a. Checks outstanding totaled $7,440.
b. A deposit of $2,880, representing receipts of August 31, had been made too late to appear on the bank statement.
c. The bank had collected for Fit Bike Co. $2,080 on a note left for collection. The face of the note was $2,000.
d. A check for $580 returned with the statement had been incorrectly charged by the bank as $850.
e. A check for $640 returned with the statement had been recorded by Fit Bike Co. as $460. The check was for the payment of an obligation to Brown Co. on account.
f. Bank service charges for August amounted to $20.
g. A check for $900 from Murdock Co. was returned by the bank due to insufficient funds.
Instructions
1. Prepare a bank reconciliation as of August 31.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Fit Bike Co. on August 31, 2014, what amount should be reported as cash?
Answers:
1.
FIT BIKE CO.
Bank Reconciliation
August 31, 2014
Cash balance according to bank statement $12,550
Add: Deposit of August 31, not recorded by bank $2,880
Bank error in charging check as $850 instead
of $580 270 3,150
$15,700
Deduct outstanding checks 7,440
Adjusted balance $ 8,260
Cash balance according to company’s records* $ 7,280
Add proceeds of note collected by bank, including
$80 interest 2,080
$ 9,360
Deduct: Check returned because of insufficient funds $ 900
Bank service charges 20
Error in recording check 180 1,100
Adjusted balance $ 8,260
* Cash balance, August 1……………………………………………… $ 12,190
Plus cash deposited in August……………………………………… 28,100
Less checks written in August……………………………………… (33,010)
Balance per company’s books, August 31………………………… $ 7,280
2.
Cash 2,080
Notes Receivable 2,000
Interest Revenue 80
Accounts Payable—Brown Co. 180
Accounts Receivable—Murdock Co. 900
Miscellaneous Expense 20
Cash 1,100
3. $8,260; the adjusted balance from the bank reconciliation should be reported
as cash on the August 31, 2014, balance sheet for Fit Bike Co.
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. Each cashier is assigned a separate cash register drawer to which no other cashier has access.
c. 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.
d. Checks received through the mail are given daily to the accounts receivable clerk for recording collections on account and for depositing in the bank.
e. Vouchers and all supporting documents are perforated with a PAID designation after being paid by the treasurer.
f. Disbursements are made from the petty cash fund only after a petty cash receipt has been completed and signed by the payee.
g. The bank reconciliation is prepared by the cashier.
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.
Answers:
Strengths: a, b, e, and f
Weaknesses:
c. An independent person (for example, a supervisor) should count the cash in each cashier’s cash register, unlock the record, and compare the amount of cash with the amount on the record to determine cash shortages or overages.
d. Cash receipts should not be handled by the accounts receivable clerk. This violates the segregation of duties between the handling of cash receipts and the recording of cash receipts.
g. The bank reconciliation should be prepared by someone not involved with the handling or recording of cash.
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