Chapter 6: Q9DQ (page 304)
Why should cash receipts be deposited on the day of receipt?
Answer
Depositing all receipts upon the arrival of receipt creates an independent record of how much cash was received and keeps a team member safe from personal use of the money for a while before depositing it.
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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.
1. Separation of record keeping for assets from the custody over assets is intended to reduce theft and fraud.
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
2. Prepare a petty cash payment report for February with these categories: delivery expense, mileage expense, postage expense, merchandise inventory (for transportation-in), and office supplies expense. Sort the payments into the appropriate categories and total the expenditures in each category.
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
d. Outstanding checks. . . . . . . . . . . . . . .
Nolan Company deposits all cash receipts on the day when they are received and it makes all cash payments by check. At the close of business on June 30, 2017, its Cash account shows a \(22,352 debit balance. Nolan’s June 30 bank statement shows \)21,332 on deposit in the bank. Prepare a bank reconciliation for the company using the following information.
d. June 30 cash receipts of $4,724 were placed in the bank’s night depository after banking hours and were not recorded on the June 30 bank statement.
Why should the person who keeps the records of an asset not be the person responsible for its custody?
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