407.95
744 506.88 751 299.37 758 259.60
745 117.25 752 537.01 759 901.50
746 298.66 753 380.95 760 486.39
Total amount of checks issued in June $8,395.66
BANK RECONCILIATION FOR PRECEDING MONTH:
Beeler Furniture Company
Bank Reconciliation
May 31, 20—
Cash balance according to bank statement . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,447.20
Add deposit for May 31, not recorded by bank . . . . . . . . . . . . . . . . . . . . . . . 690.25
$10,137.45
Deduct outstanding checks:
No. 731 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $162.15
 736 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345.95
 738 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251.40
 739 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.55 820.05
Adjusted balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,317.40
Cash balance according to company’s records . . . . . . . . . . . . . . . . . . . . . . . $ 9,352.50
Deduct service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.10
Adjusted balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,317.40
JUNE BANK STATEMENT
AMERICAN NATIONAL BANK
 OF CHICAGO
CHICAGO, IL 60603 (312)441-1239
MEMBER FDIC
ACCOUNT NUMBER
FROM 6/01/20– TO 6/30/20–
BALANCE 9,447.20
DEPOSITS 8,691.77
WITHDRAWALS 7,599.26
OTHER DEBITS
AND CREDITS 3,085.00CR
NEW BALANCE 13,624.71
9
20
4 BEELER FURNITURE COMPANY
* – – – CHECKS AND OTHER DEBITS – – – * – – DEPOSITS – – * – DATE – * – – BALANCE– – *
No.731 162.15 No.736 345.95 690.25 6/01 9,629.35
No.739 60.55 No.740 237.50 1,080.50 6/02 10,411.80
No.741 495.15 No.742 501.90 854.17 6/04 10,268.92
No.743 671.30 No.744 506.88 840.50 6/09 9,931.24
No.745 117.25 No.746 298.66 MS 3,500.00 6/09 13,015.33
No.748 450.90 No.749 640.13 MS 210.00 6/09 12,134.30
No.750 276.77 No.751 299.37 896.61 6/11 12,454.77
No.752 537.01 No.753 380.95 882.95 6/16 12,419.76
No.754 449.75 No.755 272.75 1,606.74 6/18 13,304.00
No.757 407.95 No.760 486.39 897.34 6/23 13,307.00
 942.71 6/25 14,249.71
 NSF 550.00 6/28 13,699.71
 SC 75.00 6/30 13,624.71
EC –– ERROR CORRECTION OD –– OVERDRAFT
MS –– MISCELLANEOUS PS –– PAYMENT STOPPED
NSF –– NOT SUFFICIENT FUNDS SC –– SERVICE CHARGE
* * * * * * * * *
THE RECONCILEMENT OF THIS STATEMENT WITH YOUR RECORDS IS ESSENTIAL.
ANY ERROR OR EXCEPTION SHOULD BE REPORTED IMMEDIATELY.
J





Instructions
1. Prepare a bank reconciliation as of June 30. If errors in recording deposits or checks are discovered, assume that the errors were made by the company. Assume that all deposits are from cash sales. All checks are written to satisfy accounts payable.
2. Journalize the necessary entries. The accounts have not been closed.
3. What is the amount of Cash that should appear on the balance sheet as of June 30?
4. Assume that a canceled check for $390 has been incorrectly recorded by the bank as $930. Briefly explain how the error would be included in a bank reconciliation and how it should be corrected.


Answers:


1.

BEELER FURNITURE COMPANY
Bank Reconciliation
June 30, 20—
Cash balance according to bank statement $13,624.71
Add deposit of June 30, not recorded
by bank 1,117.74
$14,742.45
Deduct outstanding checks:
No. 738 $ 251.40
756 113.95
758 259.60
759 901.50 1,526.45
Adjusted balance $13,216.00
Cash balance according to company’s
records* $10,145.50
Add: Proceeds of note collected by bank:
Principal $3,500.00
Interest 210.00 $3,710.00
Error in recording Check No. 743 90.00 3,800.00
$13,945.50
Deduct: Check returned because of
insufficient funds $ 550.00
Error in recording June 10 deposit 100.00
Error in recording June 24 deposit 4.50
Service charges 75.00 729.50
Adjusted balance $13,216.00
* Balance per cash in bank account, June 1…………… $ 9,317.40
Add June receipts………………………………………… 9,223.76
Deduct June disbursements…………………………… (8,395.66)
Balance per cash in bank account, June 30………… $10,145.50
2.
Cash 3,800.00
Notes Receivable 3,500.00
Interest Revenue 210.00
Accounts Payable 90.00
Sales ($100.00 + $4.50) 104.50
Accounts Receivable 550.00
Miscellaneous Expense 75.00
Cash 729.50
3. $13,216.00
4. The error of $540 ($930 – $390) in the canceled check should be added to the
“balance according to bank statement” on the bank reconciliation. The canceled
check should be presented to the bank with a request that the bank balance be
corrected.

PR 8-1B Evaluating internal control of cash

The following procedures were recently installed by The China Shop:
a. All sales are rung up on the cash register, and a receipt is given to the customer. All sales are recorded on a record locked inside the cash register.
b. Each cashier is assigned a separate cash register drawer to which no other cashier has access.
c. At the end of a shift, each cashier counts the cash in his or her cash register, unlocks the cash register record, and compares the amount of cash with the amount on the record to determine cash shortages and overages.
d. Checks received through the mail are given daily to the accounts receivable clerk for recording collections on account and for depositing in the bank.
e. Vouchers and all supporting documents are perforated with a PAID designation after being paid by the treasurer.
f. Disbursements are made from the petty cash fund only after a petty cash receipt has been completed and signed by the payee.
g. The bank reconciliation is prepared by the cashier.


Instructions
Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness. For each weakness, indicate why it exists.


Answers:
Strengths: a, b, e, and f

Weaknesses:
c. An independent person (for example, a supervisor) should count the cash in each cashier’s cash register, unlock the record, and compare the amount of cash with the amount on the record to determine cash shortages or overages.
d. Cash receipts should not be handled by the accounts receivable clerk. This violates the segregation of duties between the handling of cash receipts and the recording of cash receipts.
g. The bank reconciliation should be prepared by someone not involved with the handling or recording of cash.

PR 8-4A Bank reconciliation and entries

The cash account for Fit Bike Co. at August 1, 2014, indicated a balance of $12,190. During August, the total cash deposited was $28,100 and checks written totaled $33,010. The bank statement indicated a balance of $12,550 on August 31. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:

a. Checks outstanding totaled $7,440.
b. A deposit of $2,880, representing receipts of August 31, had been made too late to appear on the bank statement.
c. The bank had collected for Fit Bike Co. $2,080 on a note left for collection. The face of the note was $2,000.
d. A check for $580 returned with the statement had been incorrectly charged by the bank as $850.
e. A check for $640 returned with the statement had been recorded by Fit Bike Co. as $460. The check was for the payment of an obligation to Brown Co. on account.
f. Bank service charges for August amounted to $20.
g. A check for $900 from Murdock Co. was returned by the bank due to insufficient funds.


Instructions
1. Prepare a bank reconciliation as of August 31.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Fit Bike Co. on August 31, 2014, what amount should be reported as cash?


Answers:

1.

FIT BIKE CO.
Bank Reconciliation
August 31, 2014
Cash balance according to bank statement $12,550
Add: Deposit of August 31, not recorded by bank $2,880
Bank error in charging check as $850 instead
of $580 270 3,150
$15,700
Deduct outstanding checks 7,440
Adjusted balance $ 8,260
Cash balance according to company’s records* $ 7,280
Add proceeds of note collected by bank, including
$80 interest 2,080
$ 9,360
Deduct: Check returned because of insufficient funds $ 900
Bank service charges 20
Error in recording check 180 1,100
Adjusted balance $ 8,260
* Cash balance, August 1……………………………………………… $ 12,190
Plus cash deposited in August……………………………………… 28,100
Less checks written in August……………………………………… (33,010)
Balance per company’s books, August 31………………………… $ 7,280
2.

Cash 2,080
Notes Receivable 2,000
Interest Revenue 80
Accounts Payable—Brown Co. 180
Accounts Receivable—Murdock Co. 900
Miscellaneous Expense 20
Cash 1,100
3. $8,260; the adjusted balance from the bank reconciliation should be reported
as cash on the August 31, 2014, balance sheet for Fit Bike Co.

PR 8-3A Bank reconciliation and entries

The cash account for Remedy Medical Co. at April 30, 2014, indicated a balance of $18,885. The bank statement indicated a balance of $23,775 on April 30, 2014. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

a. Checks outstanding totaled $7,840.
b. A deposit of $3,580, representing receipts of April 30, had been made too late to appear on the bank statement.
c. The bank collected $3,780 on a note left for collection. The face of note was $3,600.
d. A check for $770 returned with the statement had been incorrectly recorded by Remedy Medical Co. as $700. The check was for the payment of an obligation to Copelin Co. for a purchase on account.
e. A check drawn for $330 had been erroneously charged by the bank as $3,300.
f. Bank service charges for April amounted to $110.


Instructions
1. Prepare a bank reconciliation.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Remedy Medical Co. on April 30, 2014, what amount should be reported as cash?


Answers:

1.
REMEDY MEDICAL CO.
Bank Reconciliation
April 30, 2014
Cash balance according to bank statement $23,775
Add: Deposit of April 30, not recorded by bank $3,580
Bank error in charging check as $3,300 instead
of $330 2,970 6,550
$30,325
Deduct outstanding checks 7,840
Adjusted balance $22,485
Cash balance according to company’s records $18,885
Add proceeds of note collected by bank, including
$180 interest 3,780
$22,665
Deduct: Error in recording check $ 70
Bank service charges 110 180
Adjusted balance $22,485
2. Cash 3,780
Notes Receivable 3,600
Interest Revenue 180
Accounts Payable—Copelin Co. 70
Miscellaneous Expense 110
Cash 180
3. $22,485; the adjusted balance from the bank reconciliation should be reported
as cash on the April 30, 2014, balance sheet for Remedy Medical Co.

PR 8-2A Transactions for petty cash, cash short and over

Picasso Restoration Company completed the following selected transactions during May 2014:

May 1. Established a petty cash fund of $800.
10. The cash sales for the day, according to the cash register records, totaled $3,345. The actual cash received from cash sales was $3,358.
31. Petty cash on hand was $275. Replenished the petty cash fund for the following disbursements, each evidenced by a petty cash receipt:
 May 3. Store supplies, $290.
 7. Express charges on merchandise sold, $70 (Delivery Expense).
 9. Office supplies, $12.
 13. Office supplies, $25.
 19. Postage stamps, $18 (Office Supplies).
 21. Repair to office file cabinet lock, $20 (Miscellaneous Administrative Expense).

May 22. Postage due on special delivery letter, $16 (Miscellaneous Administrative Expense).
 24. Express charges on merchandise sold, $40 (Delivery Expense).
 30. Office supplies, $10.
May 31. The cash sales for the day, according to the cash register records, totaled $6,155. The actual cash received from cash sales was $6,125.
 31. Decreased the petty cash fund by $50.

Instructions

Journalize the transactions.


Answers:

2014
May 1 Petty Cash 800
Cash 800
10 Cash 3,358
Cash Short and Over 13
Sales 3,345
31 Store Supplies 290
Delivery Expense 110
Office Supplies 65
Miscellaneous Administrative Expense 36
Cash Short and Over 24
Cash 525
31 Cash 6,125
Cash Short and Over 30
Sales 6,155
31 Cash 50
Petty Cash 50

PR 8-1A Evaluating internal control of cash

The following procedures were recently installed by Raspberry Creek Company:

a. After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing.
b. The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer’s office for approval.
c. Along with petty cash expense receipts for postage, office supplies, etc., several postdated employee checks are in the petty cash fund.
d. At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their registers.
e. At the end of each day, all cash receipts are placed in the bank’s night depository.
f. At the end of each day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank.
g. All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts.
h. The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.

Instructions

Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness. For each weakness, indicate why it exists.


Answers:
Strengths: a, b, e, and f

Weaknesses:
c. Employees should not be allowed to use the petty cash fund to cash personal checks. In any case, postdated checks should not be accepted. In effect, postdated checks represent a receivable from the employees.
d. Requiring cash register clerks to make up any cash shortages from their own funds gives the clerks an incentive to shortchange customers. That is, the clerks will want to make sure that they don’t have a shortage at the end of the day. In addition, one might also assume that the clerks can keep any overages. This would again encourage clerks to shortchange customers. The shortchanging of customers will create customer complaints, etc. The best policy is to report any cash shortages or overages at the end of each day. If a clerk is consistently short or over, then corrective action (training, removal, etc.) could be taken.
g. The mail clerk should prepare an initial listing of cash remittances before forwarding the cash receipts to the cashier. This establishes initial accountability for the cash receipts. The mail clerk should forward a copy of the listing of remittances to the accounts receivable clerk for recording in the accounts.
h. The bank reconciliation should be prepared by someone not involved with the handling or recording of cash.

PE 8-5B Ratio of cash to monthly cash expenses

Financial data for Bonita Company are shown below.


For Year Ended
December 31, 2014
Cash on December 31, 2014 $ 187,180
Cash flow from operations (458,400)


a. Compute the ratio of cash to monthly cash expenses.
b. Interpret the results computed in (a).


Answer:

a. Monthly Cash Expenses = Negative Cash Flow from Operations
12 months
= $458,400
12 months
= $38,200 per month
Ratio of Cash to
Monthly Cash Expenses
Cash as of Year-End = Monthly Cash Expenses
$187,180 = $38,200 per month
= 4.9 months




b. The preceding computations indicate that Bonita Company has 4.9 months of cash remaining as of December 31, 2014. Bonita Company will need to generate positive cash flow from operations or raise additional financing from its owners or by issuing debt.

PE 8-5A Ratio of cash to monthly cash expenses

Financial data for Otto Company are shown below.


For Year Ended
December 31, 2014
Cash on December 31, 2014 $ 69,350
Cash flow from operations (114,000)





a. Compute the ratio of cash to monthly cash expenses.
b. Interpret the results computed in (a).


Answer:

Negative Cash Flow from Operations
a. Monthly Cash Expenses =
= $114,000 = 12 months
12 months
$9,500 per month
Ratio of Cash to
=
Monthly Cash Expenses
Cash as of Year-End
Monthly Cash Expenses
$69,350 = = $9,500 per month
7.3 months



b. The preceding computations indicate that Otto Company has 7.3 months of cash remaining as of December 31, 2014. Otto Company will need to generate positive cash flow from operations or raise additional financing from its owners or by issuing debt.

PE 8-4B Petty cash fund

Prepare journal entries for each of the following:

a. Issued a check to establish a petty cash fund of $900.
b. The amount of cash in the petty cash fund is $115. Issued a check to replenish the fund, based on the following summary of petty cash receipts: store supplies, $550 and miscellaneous selling expense, $200. Record any missing funds in the cash short and over account.


Answer:

a.
 Petty Cash 900
Cash 900
b.
 Store Supplies 550
Miscellaneous Selling Expense 200
Cash Short and Over 35
Cash 785

PE 8-4A Petty cash fund

Prepare journal entries for each of the following:

a. Issued a check to establish a petty cash fund of $1,150.
b. The amount of cash in the petty cash fund is $250. Issued a check to replenish the fund, based on the following summary of petty cash receipts: repair expense, $725 and miscellaneous selling expense, $150. Record any missing funds in the cash short and over account.


Answer:

a.
 Petty Cash 1,150
Cash 1,150
b.
 Repairs Expense 725
Miscellaneous Selling Expense 150
Cash Short and Over 25
Cash 900

PE 8-3B Bank reconciliation

The following data were gathered to use in reconciling the bank account of Conway Company:


Balance per bank $23,900
Balance per company records 8,700
Bank service charges 50
Deposit in transit 5,500
Note collected by bank with $450 interest 9,450
Outstanding checks 11,300




a. What is the adjusted balance on the bank reconciliation?
b. Journalize any necessary entries for Conway Company based on the bank reconciliation.


Answer:
a.
$18,100 as shown below.
Bank section of reconciliation: $23,900 + $5,500 – $11,300 = $18,100
Company section of reconciliation: $8,700 + $9,450 – $50 = $18,100



b.
 Miscellaneous Expense 50
Cash 50
Cash 9,450
Notes Receivable 9,000
Interest Revenue 450

PE 8-3A Bank reconciliation

The following data were gathered to use in reconciling the bank account of Eves Company:


Balance per bank $13,450
Balance per company records 11,655
Bank service charges 45
Deposit in transit 3,000
NSF check 1,800
Outstanding checks 6,640




a. What is the adjusted balance on the bank reconciliation?
b. Journalize any necessary entries for Eves Company based on the bank reconciliation.


Answer:
a.
$9,810 as shown below.
Bank section of reconciliation: $13,450 + $3,000 – $6,640 = $9,810
Company section of reconciliation: $11,655 – $45 – $1,800 = $9,810



b.
 Accounts Receivable 1,800
Miscellaneous Expense 45
Cash 1,845

PE 8-2B Items on company’s bank statement

The following items may appear on a bank statement:
1. Bank correction of an error from posting another customer’s check (disbursement) to the company’s account
2. EFT deposit
3. Loan proceeds
4. NSF check

Using the format shown below, indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company’s account.


Item No.
Appears on the
Bank Statement as
a Debit or Credit
Memo
Increases or Decreases the
Balance of the Company’s
Bank Account


Answer:

Item No.
1
2
3
4
Appears on the Bank Increases or Decreases
Statement as a Debit the Balance of the
or Credit Memo Company’s Bank Account
credit memo increases
credit memo increases
credit memo increases
debit memo decreases

PE 8-2A Items on company’s bank statement

The following items may appear on a bank statement:
1. Bank correction of an error from recording a $4,800 deposit as $8,400
2. EFT payment
3. Note collected for company
4. Service charge

Using the format shown below, indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company’s account.


Item No.
Appears on the
Bank Statement as
a Debit or Credit
Memo
Increases or Decreases the
Balance of the Company’s
Bank Account



Answer:


Item No.
1
2
3
4
Appears on the Bank Increases or Decreases
Statement as a Debit the Balance of the
or Credit Memo Company’s Bank Account
debit memo decreases
debit memo decreases
credit memo increases
debit memo decreases

PE 8-1A Internal control elements

Identify each of the following as relating to (a) the control environment, (b) control procedures, or (c) information and communication.

1. Management’s philosophy and operating style
2. Report of company’s conformity with environmental laws and regulations
3. Separating related operations


Answer:
1. (a) the control environment
2. (c) information and communication
3. (b) control procedures

PE 8-1B Internal control elements

Identify each of the following as relating to (a) the control environment, (b) control procedures, or (c) monitoring.

1. Hiring of external auditors to review the adequacy of controls
2. Personnel policies
3. Safeguarding inventory in a locked warehouse


Answer:
1. (c) monitoring
2. (a) the control environment
3. (b) control procedures