Bus1125 - Financial Accounting - ARCC

Chapter 4 Cash and Internal Controls

Chapter 4 Learning Objectives:

(1). Describe the impact of accounting scandals and the passage of the Sarbanes-Oxley Act.

(2). Identify the components, responsibilities, and limitations of internal control.

(3). Define cash and cash equivalents.

(4). Understand controls over cash receipts and cash disbursements.

(5). Reconcile a bank statement.

(6). Account for employee purchases.

(7). Identify the major inflows and outflows of cash.

(8). Assess cash holdings by comparing cash to noncash assets.

I. The bank reconciliation what is it?

In general, a reconciliation is just an explanation as to why/how two amounts differ.

In bank a reconciliation, the two numbers that differ for a given company are the amount of cash per the bank statement and the amount of cash per the G/L [books].

A. When, and how often, is the bank rec performed?

A bank rec should be performed at the end of every month (as it is an internal control procedure) and it should be performed by someone independent of the normal recording and custody of cash duties.

Physically the bank rec is prepared ffter month-end when the bank statement is received [but the reconciliation is performed as of the last day of the month.

B. How to perform a bank reconciliation:

1. Prepare a two column reconciliation

=> the two columns are balance per books and balance per bank, and are reconciled to a common number which is the correct balance.

2. reconciling items are those items that are recorded in one of the two places (bank or books) but not on the other

3. in the real world the two most common items that are reconciling items in the balance per bank column are deposits in transit and outstanding checks.

4. the reconciling items for the balance per books column are items shown on the bank statement not yet recorded in the books [you make an AJE to record these items on the books]

5. in the real world your starting point is the prior months bank reconciliation as you need to clear the o/s checks and deposits in transit from the prior period.

Instructor Homework Problem #1 (you are to submit the answers in Connect as part of your weekly homework assignment)

Please see the Chapter 4 powerpoint (ppt) for a detailed explanation as to how to prepare the bank reconciliation for the problem that follows.

Following are:

(a). a portion of the November 30, 20X1 bank reconciliation obtained from the accountant at Joes Antiques,

(b). the December 31, 20X1 bank statement from Wells Fargo for Joes Antiques, an antique store located in downtown Anoka, MN, and

(c). the December trial balance for a/c#100 Cash, taken from Joes Antiques general ledger.

Required

(1). Prepare a two-column bank rec for the month of December, 20X1 for Joes Antiques by completing the template below.

(2). Then make any necessary AJEs,

(3). Then answer Q1 Q3 below and submit your answers in Connect (under Instructor HW Problem #1).

Bank reconciliation template

Balance per book	$	Balance per bank		$
Add:		Add:		$
Less:		Less:
Less:	( )		$
			$
			$ .	($ )
Adjusted balance per books	$ .	Adjusted balance per bank		$ .

The November 30, 20X1 bank reconciliation for Joes Antiques showed the following:

Balance per bank		$12,000
Deposit in transit		3,200
Outstanding checks
#134	$240
#137	$245
#138	$ 32
#139	$180
#140	$ 88
#141	$ 45	(830)
Adjusted balance at November 30, 20X1		$14,370

Wells Fargo Bank

Bank Statement for Joes Antiques

	Running Balance
Balance on November 30, 20X1	$12,000
total deposits & credits	16,926
total checks & debits	(3,913)
Balance on December 31, 20X1	$25,013

increases				Decreases
date	amount	Description		Date	amount	check #/description
December 1	$3,200	Deposit			$240	134
					$32	138
				December 2	$45	141
December 5	$4,000	Deposit			$29	142
				December 6	$180	139
					$33	145
				December 7	$120	143
				December 12	$1,500	Wire
					$20	Wire transfer fee
				December 13	$185	144
December 15	$5,300	Deposit
December 24	$4,400	Wire
				December 27	$290	148
				December 28	$245	137
				December 29	$420	149
				December 31	$560	147
December 31	$ 26	Interest		December 31	$14	Service charge
Total	$16,926				$3,913

Joes Antiques Detailed Trial Balance

G/L account #100, Cash Wells Fargo checking

Date run: December 1 December 31, 20X1

Debit	credit	running balance	Date	posting reference	Description
		14,370	12/1/X1		beg. Balance
	29	14,341	12/2/X1	CD	#142, Office Max
	120	14,221	12/2/X1	CD	#143, Minnegasco
	185	14,036	12/2/X1	CD	#144, WW Grainger
	33	14,0003	12/2/X1	CD	#145, Anoka Water Co.
200		14,203	12/5/X1	CR	Hilton Hotels
3,000		17,203	12/5/X1	CR	ABC Inc.
800		18,003	12/5/X1	CR	Multi-tech
	1,500	16,503	12/12/X1	CD	Beijing Antique Shop
4,000		20,503	12/15/X1	CR	Sams Smokey Saloon
800		21,303	12/15/X1	CR	Jim Smith
120		21,423	12/15/X1	CR	Oakdale Golf Course
380		21,803	12/15/X1	CR	Rustic Coffee Shop
	8,240	13,563	12/24/X1	CD	#146, San Fran Antique Shop
	560	13,003	12/24/X1	CD	#147, Joe Ancient, Employee
	290	12,713	12/24/X1	CD	#148, Mary Young, Employee
	420	12,293	12/24/X1	CD	#149, Marty Middleson, Employee
	320	11,973	12/24/X1	CD	#150, Alpha Restoration
4,400		16,373	12/24/X1	CR	Long Island City Deli
200		16,573	12/31/X1	CR	Hopkins Collectibles
380		16,953	12/31/X1	CR	Forest Lake Inn
925		17,878	12/31/X1	CR	Mystic Lake Casino

(a). make any necessary AJEs here

	Dr.	Cr.

Q1. Determine the amount of outstanding checks which exist at 12/31/X1.

A. $830 B. $8,648 C. $8,560 D. $88

Q2. Determine the amount that should be reported as Cash on the 12/31/X1 balance sheet.

A. $25,013 B. $17,878 C. $17,870 D. $35,166

Q3. With respect to the JE (journal entry) needed upon completion of the bank rec, which one of the following is the net adjustment recorded for Cash?

A. $8 cr. B. $8 dr. C. $1,505 dr. D. $1,505 cr.

Instructor Homework Problem #2 (you are to submit the answers in Connect as part of your weekly homework assignment)

Use the information given below to prepare the bank reconciliation for Lennys Delicatessen for the month ended September 30, 20X1 which you will need to answer the 3 questions which follow. You may use the template which precedes Q1 to help you arrive at the appropriate answers.

The August 31, 20X1 bank reconciliation for Lennys Delicatessen showed the following:

Balance per bank		$11,345
Deposit in transit		980
Outstanding checks
#103	$ 68
#140	$ 88
#142	$125	( 281)
Adjusted balance at August 31, 20X1		$12,044

US Bank

Bank Statement for Lennys Delicatessen

	Running Balance
Balance on August 31, 20X1	$11,345
total deposits & credits	1,521
total checks & debits	(1,168)
Balance on September 30, 20X1	$11,698

increases				Decreases
date	amount	Description		Date	amount	check #/description
September 1	$980	Deposit		September 1	$ 88	140
				September 6	$194	146
				September 7	$ 65	145
September 12	$105	Deposit
				September 13	$ 68	103
				September 19	$400	148
				September 19	$230	147
				September 22	$ 95	149
September 30	$424	Deposit
September 30	$ 12	Interest		September 30	$ 28	Service charge
Total	$1,521				$1,168

Lennys Delicatessen Detailed Trial Balance

G/L account #100, Cash US Bank checking

Date run: September 1 September 30, 20X1

Debit	credit	running balance	Date	posting reference	Description
		12,044	9/1/X1		Beginning balance
	65	11,979	9/3/X1	CD	#145, Mikes Grocery
	194	11,785	9/3/X1	CD	#146, Beaver Tail Electric Co.
	230	11,555	9/3/X1	CD	#147, Sysco Foods
60		11,615	9/12/X1	CR	Joe Burger
45		11,660	9/12/X1	CR	Sally Salad
	400	11,260	9/17/X1	CD	#148, Chubb Insurance Co.
	95	11,165	9/17/X1	CD	#149, Waste Management
	323	10,842	9/28/X1	CD	#150, California Kitchens
	555	10,287	9/28/X1	CD	#151, Sysco Foods
424		10,711	9/29/X1	CR	Santa Luis High School
104		10,815	9/30/X1	CR	Jimmy Taco
65		10,880	9/30/X1	CR	Loretta Sandwich
		10,880	9/30/X1		Ending balance

Template (for you to complete if you so desire)

Balance per book	$	Balance per bank		$

1. What is the amount of outstanding checks which existed at September 30, 20X1 with respect to the Lennys Delicatessen September bank reconciliation?

A. $88 B. $878 C. $1,003 D. $1,862

2. What is the amount that should be shown as Cash on the September 30, 20X1 balance sheet of Lennys Delicatessen?

A. $10,989 B. $11,698 C. $10,864 D. $10,896

3. Which one of the following is correct (true) with respect to the bank reconciliation and/or AJE needed at September 30, 20X1 for Lennys Delicatessen? [hint: it might be beneficial to write down the AJE]

A. the AJE would include a net debit to cash

B. the AJE would include a credit to interest income

C. the AJE would include a credit to Bank Charges Expense

D. the AJE would include a debit for any deposits in transit

Homework Instructor Problem #3 (you are to submit the answers in Connect as part of your weekly homework assignment)

Use the information that follows related to the June 30, 20X1 bank reconciliation for Slims Health Club Inc. to answer questions 1 - 3.

1. A two-column bank reconciliation is normally prepared. What is the amount which will appear at the bottom of each column [i.e. the amount which should be reported as Cash on the financial statements at June 30, 20X1]?

A. $43,917 B. $43,527 C. $43,877 D. $42,474

2. What is the amount of the outstanding checks at June 30, 20X1?

A. $260 B. $470 C. $653 D. $547

3. Which one of the following will be included in the AJE needed at December 31, 20X1 upon completion of the bank reconciliation?

A. credit to cash for $25

B. debit to interest revenue for $50

C. debit to bank charges expense for $25

D. all of the above would be included in the December 31 AJE

Template (for you to complete if you so desire)

Balance per book	$	Balance per bank		$

The May 31, 20X1 bank reconciliation for Slims Health Club Inc. showed the following:

Balance per bank		$42,100
Deposit in transit		400
Outstanding checks
#483	$183
#485	$ 77	(260)
Adjusted balance at May 31, 20X1		$42,240

Bank of the West - Bank Statement for Slims Health Club Inc.

	Running Balance
Balance on May 31, 20X1	$42,100
total deposits & credits	2,350
total checks & debits	(1,976)
Balance on June 30, 20X1	$42,474

increases				decreases
date	amount	Description		Date	amount	check #/description
June 1	$ 400	Deposit
				June 2	$ 183	#483
				June 7	$1,250	#487
June 8	$1,900	Deposit
				June 9	$ 165	#486
				June 29	$ 148	#488
				June 30	$ 205	#490
June 30	$ 50	Interest		June 30	$ 25	Service charge
Total	$2,350				$1,976

Slims Health Club Inc. Detailed Trial Balance

G/L account #1000, Cash Wells Fargo checking

Date run: June 1 June 30, 20X1

debit	credit	running balance	Date	posting reference	Description
		42,240	6/1/X1	beg. balance
	165	42,075	6/4/X1	CD	#486, Centerpoint Energy
	1,250	40,825	6/4/X1	CD	#487, Atlas Company
1,500		42,325	6/8/X1	CR	Larson Inc.
400		42,275	6/8/X1	CR	Farmhouse Inc.
	148	42,577	6/21/X1	CD	#488, Jims Cleaning
	470	42,107	6/21/X1	CD	#489, Tahoe Inc.
	205	41,902	6/21/X1	CD	#490, Comcast
360		42,262	6/30/X1	CR	Alpha Company
1,240		43,502	6/30/X1	CR	Beta Company

What needs to be answered in Questions 1 and 2 at the top. Inside of those questions are Q1-Q3. There are numbers by every question that needs to be answered. Let me know if you need more information.

The account is a cash account.

I need to have this problem turned in tonight, sunday 6-18 at 11:59.