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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Accounting for petty cash transactions
On September 1, Party Salad Dressings creates a little cash fund with an imprest
balance of \(600. During September, Michael Martell, the fund custodian, signs the
following petty cash tickets:
Petty Cash
Ticket Number Item Amount
101 Office supplies \) 60
102 Cab fare for executive 25
103 Delivery of package across town 45
104 Business dinner 55
105 Merchandise inventory 75
On September 30, prior to replenishment, the fund contains these tickets plus cash
of \(355. The accounts affected by petty cash payments are Office Supplies, Travel
Expense, Delivery Expense, Entertainment Expense, and Merchandise Inventory.
Requirements
1. Explain the characteristics and the internal control features of an imprest fund.
2. On September 30, how much cash should the petty cash fund hold before it isreplenished?
3. Journalize all required entries to create the fund and replenish it. Include explanations.
4. Make the October 1 entry to increase the fund balance to \)800. Include an explanationand briefly describe what the custodian does.
What are some common controls used with a bank account?
Using Excel for a Bank Reconciliation
Download an Excel template for this problem online in MyAccountingLab or athttp://www.pearsonhighered.com/Horngren.
Lori Anders of Wilderness Associates is getting ready to prepare the October bank reconciliation.
The cash balance on the books of Wilderness Associates on October 31 is \(3,546.
Lori reviews the bank statement, and notes the checking account balance at October 31 is \)2,445. The bank statement also
reveals that the bank collected a note receivable on behalf of Wilderness Associates—the principal was \(1,500 and the interest
was \)15. One customer’s check for \(29 was returned by the bank for insufficient funds. Two additional items on the bank statement
were the monthly EFT for the utilities, \)250, and the bank service fee of \(12. Lori notes that the cash deposit made on
October 31 of \)3,300 does not appear on the statement, and that three checks totaling $975 had not cleared the bank account
when the bank statement was prepared.
Requirements
1. Prepare the bank reconciliation for Wilderness Associates at October 31, 2018. Format appropriate cells with dollar signs and double
underlines. Use Excel formulas to calculate subtotals and totals.
2. Journalize the entries based on the bank reconciliation. For dollar amounts, use cell references on bank reconciliation
Recording transactions from a bank reconciliation Review your results from preparing Guard Dog Security Systems’ bank reconciliation in Short Exercise S7-9. Journalize the company’s transactions that arise from the bank reconciliation. Include an explanation with each entry.
Preparing a bank reconciliation and journal entries
This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and
continued through Chapter 6.
In March 2019, Crystal Clear Cleaning opened a new checking account at First
Regional Bank. The bank statement dated March 31, 2019, for Crystal Clear
Cleaning follows:
Beginning Balance, March 1, 2019
Deposits and other credits:
Mar. 2
10
18
20
23 EFT Peg’s Restaurant(1)
(1) Peg’s Restaurant is a customer making a payment on account.
(3) Texas Energy is a utility provider.
(2) Check Art is a company that prints business checks (considered a
bank expense) for Crystal Clear Cleaning.
\(33,000
900
19,000
50,000
350
Checks and other debits:
Mar. 2 EFT to Check Art(2)
Ending balance, March 31, 2019
\) 0
31 Interest Revenue 50
5 Ck#235
9 Ck#237
9 Ck#236
26 Ck#239
10
2,400
1,500
2,900
2,000
28 EFT to Texas Energy(3) 130
29 Ck#240 300
31 Bank service charge 25
103,300
(9,265)
$ 94,035
Crystal Clear Cleaning’s Cash account in the general ledger shows the following
transactions for March:
Cash—First Regional Bank Checking Account
Balance
Deposit
Deposit
Deposit
Deposit
2,400
2,900
1,500
400
2,000
94,870
Mar. 2
10
18
20
31 Deposit
33,000
900
19,000
50,000
1,770
Mar. 2
4
5
10
21
Ck#235
Ck#236
Ck#237
Ck#238
Ck#239
300
300
23
29
Ck#240
Ck#241
Balance
Requirements
1. Prepare the bank reconciliation at March 31, 2019.
2. Journalize any required entries from the bank reconciliation. Post to the CashT-account to verify the balance of the account matches the adjusted book balancefrom the bank reconciliation.
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