Chapter 7: Q7RQ (page 411)
What are some limitations of internal controls?
Short Answer
There are four limitations of the internal controls.
Chapter 7: Q7RQ (page 411)
What are some limitations of internal controls?
There are four limitations of the internal controls.
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Get started for freeList 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.
Accounting for petty cash transactions
On June 1, Fab Salad Dressings creates a petty cash fund with an imprest balance of
\(300. During June, Al Franklin, the fund custodian, signs the following petty cash tickets:
Petty Cash
Ticket Number Item Amount
101 Office supplies \) 30
102 Cab fare for executive 20
103 Delivery of package across town 50
104 Business dinner 40
105 Merchandise inventory 90
On June 30, before replenishment, the fund contains these tickets plus cash of \(90.
The accounts affected by petty cash payments are Office Supplies, Travel Expense,
Delivery Expense, Entertainment Expense, and Merchandise Inventory.
Requirements
1. Explain the characteristics and the internal control features of an imprest fund.
2. On June 30, how much cash should the petty cash fund hold before it isreplenished?
3. Journalize all required entries to create the fund and replenish it. Includeexplanations.
4. Make the July 1 entry to increase the fund balance to \)375. Include an explanationand briefly describe what the custodian does.
Applying internal control over cash payments by check
A purchasing agent for Franklin Office Supplies receives the goods that he purchases
and also approves payment for the goods.
Requirements
1. How could this purchasing agent cheat his company?
2. How could Franklin avoid this internal control weakness?
What does the cash ratio help determine, and how is it calculated?
Controlling petty cash Just Hanginโ Night Club maintains an imprest petty cash fund of \(150, which is under the control of Sandra Morgan. At March 31, the fund holds \)14 cash and petty cash tickets for office supplies, \(128, and delivery expense, \)15.
Requirements
1. Explain how an imprest petty cash system works.
2. Journalize the establishment of the petty cash fund on March 1 and the replenishing of the fund on March 31.
3. Prepare a T-account for Petty Cash and post to the account. What is the balance of the Petty Cash account at all times?
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