Part 1

Mei-ling is struggling to keep up with the recording of her accounting transactions. She is spending a lot of time marketing and selling mixers and giving her classes. Her friend John is an accounting student who runs his own accounting service. He has asked Mei-ling if she would like to have him do her accounting.

John and Mei-ling meet and discuss her business. John suggests that he do the following for Mei-ling.

1. Hold cash until there is enough to be deposited. (He would keep the cash locked up in his vehicle). He would also take all of the deposits to the bank at least twice a month.

2. Write and sign all of the checks.

3. Record all of the deposits in the accounting records.

4. Record all of the checks in the accounting records.

5. Prepare the monthly bank reconciliation.

6. Transfer all of Mei-lings manual accounting records to his computer accounting program. John maintains all of the accounting information that he keeps for his clients on his laptop computer.

7. Prepare monthly financial statements for Mei-ling to review.

8. Write himself a check every month for the work he has done for Mei-ling.

Instructions

Identify the weaknesses in internal control that you see in the system John is recommending. Can you suggest any improvements if Mei-ling hires John to do the accounting?

Part 2

Mei-ling decides that she cannot afford to hire John to do her accounting. One way that she can ensure that her cash account does not have any errors and is accurate and up-to-date is to prepare a bank reconciliation at the end of each month.

Mei-ling would like you to help her. She asks you to prepare a bank reconciliation for June 2018 using the following informMC7 (Continued)

GENERAL LEDGERMATCHA CREATIONS

Cash
Date	Explanation	Ref.	Debit	Credit	Balance
2018 June 1 1 3 3 8 9 13 20 28 28	Balance Check #600 Check #601 Check #602 Check #603 Check #604		750 1,050 155 110	625 95 56 425 297	2,657 3,407 2,782 2,687 2,631 3,681 3,256 3,411 3,114 3,224

PREMIER BANK

Statement of AccountMatcha Creations

June 30, 2018

Date	Explanation	Checks and Other Debits	Deposits	Balance
May 31 June 1 6 6 8 9 10 10 14 20 23 28 30	Balance Deposit Check #600 Check #601 Check #602 Deposit NSF Check NSF Fee Check #603 Deposit EFT Telus Check #599 Bank charges	625 95 56 100 35 452 85 361 13	750 1,050 125	3,256 4,006 3,381 3,286 3,230 4,280 4,180 4,145 3,693 3,818 3,733 3,372 3,359

MC7 (Continued)

Additional information:

1. On May 31, there were two outstanding checks: #595 for NT$238 and #599 for NT$361.

2. Premier Bank made a posting error to the bank statement: check #603 was issued for NT$425, not NT$452.

3. The deposit made on June 20 was for NT$125 that Mei-ling received for teaching a class. Mei-ling made an error in recording this transaction.

4. The electronic funds transfer (EFT) was for Mei-lings utilities expense.

5. The NSF check was from Ron Black. Mei-ling received this check for teaching a class to Rons children. Mei-ling contacted Ron, and he assured her that she will receive a check in the mail for the outstanding amount of the invoice and the NSF bank charge.

Instructions

(a) Prepare Matcha Creations bank reconciliation for June 30.

(b) Prepare any necessary adjusting entries at June 30.

(c) If a statement of financial position is prepared for Matcha Creations at June 30, what balance will be reported as cash in the current assets section?