Chapter 7 Internal Control and Cash

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Presentation transcript:

Chapter 7 Internal Control and Cash Demonstration Problems Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Demonstration of E7-16 Wave Dance Studio created a $500 imprest petty cash fund. During the month, the fund custodian authorized and signed petty cash tickets as follows: Petty Cash Ticket No. Item Account Debited Amount 1 Delivery of programs to customers Delivery Expense $30 2 Mail package Postage Expense 20 3 Newsletter Printing Expense 50 4 Key to closet Miscellaneous Expense 75 5 Copier paper Office Supplies 100 Requirements 1. Make the general journal entry to create the petty cash fund. 2. Make the general journal entry to record the petty cash fund replenishment. Cash in the fund totals $150. 3. Assume that Wave Dance Studio decides to decrease the petty cash fund to $300. Make the general journal entry to record this decrease. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-16-Req. 1 Accounts and Explanation Make the general journal entry to create the petty cash fund. Date Accounts and Explanation Debit Credit 1. Petty Cash 500 Cash To open the petty cash fund. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-16-Req. 2 Accounts and Explanation Make the general journal entry to record the petty cash fund replenishment. Cash in the fund totals $150. Date Accounts and Explanation Debit Credit 2. Delivery Expense 30 Postage Expense 20 Printing Expense 50 Miscellaneous Expense 75 Office Supplies 100 Cash Short & Over Cash ﴾$500 − $150﴿ 350 To replenish the petty cash fund. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-16-Req. 3 Accounts and Explanation Assume that Wave Dance Studio decides to decrease the petty cash fund to $300. Make the general journal entry to record this decrease. Date Accounts and Explanation Debit Credit 3. Cash 200 Petty Cash To decrease the petty cash fund to $300. Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Demonstration of E7-19 Peter Publishers' check book lists the following: Date Check No. Item Check Deposit Balance Aug. 1 $1,000 4 701 Quick Mailing $500 500 9 Service Revenue $2,000 2,500 13 702 Salaries Expenses 250 2,250 14 703 Utilities 150 2,100 18 704 Cash 75 2,025 26 705 Office Supplies 85 1,940 28 706 Alpha Printers 300 1,640 30 1,500 3,140 Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Demonstration of E7-19 Peter’s August bank statement shows the following: Balance $1,000 Deposits 2,000 Debit Checks: No. Amount 701 $500 702 250 703 175 * 704 75 (1,000) Other charges: Printed checks 50 Service charge 25 (75) $1,925 *This is the correct amount for check number 703. Requirements 1. Prepare Peter Publisher's bank reconciliation at August 31, 2016. 2. How much cash does Peter actually have on August 31, 2016? 3. Journalize any transactions required from the bank reconciliation. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 1 Calculation of ending book balance: Aug. 1 Book Balance $1,000 Add: Deposits ($2,000 + $1,500) 3,500 Less: Checks ($500 + $250 + $150 + $75 + $85 + $300) 1,360 Aug. 31 Book Balance $3,140 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 1 PETER PUBLISHERS Bank Reconciliation August 31, 2016 BANK BOOK Balance, August 31, 2016 [Previous slide] $3,140 ADD: 3,140 LESS: Book error check 703 $25 Printed checks 50 Service charge 25 100 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 1 PETER PUBLISHERS Bank Reconciliation August 31, 2016 BANK BOOK Balance, August 31, 2016 $3,140 ADD: 3,140 LESS: Book error check 703 $25 Printed checks 50 Service charge 25 100 Adjusted book balance, August 31, 2016 $3,040 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 1 PETER PUBLISHERS Bank Reconciliation August 31, 2016 BANK BOOK Balance, August 31, 2016 $1,925 $3,140 ADD: Deposit in transit 1,500 3,425 3,140 LESS: Book error check 703 $25 Printed checks 50 Service charge 25 100 Adjusted book balance, August 31, 2016 $3,040 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 1 PETER PUBLISHERS Bank Reconciliation August 31, 2016 BANK BOOK Balance, August 31, 2016 $1,925 $3,140 ADD: Deposit in transit 1,500 3,425 3,140 LESS: Outstanding checks Book error check 703 $25 Check 707 $85 Printed checks 50 Check 708 300 385 Service charge 25 100 Adjusted book balance, August 31, 2016 $3,040 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 1 PETER PUBLISHERS Bank Reconciliation August 31, 2016 BANK BOOK Balance, August 31, 2016 $1,925 $3,140 ADD: Deposit in transit 1,500 3,425 3,140 LESS: Outstanding checks Book error check 703 $25 Check 707 $85 Printed checks 50 Check 708 300 385 Service charge 25 100 Adjusted bank balance, August 31, 2016 $3,040 Adjusted book balance, August 31, 2016 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 2 PETER PUBLISHERS Bank Reconciliation August 31, 2016 BANK BOOK Balance, August 31, 2016 $1,925 $3,140 ADD: Deposit in transit 1,500 3,425 3,140 LESS: Outstanding checks Book error check 703 $25 Check 707 $85 Printed checks 50 Check 708 300 385 Service charge 25 100 Adjusted bank balance, August 31, 2016 $3,040 Adjusted book balance, August 31, 2016 Peter has $3,040 on August 31, 2016. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 3 Date Accounts and Explanation Debit Credit Aug. 31 Utilities Expense 25 Cash To record check error #703. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 3 Date Accounts and Explanation Debit Credit Aug. 31 Utilities Expense 25 Cash To record check error #703. 31 Bank Expense 50 To record printed check charge incurred. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-19-Req. 3 Date Accounts and Explanation Debit Credit Aug. 31 Utilities Expense 25 Cash To record check error #703. 31 Bank Expense 50 To record printed check charge incurred. To record bank service charges incurred. Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Demonstration of E7-20 Robin Knight Company operates four bowling alleys. The owner just received the September 30 bank statement from City National Bank, and the statement shows an ending balance of $1,000. Listed on the statement are an EFT rent collection of $300, a service charge of $15, NSF checks totalling $60, and a $25 charge for printed checks. In reviewing his cash records, Knight identified outstanding checks totalling $500 and a deposit in transit of $1,500. During September, he recorded a $250 check by debiting Salaries Expense and crediting Cash for $50. His Cash account shows a September 30 balance of $2,000. Requirements 1. Prepare the bank reconciliation at September 30. 2. Journalize any transactions required from the bank reconciliation. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 1 ROBIN KNIGHT COMPANY Bank Reconciliation September 30 BANK BOOK Balance, September 30 $2,000 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 1 ROBIN KNIGHT COMPANY Bank Reconciliation September 30 BANK BOOK Balance, September 30 $2,000 ADD: EFT collection on rent 300 2,300 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 1 ROBIN KNIGHT COMPANY Bank Reconciliation September 30 BANK BOOK Balance, September 30 $2,000 ADD: EFT collection on rent 300 2,300 LESS: Correction of book error $200 NSF checks 60 Printed checks 25 Service charge 15 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 1 ROBIN KNIGHT COMPANY Bank Reconciliation September 30 BANK BOOK Balance, September 30 $2,000 ADD: EFT collection on rent 300 2,300 LESS: Correction of book error $200 NSF checks 60 Printed checks 25 Service charge 15 Adjusted book balance, September 30 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 1 ROBIN KNIGHT COMPANY Bank Reconciliation September 30 BANK BOOK Balance, September 30 $1,000 $2,000 ADD: EFT collection on rent 300 2,300 LESS: Correction of book error $200 NSF checks 60 Printed checks 25 Service charge 15 Adjusted book balance, September 30 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 1 ROBIN KNIGHT COMPANY Bank Reconciliation September 30 BANK BOOK Balance, September 30 $1,000 $2,000 ADD: Deposit in transit 1,500 EFT collection on rent 300 2,500 2,300 LESS: Correction of book error $200 NSF checks 60 Printed checks 25 Service charge 15 Adjusted book balance, September 30 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 1 ROBIN KNIGHT COMPANY Bank Reconciliation September 30 BANK BOOK Balance, September 30 $1,000 $2,000 ADD: Deposit in transit 1,500 EFT collection on rent 300 2,500 2,300 LESS: Correction of book error $200 NSF checks 60 Printed checks 25 Outstanding checks 500 Service charge 15 Adjusted book balance, September 30 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 1 ROBIN KNIGHT COMPANY Bank Reconciliation September 30 BANK BOOK Balance, September 30 $1,000 $2,000 ADD: Deposit in transit 1,500 EFT collection on rent 300 2,500 2,300 LESS: Correction of book error $200 NSF checks 60 Printed checks 25 Outstanding checks 500 Service charge 15 Adjusted bank balance, September 30 Adjusted book balance, September 30 Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 2 Date Accounts and Explanation Debit Credit Sept. 30 Cash 300 Rent Revenue To record EFT rent collection. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 2 Date Accounts and Explanation Debit Credit Sept. 30 Cash 300 Rent Revenue To record EFT rent collection. 30 Salaries Expense 200 To record error on salary check. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 2 Date Accounts and Explanation Debit Credit Sept. 30 Cash 300 Rent Revenue To record EFT rent collection. 30 Salaries Expense 200 To record error on salary check. Accounts Receivable 60 To record NSF checks. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 2 Date Accounts and Explanation Debit Credit Sept. 30 Cash 300 Rent Revenue To record EFT rent collection. 30 Salaries Expense 200 To record error on salary check. Accounts Receivable 60 To record NSF checks. Bank Expense 25 To record printed check charge incurred. Copyright © 2016 Pearson Education, Inc.

Demonstration of E7-20-Req. 2 Date Accounts and Explanation Debit Credit Sept. 30 Cash 300 Rent Revenue To record EFT rent collection. 30 Salaries Expense 200 To record error on salary check. Accounts Receivable 60 To record NSF checks. Bank Expense 25 To record printed check charge incurred. 15 To record bank service charges incurred. Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. End of Chapter 7 Copyright © 2016 Pearson Education, Inc.