Chapter 7: Q8RQ (page 411)
How do businesses control cash receipts over the counter?
Cash receipts are controlled with the help of a point-of-sale terminal.
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What are some common controls used with a bank account?
Identifying internal control weakness in cash receipts
Pendley Productions makes all sales on credit. Cash receipts arrive by mail. Larry
Chipello, the mailroom clerk, opens envelopes and separates the checks from the
accompanying remittance advices. Chipello forwards the checks to another employee,
who makes the daily bank deposit but has no access to the accounting records.
Chipello sends the remittance advices, which show cash received, to the accounting
department for entry in the accounts. Chipello’s only other duty is to grant sales
allowances to customers. (A sales allowancedecreases the customer’s account receivable.)
When Chipello receives a customer check for \(575 less a \)45 allowance, he records the
sales allowance and forwards the document to the accounting department.
Requirements
1. Identify the internal control weakness in this situation.
2. Who should record sales allowances?
3. What is the amount that should be shown in the ledger for cash receipts?
: Identifying timing differences related to a bank reconciliation
For each timing difference listed, identify whether the difference would be reported on
the book side of the reconciliation or the bank side. In addition,
identify whether the difference would be an addition or subtraction.
a. Deposit in transit
b. Bank collection
c. Debit memorandum from bank
d. EFT cash receipt
e. Outstanding checks
f. \(1,000 deposit erroneously recorded
by the bank as \)100
g. Service charges
h. Interest revenue
i. \(2,500 cash payment for rent
expense erroneously recorded by
the business as \)250
j. Credit memorandum from bank
Controlling petty cash Just Hangin’ 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?
What does the cash ratio help determine, and how is it calculated?
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