smch06

184

BankingProcedures and Control of Cash

6

ANSWERS TO DISCUSSION QUESTIONS

1. Internal control helps develop control over a company’s assets and monitor its operations.2. Preprinted deposit tickets take less time to fill out and lessen the chance of error or fraud.3. A check with a blank endorsement can be further endorsed by someone but a restrictive endorsement

limits any further negotiation of the check.4. Payee: person or company to whom check is payable.

Drawer: person or company who orders the bank to pay a sum of money.Drawee: Bank that the drawer has money in.

5. So one doesn’t forget to reduce the checkbook balance. Check stubs aid in updating journals.6. False; usually once a month.7. After a bank reconciliation, the adjusted checkbook balance is equal to the adjusted bank balance.8. Outstanding checks are subtracted from the bank balance because the bank has no idea they have

been written, since they have not been processed. On the checkbook side, the written checks havealready reduced the checkbook balance.

9. Disagree; a debit memorandum reduces the account by the amount of the NSF check.10. The balance in the cash account in the ledger should equal the balance of cash in the checkbook.11. Electronic Funds Transfer (EFT) transfers funds among parties electronically without the use of paper

checks.12. Cancelled checks are not returned to the depositor; they are kept for a certain period of time by the

bank.13. Reject; Petty Cash is an asset.14. The auxiliary petty cash record is a supplementary record that gathers information about expenses

which will be used to prepare a journal entry in the replenishment process.15. Debiting totals of individual expenses updates the ledger to record where cash was used. After

replenishment, the cash is back to a certain level, and the old expenses have been updated in theledger.

16. The change fund, an asset, aids in making change to customers who pay cash.17. When the account Cash Over and Short has more shortages than overages, its balance is a

miscellaneous expense shown on the income statement.

1. A. 4B. 1C. 4D. 3E. 3F. 2

2. A, C, D, E

3.

JUNE CO.BANK RECONCILIATION

MAY 31, 200X

June Checkbook Balance $20 Bank Balance $30

− Bank Service Charge 10 + Deposit in Transit 10

40

− Checks Outstanding 30

Reconciled Book Balance $10 Reconciled Bank Balance $10

4. A. 1,2,4B. 1,2C. 3,4D. 3,4E. 1,2F. 1,2,4

5. Band-Aid expense 5Stamp Expense 6Cash Short and Over 1

Cash 12

6. Petty Cash 10Band-Aid Expense 5Stamp Expense 6Cash Short and Over 1

Cash 22

185

SOLUTIONS TO EXERCISES

6-1.

LANG CO.BANK RECONCILIATION AS OF JULY 31, 200X

CHECKBOOK BALANCE BALANCE PER BANK

Checkbook Balance $1,260 Bank Statement Balance $900

Deduct: Add:

Bank Service Charge 45 Deposit in Transit 600

$1,500

Deduct:

Outstanding Checks 285

Reconciled Balance $1,215 Reconciled Balance $1,215

186

Jul. 31 Service Charge 4 5 00Cash 4 5 00

Jul. 31 Donations Expense 1 0 00Postage Expense 7 00Office Supplies Expense 7 00Miscellaneous Expense 4 00Cash Short and Over 1 00

Cash 2 9 00Replenishment

Jul. 1 Petty Cash 4 0 00Cash 4 0 00

Establishment

31 Donations Expense 1 0 00Postage Expense 7 00Office Supplies Expense 7 00Miscellaneous Expense 4 00

Cash 2 8 00Replenishment

6-2.

6-3.

EXERCISES (CONTINUED)

6-4.

187

Jul. 31 Donations Expense 1 0 00Postage Expense 7 00Office Supplies Expense 7 00Miscellaneous Expense 4 00

Cash Short and Over 1 00Cash 2 7 00

Replenishment

Cash 1 0 2 6 00Cash Short and Over 7 4 00

Sales 1 1 0 0 00Record daily sales with shortage

6-5.

Beg. Change Fund $ 30

+ Cash Register Total + 1,100

= Cash should have on hand 1,130

− Counted Cash − 1,056

= Cash Shortage $ 74

SOLUTIONS TO A PROBLEMS

PROBLEM 6A-1

ABLE.COMBANK RECONCILIATION AS OF JULY 31, 200X

BALANCE PER BANK CHECKBOOK BALANCE

Ending Bank Statement

Balance $8,000 Checkbook Balance $6,600

Add: Add:

Deposits in Transit 1,110 Proceeds of a Note Less Collection

$9,110 Charge by Bank 903

$7,503

Deduct:

Check No. 122 $1,000 Deduct:

130 690 Bank Service Charge 83

1,690


188

GENERAL JOURNAL

Date200X Account Titles and Description PR Dr. Cr.

Jul. 31 Cash 9 0 3 00Collection Expense 7 00

Notes Receivable 9 1 0 00Note Collected at Bank

31 Miscellaneous Expense* 8 3 00Cash 8 3 00

Recording Bank Service Charges

*Service Charge Expense could be used instead.

PROBLEM 6A-2

This form is provided to help you balance your bank statement. If no errors are reported toauditors in ten days, the account will be considered correct.

Please notify us of any change in address.

Checks outstanding (not charged to account)

189


Feb. 28 Accounts Receivable 3 0 0 00Cash 3 0 0 00

NSF from Jim Rice28 Service Charge Expense* 3 0 00

Cash 3 0 00Recording Bank Service Charge

Check No. Amount

111 $600

119 $1,200

121 $330

Total $2,130

Sort the checks numerically or by date issued. Check off on the stubs of your checkbook each check paid by bank. List the numbers and amounts of checks still outstanding in the space provided at the left. Verify the deposits in your checkbook with depositscredited on this statement. Bank balance shown onthis statement $5,400Plus: Deposits not

credited on this statement $3,000Subtotal $8,400

Less: Checks outstanding $2,130Balance $6,270

If your checkbook does not agree, $6,600enter any necessary adjustments:

Less: NSF $300SC 30 330

Correct checkbook balance $6,270

GENERAL JOURNAL

*Miscellaneous Expense could be used instead.

PROBLEM 6A-3

GENERAL JOURNAL

PAGE 4

190


Apr. 1 Petty Cash 8 0 00Cash 8 0 00

Establishment, Check 14

15 Accounts Payable 2 0 0 00Cash 2 0 0 00

Paid Reliable, Check 15


Paid Roger Co., Check 16

28 Office Equipment 7 0 0 00Cash 7 0 0 00

Bought Equipment from Roy Kloon, Check 17

30 Postage Expense 9 00Office Supplies Expense 1 8 00Miscellaneous Expense 9 00

Cash 3 6 00Replenishment, Check 18

PROBLEM 6A-3 (CONCLUDED)

191

Cat

ego

ry o

f P

aym

ent

Dat

eVo

uche

rP

ost

age

Offi

ce S

uppl

ies

Sun

dry

200X

No

.D

escr

iptio

nR

ecei

pts

Pay

men

tE

xpen

seE

xpen

seA

cco

unt

Am

oun

t

Ap

r.1

Est

ablis

hmen

t8

000

51

Po

stag

e5

005

00

82

Off

ice

Sup

plie

s1

000

10

00

173

Off

ice

Sup

plie

s8

008

00

244

Po

stag

e4

004

00

265

Do

natio

ns9

00M

isc.

900

Tota

ls8

000

36

009

001

800

900

End

ing

Bal

ance

44

00

80

008

000

End

ing

Bal

ance

44

00

30R

eple

nish

men

t3

600

30B

alan

ce (N

ew)

80

00

MER

RY C

O.

AU

XIL

IARY

PET

TY C

ASH

REC

OR

D

PROBLEM 6A-4

GENERAL JOURNAL

PAGE 2

192


Oct. 1 Petty Cash 1 0 0 00Cash 1 0 0 00


29 Postage Expense 2 7 00Delivery Expense 2 0 00Computer Supplies Expense 8 00Miscellaneous Expense 8 00Cash Short and Over 3 00


PROBLEM 6A-4 (CONCLUDED)

193

Cat

ego

ry o

f P

aym

ent

Dat

eVo

uche

rP

ost

age

Del

iver

yS

und

ry20

0XN

o.

Des

crip

tion

Rec

eip

tsP

aym

ent

Exp

ense

Exp

ense

Acc

oun

tA

mo

unt

Oct

.1

Est

ablis

hmen

t1

00

00

51

Po

stag

e1

400

14

00

92

Del

iver

y1

200

12

00

123

Do

natio

n8

00M

isc

800

144

Po

stag

e9

009

00

175

Del

iver

y8

008

00C

om

p;

276

Co

mp

uter

Sup

plie

s8

00S

upp

lies

Exp

.8

00

287

Po

stag

e4

004

00C

ash

Sho

rt28

Fun

d S

hort

age

300

and

Ove

r3

00

10

000

66

002

700

20

001

900

34

00

10

000

10

000

28E

ndin

g B

alan

ce3

400

29R

eple

nish

men

t6

600

29B

alan

ce (N

ew)

10

000

LOG

AN

CO

.A

UX

ILIA

RY P

ETTY

CA

SH R

ECO

RD

SOLUTIONS TO B PROBLEMS

PROBLEM 6B-1

ABLE.COM COMPANYBANK RECONCILIATION AS OF JULY 31, 200X


Ending Bank Statement

Balance $9,185 Checkbook Balance $8,215

Add: Add:

Deposits in Transit 3,600 Proceeds of a Note Less Collection

$12,785 Charge by Bank 2,754

$10,969

Deduct:

Check No. 111 $590 Deduct:

115 1,255 Bank Service Charge 29

1,845


194


Jul. 31 Cash 2 7 5 4 00Collection Expenses 6 00

Notes Receivable 2 7 6 0 00Note Collected at Bank

31 Miscellaneous Expense* 2 9 00Cash 2 9 00

Recording Bank Service Charge

GENERAL JOURNAL

*Service Charge Expense could be used instead.

PROBLEM 6B-2

This form is provided to help you balance your bank statement. If no errors are reported toauditors in ten days, the account will be considered correct.

Please notify us of any change in address.

Checks outstanding(not charged to account)

195


Apr. 30 Accounts Receivable 4 0 00Cash 4 0 00

NSF from Jim Rice

30 Service Charge Expense* 2 00Cash 2 00


Sort the checks numerically or by date issued.Check off on the stubs of your checkbook eachcheck paid by bank. List the numbers andamounts of checks still outstanding in the spaceprovided at the left.Verify the deposits in your checkbook withdeposits credited on this statement. Bank balanceshown on this statement $ 632Plus: Deposits not

credited on this statement $ 416Subtotal $1,048

Less: Checks outstanding $ 292Balance $ 756

If your checkbook does not agree, $ 798enter any necessary adjustment:

Less: NSF $ 40SC 2 42

Correct checkbook balance $ 756

Check No. Amount

110 $80

116 $160

118 $52

Total $292

GENERAL JOURNAL

*Miscellaneous Expense could be used instead.

PROBLEM 6B-3

GENERAL JOURNAL

PAGE 2

196


Apr. 1 Petty Cash 6 0 00Cash 6 0 00



Paid Reliable, Check 5


Paid Roger Co., Check 6

28 Office Equipment 8 0 0 00Cash 8 0 0 00

Bought Equipment from Roy Kloon, Check 7

30 Postage Expense 1 5 00Office Supplies Expense 1 9 00Miscellaneous Expense 1 2 00


PROBLEM 6B-3 (CONCLUDED)

197

Cat

ego

ry o

f P

aym

ent

Dat

eVo

uche

rP

ost

age

Offi

ce S

uppl

ies

Sun

dry

200X

No

.D

escr

iptio

nR

ecei

pts

Pay

men

tE

xpen

seE

xpen

seA

cco

unt

Am

oun

t

Ap

r.1

Est

ablis

hmen

t6

000

51

Po

stag

e9

009

00

82

Off

ice

Sup

plie

s1

200

12

00

173

Off

ice

Sup

plie

s7

007

00

244

Po

stag

e6

006

00

265

Do

natio

ns1

200

Mis

c.1

200

Tota

ls6

000

46

001

500

19

001

200

End

ing

Bal

ance

14

00

60

006

000

End

ing

Bal

ance

14

00

30R

eple

nish

men

t4

600

30B

alan

ce (N

ew)

60

00

MER

RY C

O.

AU

XIL

IARY

PET

TY C

ASH

REC

OR

D


GENERAL JOURNAL

PAGE 2

198


Oct. 1 Petty Cash 9 0 00Cash 9 0 00


29 Postage Expense 2 9 00Delivery Expense 2 1 00Computer Supplies Expense 9 00Miscellaneous Expense 6 00Cash Short and Over 4 00



199

Cat

ego

ry o

f P

aym

ent

Dat

eVo

uche

rP

ost

age

Del

iver

yS

und

ry20

0XN

o.

Des

crip

tion

Rec

eip

tsP

aym

ent

Exp

ense

Exp

ense

Acc

oun

tA

mo

unt

Oct

.1

Est

ablis

hmen

t9

000

51

Po

stag

e1

600

16

00

92

Del

iver

y1

400

14

00

123

Do

natio

n6

00M

isc

600

144

Po

stag

e1

000

10

00

175

Del

iver

y7

007

00C

om

p;

276

Co

mp

uter

Sup

plie

s9

00S

upp

lies

Exp

.9

00

287

Po

stag

e3

003

00C

ash

Sho

rt28

Fun

d S

hort

age

400

and

Ove

r4

00

90

006

900

29

002

100

19

00

21

00

90

009

000

28E

ndin

g B

alan

ce2

100

29R

eple

nish

men

t6

900

29B

alan

ce (N

ew)

90

00

LOG

AN

CO

.A

UX

ILIA

RY P

ETTY

CA

SH R

ECO

RD

SOLUTIONS TO REAL WORLD APPLICATION #1

200

Dec. 3 Petty Cash 5 0 00Delivery Expense 8 50Office Supplies 1 2 00Postage 2 0 00

Cash 9 0 50

The Petty Cash Account is too low if it continuously doesn’t cover items using Petty Cash. If in the past thePetty Cash was sufficient, this may have been a one-time problem. Should a shortage of funds occur, ClaireMontgomery was indeed correct.


LEE COMPANYBANK RECONCILIATION AS OF NOVEMBER 30, 200X


Bank Balance $4,440.50 Checkbook Balance $4,209.50

Add: Deposits in Transit 611.00 Add: Collection of Notes

$5,051.50 Rec. $ 500.00

Less: Collection Fee 6.00 $ 494.00

Less: Outstanding checks Error in recording ck. #899 54.00

# 621 $152.50 $4,757.50

942 71.50

947 206.50 430.50 Less: NSF check A. Ellen $ 130.00

Service Charges 6.50 136.50

Reconciled Balance $4,621.00 Reconciled Balance $4,621.00


The question in this case is whether Sean should report to the bank that his account is increased by $250.Although the bank is making a mistake, it is not ethical for Sean to keep the money. It is important that hereport the mistake back to the bank and not take advantage of the situation.

201

Nov. 30 Collection Expense 6 00Cash 4 9 4 00

Notes Receivable 5 0 0 00Note collected at Bank

30 Accts. Rec. 1 3 0 00Cash 1 3 0 00

Recording NSF from Abby Ellen

30 Cash 5 4 00Office Equipment 5 4 00

Error on check 899

30 Miscellaneous Expense 6 50Cash 6 50


CONTINUING PROBLEM

GENERAL JOURNAL

PAGE 3

202


Oct. 1 Prepaid Rent 1025 1 2 0 0 00Cash 1000 1 2 0 0 00

2 Petty Cash 1010 1 0 0 00Cash 1000 1 0 0 00

4 Cash 1000 3 6 0 0 00Service Revenue 4000 3 6 0 0 00

5 Cash 1000 2 6 0 0 00Accounts Receivable 1020 2 6 0 0 00

7 Freedman, Withdrawals 3010 2 0 0 0 00Cash 1000 2 0 0 0 00



22 Accounts Receivable 1020 4 2 0 0 00Service Revenue 4000 4 2 0 0 00

31 Postage Exp. 5070 2 5 00Supplies expense 5050 4 2 00Misc. Exp. 5100 1 0 00Freedman, Withdrawals 3010 1 5 00

Cash 1000 9 2 00

CASH ACCOUNT NO. 1000

203

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit9/30 0X Balance forward √ 1 6 4 5 0010/1 J3 1 2 0 0 00 4 4 5 00

2 J3 1 0 0 00 3 4 5 004 J3 3 6 0 0 00 3 9 4 5 005 J3 2 6 0 0 00 6 5 4 5 007 J3 2 0 0 0 00 4 5 4 5 00

16 J3 6 5 00 4 4 8 0 0017 J3 9 5 00 4 3 8 5 0031 J3 9 2 00 4 2 9 3 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit10/2 0X J3 1 0 0 00 1 0 0 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit9/30 0X balance forward √ 2 6 0 0 0010/5 J3 2 6 0 0 00 — 0 —

22 J3 4 2 0 0 00 4 2 0 0 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit9/30 0X balance forward √ 4 0 0 0010/1 J3 1 2 0 0 00 1 6 0 0 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit0X balance forward √ 9 0 00

PETTY CASH ACCOUNT NO. 1010

ACCOUNTS RECEIVABLE ACCOUNT NO. 1020

PREPAID RENT ACCOUNT NO. 1025

SUPPLIES ACCOUNT NO. 1030

COMPUTER SHOP EQUIPMENT ACCOUNT NO. 1080

204

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit9/30 0X balance forward √ 2 4 0 0 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit9/30 0X balance forward √ 9 9 00 9 9 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit9/30 0X balance forward √ 6 0 0 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit9/30 0X balance forward √ 2 0 00 2 0 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit9/30 0X balance forward √ 2 1 0 0010/16 J3 6 5 00 1 4 5 0010/17 J3 9 5 00 5 0 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit9/30 0X balance forward √ 7 4 0 6 00

ACCUMULATED DEPRECIATION, COMPUTER SHOP EQUIPMENT ACCOUNT NO. 1081

OFFICE EQUIPMENT ACCOUNT NO. 1090

ACCUMULATED DEPRECIATION, OFFICE EQUIPMENT ACCOUNT NO. 1091

ACCOUNTS PAYABLE ACCOUNT NO. 2000

T. FREEDMAN, CAPITAL ACCOUNT NO. 3000

T. FREEDMAN, WITHDRAWALS ACCOUNT NO. 3010

205

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit10/7 0X J3 2 0 0 0 00 2 0 0 0 00

10/31 J3 1 5 00 2 0 1 5 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit10/4 0X J3 3 6 0 0 00 3 6 0 0 0022 J3 4 2 0 0 00 7 8 0 0 00

BalanceDate Post

Explanation Ref. Debit Credit Debit Credit

BalanceDate Post


INCOME SUMMARY ACCOUNT NO. 3020

SERVICE REVENUE ACCOUNT NO. 4000

ADVERTISING EXPENSE ACCOUNT NO. 5010

RENT EXPENSE ACCOUNT NO. 5020

206

BalanceDate Post


BalanceDate Post


UTILITIES EXPENSE ACCOUNT NO. 5030

PHONE EXPENSE ACCOUNT NO. 5040

BalanceDate Post


BalanceDate Post

Explanation Ref. Debit Credit Debit Credit10/31 0X J3 4 2 00 4 2 00

SUPPLIES EXPENSE ACCOUNT NO. 5050

INSURANCE EXPENSE ACCOUNT NO. 5060

207

BalanceDate Post


BalanceDate Post


BalanceDate Post


BalanceDate Post


BalanceDate Post


POSTAGE EXPENSE ACCOUNT NO. 5070

DEPRECIATION EXPENSE, COMPUTER SHOP EQUIPMENT ACCOUNT NO. 5080

DEPRECIATION EXPENSE, OFFICE EQUIPMENT ACCOUNT NO. 5090

MISCELLANEOUS EXPENSE ACCOUNT NO. 5100

208

AU

XIL

IARY

PET

TY C

ASH

REC

OR

D

Cat

ego

ry o

f P

aym

ent

Dat

eVo

uche

rP

ost

age

Sun

dry

200X

No

.D

escr

iptio

nR

ecei

pts

Pay

men

tE

xpen

seS

upp

lies

Acc

oun

tA

mo

unt

Oct

.2

Est

ablis

hmen

t1

00

00

610

1S

tam

ps

25

002

500

810

2S

upp

lies

22

002

200

1210

3N

ewsp

aper

10

00M

isc.

10

00

2310

4S

upp

lies

20

002

000

3010

5Lu

nch

15

00W

/D1

500

Tota

l1

00

009

200

25

004

200

25

00

BANK RECONCILIATION AS OF SEPTEMBER 30, 200X


Bank Statement Balance $2,905.00 Checkbook Balance $1,645.00

Add: Deposit in Transit 140.00 Add: –0–

3,045.00

Deduct:

Check # 8106 200.00 Deduct: –0–

8107 1,200.00

1,400.00

Reconciled Balance $1,645.00 Reconciled Balance $1,645.00

209

ELDORADO COMPUTER CENTERTRIAL BALANCE

OCTOBER 31, 200X

210

Cash 4 2 9 3 00Petty Cash 1 0 0 00Accounts Receivable 4 2 0 0 00Prepaid Rent 1 6 0 0 00Supplies 9 0 00Computer Shop Equipment 2 4 0 0 00Accum. Depr. C.S. Equip. 9 9 00Office Equipment 6 0 0 00Accum. Depr. Office Equip. 2 0 00Accounts Payable 5 0 00T. Freedman, Capital 7 4 0 6 00T. Freedman, Withdrawals 2 0 1 5 00Service Revenue 7 8 0 0 00Postage Exp. 2 5 00Supplies Expense 4 2 00Misc. Exp. 1 0 00

Totals 15 3 7 5 00 15 3 7 5 00

Documents

smch06