EvaluatingInternal ControlofCash

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.Vouchersand all supporting documents are perforated with a PAID designation after being paid by the treasurer.

f.Disbursements are made from thepetty cash fundonly after a petty cash receipt has been completed and signed by the payee.

g.Thebank reconciliationis prepared by the cashier.

Required:

Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness.

Bank Reconciliationand Entries

Thecashaccount for Stone Systems at July 31 indicated a balance of $17,750. Thebank statementindicated a balance of $33,650 on July 31. 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.

Required:

1. Give a bank reconciliation.

Stone Systems

Bank Reconciliation

July 31

Cash balance according to bank statement

$

$

Adjusted balance

$

Cash balance according to company's records

$

$

Adjusted balance

$

Journalize the necessary entries (a.) that increase cash and (b.) that decrease cash. The accounts have not been closed. For a compound entry, if an amount box does not require an entry, leave it blank.

July 31

July 31

3.If a balance sheet is prepared for Stone Systems on July 31, what amount should be reported as cash