Chapter 7: Q18RQ (page 412)
What does the cash ratio help determine, and how is it calculated?
To determine the ability of the company to pay current liabilities.
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List some examples of timing differences, and for each difference, determine if it would affect the book side of the reconciliation or the bank side of the reconciliation.
Question: For each of the following items, determine whether the item would be:
a. added to the bank balance
b. subtracted from the bank balance
c. added to the book balance
d. subtracted from the book balance
11. Interest revenue earned
12. NSF check
13. Deposit in transit
14. Service charge
15. Outstanding check
Classifying bank reconciliation items
The following items could appear on a bank reconciliation:
a. Outstanding checks, \(670.
b. Deposits in transit, \)1,500.
c. NSF check from customer, no. 548, for \(175.
d. Bank collection of note receivable of \)800, and interest of \(80.
e. Interest earned on bank balance, \)20.
f. Service charge, \(10.
g. The business credited Cash for \)200. The correct amount was \(2,000.
h. The bank incorrectly decreased the business’s account by \)350 for a check written
by another business.
Classify each item as (1) an addition to the book balance, (2) a subtraction from the
book balance, (3) an addition to the bank balance, or (4) a subtraction from the bank
balance.
Question: What is the difference between an internal auditor and an external auditor?
Evaluating internal control over cash payments Gary’s Great Cars purchases high-performance auto parts from a Nebraska vendor. Dave Simon, the accountant for Gary’s, verifies receipt of merchandise and then prepares, signs, and mails the check to the vendor.
Requirements
1. Identify the internal control weakness over cash payments.
2. What could the business do to correct the weakness?
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