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Chapter 6: Q5QS_a (page 305)

For each of the following items a through g, indicate whether its amount (1) affects the bank or book side of a bank reconciliation, (2) represents an addition or a subtraction in a bank reconciliation, and (3) requires an adjusting journal entry.
Bank or Book Side Add or Subtract Adj. Entry or Not
a. Interest on cash balance . . . . . . . . . . . . . . .

Short Answer

Expert verified

Answer

Book side will be affected
Represents addition is a bank reconciliation statement
Adjustment is required in a journal entry

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Bank Reconciliation

In accounting, bank reconciliation is when an individual or an entity matches their bank balance as per the cash book with the balance as per their bank statement.

02

Effect of transaction

	Bank or Book	Add or subtract	Adj. Entry or Not
Interest on cash balance	Book	Add	Adjustment required

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Most popular questions from this chapter

For each of these five separate cases, identify the principle(s) of internal control that is violated. Recommend what the business should do to ensure adherence to principles of internal control.

2. At Tico Company, Julia and Trevor alternate lunch hours. Julia is the petty cash custodian, but if someone needs petty cash when she is at lunch, Trevor fills in as custodian.

BTN 6-3 Harriet Knox, Ralph Patton, and Marcia Diamond work for a family physician, Dr. Gwen Conrad, who is in private practice. Dr. Conrad is knowledgeable about office management practices and has segregated the cash receipt duties as follows. Knox opens the mail and prepares a triplicate list of money received. She sends one copy of the list to Patton, the cashier, who deposits the receipts daily in the bank. Diamond, the recordkeeper, receives a copy of the list and posts payments to patients’ accounts. About once a month the office clerks have an expensive lunch they pay for as follows. First, Patton endorses a patient’s check in Dr. Conrad’s name and cashes it at the bank. Knox then destroys the remittance advice accompanying the check. Finally, Diamond posts payment to the customer’s account as a miscellaneous credit. The three justify their actions by their relatively low pay and knowledge that Dr. Conrad will likely never miss the money.

Required

3. What are some procedures to detect this type of fraud?

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

3. The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.

Blues Music Center had the following petty cash transactions in March of the current year. March 5 Wrote a \(250 check, cashed it, and gave the proceeds and the petty cashbox to Jen Rouse, the petty cashier.

6 Paid \)12.50 COD shipping charges on merchandise purchased for resale, terms FOB shipping point. Blues uses the perpetual system to account for merchandise inventory.

11 Paid \(10.75 in delivery expense on merchandise sold to a customer, terms FOB destination.

12 Purchased office file folders for \)14.13 that are immediately used.

14 Reimbursed Bob Geldof, the manager, \(11.65 for office supplies purchased and used.

18 Purchased office printer paper for \)20.54 that is immediately used.

27 Paid \(45.10 COD shipping charges on merchandise purchased for resale, terms FOB shipping point.

28 Paid postage expense of \)18.

30 Reimbursed Geldof \(56.80 for mileage expense.

31 Cash of \)61.53 remained in the fund. Sorted the petty cash receipts by accounts affected and

exchanged them for a check to reimburse the fund for expenditures.

31 The petty cash fund amount is increased by \(50 to a total of \)300.

Required

3. Prepare the journal entries (in dollars and cents) for part 2 to both (a) reimburse and (b) increase the fund amount

Nakashima Gallery had the following petty cash transactions in February of the current year.

Feb. 2 Wrote a \(400 check, cashed it, and gave the proceeds and the petty cashbox to Chloe Addison, the petty cashier.

5 Purchased paper for the copier for \)14.15 that is immediately used.

9 Paid \(32.50 COD shipping charges on merchandise purchased for resale, terms FOB shipping point. Nakashima uses the perpetual system to account for merchandise inventory.

12 Paid \)7.95 postage to deliver a contract to a client.

14 Reimbursed Adina Sharon, the manager, \(68 for mileage on her car.

20 Purchased stationery for \)67.77 that is immediately used.

23 Paid a courier \(20 to deliver merchandise sold to a customer, terms FOB destination.

25 Paid \)13.10 COD shipping charges on merchandise purchased for resale, terms FOB shipping point.

27 Paid \(54 for postage expenses.

28 The fund had \)120.42 remaining in the petty cashbox. Sorted the petty cash receipts by accounts affected and exchanged them for a check to reimburse the fund for expenditures.

28 The petty cash fund amount is increased by \(100 to a total of \)500.

Required

3. Prepare the journal entries (in dollars and cents) for part 2 to both (a) reimburse and (b) increase the fund amount.

See all solutions

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