Samantha is a little bit happier now and can see the benefit of regularly doing a bank reconciliation but is still a little concerned about her cash controls. Cheque number 2300 was cashed to reimburse Samanthas petty cash fund. Samantha had read about using a petty cash fund to pay for small purchases and has tried to keep her fund under $50 for this purpose. However, Samantha had to write out cheque 2301 only a couple of days later as had no cash left. Samantha remembers a little bit about good internal control procedures and keeps her petty cash in a locked container in the top drawer of her desk which is also locked. Both keys are always hung on a key ring on the back of Samanthas office door. When anyone needs petty cash they retrieve the keys and leave a note on a scrap of paper in the container stating how much they withdrew. If there is no money in the container when Samantha checks next she will cash a cheque to overcome this.

Required

1. Comment on Samanthas use of the petty cash fund and any other issues that are of concern regarding the way Samantha is controlling her cash. Suggest some better practices that Samantha could employ.

(8 marks)

2. All this focus on protecting cash has jogged Samanthas memory and she recalls working on Cash Flow Statements and Cash Budgets while at University. Samantha would like you to explain to her the role of these two items in the protection and management of cash.

(8 marks)

S Musik Bank Reconciliation For the month ended September 30 Balance as per Bank Statement Add:Deposit in transit 13930 15000 1239 Balance as per Cash Book Add: 15000 Collection from customer 16239 1988 1988 15918 Deductions:Outstanding cheques #2299 #2302 700 884 246 272 Deductions: Correction entry #2303 (774 - 74) NSF cheque Account fees 1482 Interest Expense 14757 Adjusted Cash Balance #940 352 76 113 1161 14757 Adjusted Cash Balance Adjusting Enteries Date Particulars Sep-30 Cash Accounts Receivable (Collection from customer) Debit in $ Credit in $ 1988 1988 700 Sep-30 Accounts Payable Cash Correction entry #2303 (774 - 74) 700 272 Sep-30 Accounts Receivable Cash NSF cheque 272 76 Sep-30 Miscellaneous Expense Cash (Account fees paid) 76 113 Sep-30 Interest Expense Cash Interest Expense 113