P5-1: Evaluate internal control of cash Obj 2, 3

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. 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. c. Checks received through the mail are given daily to the accounts receivable clerk for recording collections on account and for depositing in the bank. d. Disbursements are made from the petty cash fund only after a petty cash receipt has been completed and signed by the payee. e. Each cashier is assigned a separate cash register drawer to which no other cashier has access. f. The bank reconciliation is prepared by the accountant. g. Vouchers and all supporting documents are perforated with a PAID designation after being paid by 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.

P5-2: Bank reconciliation and entries Obj 5 1.

Adjusted balance: $21,470 The cash account for Recreational Systems at March 31, 20Y6, indicated a balance of $12,435. The bank statement indicated a balance of $27,150 on March 31, 20Y6. Comparing the bank statement and the accompanying canceled checks and memos with the records reveals the following reconciling items: a. Checks outstanding totaled $9,675. b. A deposit of $4,175, representing receipts of March 31, had been made too late to appear on the bank statement. c. The bank had collected $8,480 on a note left for collection. The face of the note was $8,000. d. A check for $180 returned with the statement had been incorrectly recorded by Recreational Systems as $810. The check was for the payment of an obligation to Jones Co. for the purchase of office supplies on account. e. A check drawn for $750 had been incorrectly charged by the bank as $570. f. Bank service charges for March amounted to $75. Instructions 1. Prepare a bank reconciliation. 2. Illustrate the effects on the accounts and financial statements of the bank reconciliation.

P5-3: Bank reconciliation and entries Obj 5 1.

Adjusted balance: $34,885 The cash account for All American Sports Co. on April 1, 20Y5, indicated a balance of $23,600. During April, the total cash deposited was $80,150, and checks written totaled $72,800. The bank statement indicated a balance of $40,360 on April 30, 20Y5. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items: a. Checks outstanding totaled $14,300. b. A deposit of $9,275, representing receipts of April 30, had been made too late to appear on the bank statement. c. A check for $720 had been incorrectly charged by the bank as $270. d. A check for $110 returned with the statement had been recorded by All American Sports Co. as $1,100. The check was for the payment of an obligation to Garber Co. on account. e. The bank had collected for All American Sports Co. $4,320 on a note left for collection. The face of the note was $4,000. f. Bank service charges for April amounted to $75. g. A check for $1,300 from Bishop Co. was returned by the bank because of insufficient funds. Instructions 1. Prepare a bank reconciliation as of April 30. 2. Illustrate the effects on the accounts and financial statements of the bank reconciliation.

P5-4: Bank reconciliation and entries Obj 5 1.

Adjusted balance: $10,798.88 Rancho Foods 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 May 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. Note: The spreadsheet icon indicates an Excel template is available on the student companion site. CASH ACCOUNT: Balance as of May 1 $9,578.00 CASH RECEIPTS FOR MONTH OF MAY $5,255.89 DUPLICATE DEPOSIT TICKETS: Date and amount of each deposit in May: Date Amount Date Amount Date Amount May 2 $569.50 May 12 $580.70 May 23 $ 731.45 5 701.80 16 600.10 26 601.50 9 189.24 19 701.26 31 580.34 CHECKS WRITTEN: Number and amount of each check issued in May: 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 1,081.56 618 435.40 625 185.63 632 62.40 619 320.10 626 550.03 633 310.08 620 238.87 627 318.73 634 503.30 Total amount of checks issued in May $8,342.01 BANK RECONCILIATION FOR PRECEDING MONTH (DATED APRIL 30): Cash balance according to bank statement $ 9,422.80 Add deposit of April 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 companys records $ 9,605.70 Deduct service charges 27.70 Adjusted balance $ 9,578.00 Instructions 1. Prepare a bank reconciliation as of May 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 except for the note receivable of $4,000 and interest of $160 collected on May 14. All checks are written to satisfy accounts payable. 2. Illustrate the effects on the accounts and financial statements of the bank reconciliation. 3. What is the amount of Cash that should appear on the balance sheet as of May 31? 4. Assume that a canceled check for $50 has been incorrectly recorded by the bank as $500. Briefly explain how the error would be included in a bank reconciliation and how it should be corrected. Financial Analysis