Exercise 7.1 Below are descriptions of internal control problems. In the space to the left of each item, enter the code letter of the one best internal control principle that is related to the problem described Internal Control Principles A. Establishment of responsibility B. Segregation of duties C. Physical control devices D. Documentation procedures E. Independent internal verification F. Human resource controls 1. The same person opens incoming mail and posts the accounts receivable subsidiary ledger. 2. Three people handle cash sales from the same cash register drawer. 3. A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.. 4. The person who is authorized to sign checks approves purchase orders for payment. 5. Some cash payments are not recorded because checks are not prenumbered. 6. Cash shortages are not discovered because there are no daily cash counts by supervisors. 7. The treasurer of the company has not taken a vacation for over 20 years. Exercise. 7.2 Indicate whether each of the business practices listed below strengthens (S) or weakens (W) a company's system of internal control. Cashiers are not bonded. a. All payments are made with checks b. Discouraging employees from taking paid vacations C. d. Two people handle cash sales from the same cash register drawer Using prenumbered sales tickets. e. Exercise. 7.3 Identify the internal control procedures applicable to cash receipts for Colorado Company in each of the following situations. 1. All cashiers are bonded. 2. The treasurer compares the total cash receipts to the bank deposit daily 3. The bookkeeper records cash receipts which are held by the treasurer. 4. Only the treasurer holds cash receipts. 5. Deposit slips are completed for each deposit. Exercise. 7.4 Identify the internal control procedures applicable to cash disbursements followed by Tolan Company in each of the following cases. 1. Company checks are pre-numbered. 2. Only the treasurer is authorized to sign checks. 3. Bonding of employees that hand le cash. 4. Blank checks are stored in a locked safe 5. The bookkeeper, not the treasurer, records cash disbursements Exercise. 7.5 Identify whether each of the following items would be (a) added to the book balance, or (b) deducted from the book balance in a bank reconciliation. 1. EFT transfer to a supplier 2. Bank service charge. 3. Check printing charge. 4. Error recording check # 214 which was written for $230 but recorded for $320 5. Collection of note and interest by bank on company's behalf. Exercise. 7.6 Foyle Company needs to make adjusting entries for each of the following reconciling items. Identify the account to be debited and the account to be credited in each case. 1. A check for $59 written to the company by J. Hammond was returned NSF 2. The monthly service charge by the bank was $34. 3. The bank collected a $1,000 note plus interest of $60 on the company's behalf. The company had not accrued the interest. Exercise. 7.7 At August 31 Kiner Company has this bank information: cash balance per bank $9,450; outstanding checks $762; deposits in transit $1,700; and a bank service charge $20. Determine the adjusted cash balance per bank at August 31, 2017 Exercise. 7.8 The following information is available for Nichols Company for the month of February: expected cash receipts $40,000; expected cash disbursements $44,0000; cash balance February 1, $11,000. Management wishes to maintain a minimum cash balance of $10,000. Prepare a basic cash budget for the month of February
