CHAPTER 7

INTERNAL CONTROL AND CASH

CHAPTER STUDY OBJECTIVES

1. Define cash and internal control. Cash not only includes coins and paper currency, it may also include cash equivalents. Cash equivalents are short-term, highly liquid (easily sold) investments that are not subject to significant risk of changes in value. Internal control consists of all the related methods and measures that management implements in order to achieve reliable financial reporting, effective and efficient operations, and compliance with relevant laws and regulations. Control activities include (a) establishment of responsibility, (b) segregation of duties, (c) documentation procedures, (d) physical and IT controls, (e) independent checks of performance, and (f) human resource controls.

2. Apply control activities to cash receipts and cash payments. Internal controls over cash receipts include (a) designating only personnel such as cashiers to handle cash; (b) assigning the duties of handling or receiving cash, and recording cash to different individuals; (c) using remittance advices for mail receipts, cash register tapes (or point-of-sale computerized systems) for over-the-counter receipts, and deposit slips for bank deposits; (d) using company safes and bank vaults to store cash, with only authorized personnel having access, and using cash registers; (e) depositing all cash intact daily; (f) making independent daily counts of register receipts and daily comparisons of total receipts with total deposits; and (g) bonding personnel who handle cash. Debit and credit card transactions increase internal control but have related bank charges. Electronic funds transfer receipts also increase internal control over cash receipts.

Internal controls over cash payments include (a) authorizing only specified individuals such as the controller to sign cheques and authorize electronic funds transfer payments; (b) assigning the duties of approving items for payment, paying for the items, and recording the payment to different individuals; (c) using pre-numbered cheques and accounting for all cheques, with each cheque supported by an approved invoice; (d) storing blank cheques and signing machines in a safe or vault, with access restricted to authorized personnel; (e) comparing each cheque with the approved invoice before issuing the cheque and making monthly reconciliations of bank and book balances; and (f) stamping each approved invoice “Paid” after payment.

3. Describe the operation of a petty cash fund. Companies operate a petty cash fund to pay relatively small amounts of cash. They must establish the fund, make payments from the fund, and replenish the fund. Journal entries are made only when the fund is established and replenished.

4. Describe the control features of a bank account and prepare a bank reconciliation. A bank account contributes to good internal control by giving physical and IT controls for the storage of cash, reducing the amount of currency that must be kept on hand, and creating a double record of a depositor’s bank transactions.

It is customary to reconcile the balance per books and balance per bank to their adjusted balance. Reconciling items include deposits in transit, outstanding cheques, errors by the bank, unrecorded bank memoranda, and errors by the company. Adjusting entries must be made for any errors made by the company and unrecorded bank memoranda (e.g., interest).

5. Report cash on the balance sheet. Cash is usually listed first in the current assets section of the balance sheet. Cash may be reported together with highly liquid, very short-term investments called cash equivalents. Cash that is restricted for a special purpose is reported separately as a current asset or a non-current asset, depending on when the cash is expected to be used.

Exercises

Exercise 1

Below are descriptions of internal control problems. In the space to the left of each item, enter the code letter of the one best internal control activity that is related to the problem described. Each code letter can be used more than once.

Control Activities

A. Establishment of responsibility

B. Segregation of duties

C. Physical and IT controls

D. Documentation procedures

E. Independent checks of performances

F. Human resource controls

1. The same person opens incoming mail and posts to the accounts receivable subsidiary ledger.

2. Three people handle cash sales from the same cash register drawer.

3. A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.

4. The person who is authorized to sign cheques approves purchase orders for payment.

5. Some cash payments are not recorded because cheques are not pre-numbered.

6. Cash shortages are not discovered because there are no daily cash counts by supervisors.

7. The controller of the company has not taken a vacation for over 20 years.

Exercise 2

Jane Forman has worked for Prof. Robert Raven for several years. Jane demonstrates a loyalty that is rare among employees. She hasn't taken a vacation in the last four years. One of Jane's primary duties at the medical office is to open the mail and list the cheques received. She also takes cash from patients at the cashier window as patients leave. At times it is so hectic that Jane doesn't bother with giving each patient a receipt for the cash paid on their accounts. She assures them she will see to it that they receive the proper credit. When the traffic is slow in the office, Jane offers to help the bookkeeper post the payments to the patients' accounts receivable. She is always happy to receive Jane’s help, because she is a very conscientious worker.

Instructions

Identify any internal control activities that may be violated in this medical office situation.

Exercise 3

The following situations are independent of each other:

1. A company has two retail outlets, North and South. A separate bank account is maintained for each location. At head office, there are two employees in the accounting department, Stephanie and Nick. Stephanie records all of the accounts payable, issues cheques, and completes the bank reconciliation for the South outlet. Nick completes all of these duties for the North outlet.

2. A law firm has three partners and eight employees who provide legal services to clients, and two administrative staff. When a case is completed, an invoice is supposed to be issued by “whoever has time to do it.”

3. An accounting firm completes many personal tax returns in a very short period of time each April. In order to speed up the process of updating client personal data (address, contact information and so on), the firm has placed a computer terminal in the reception area and ask the clients to enter any relevant changes while waiting for their account manager to see them. The terminal is connected to the main server and a user-friendly screen has been developed to guide the client through the data entry process. The screen can access any client’s data simply by typing in the client’s surname.

4. A warehouse operates 24 hours a day. Employees work either an eight- or a twelve-hour shift. Three managers each work an eight-hour shift. Before leaving at the end of his or her shift, each manager makes a note on a clipboard of which employees were working during that shift. Once a week, someone from payroll gathers all of these notes to use in preparing the hourly employees’ payroll cheques.

5. Marnie is the supervisor of accounting for a small business and has three junior accountants reporting to her. At the end of every day she reviews her assistants’ work and corrects any errors that she observes. She notices that one employee makes the same types of errors repeatedly and she hopes that she is catching and correcting all of the errors because otherwise the manager’s financial reports will not be reliable.

Instructions

For each weakness, describe what could go wrong as a result of the weakness described, state which type of internal control is required to correct the weakness, and describe a recommended control. The first item has been completed for you.

Example:

Exercise 4

The following internal control procedures are used by Red Company for cash receipts and disbursements:

1. Cashiers receive all over-the-counter receipts and place the cash into a single cash drawer.

2. When cash in the drawer exceeds $500, it is placed in an envelope marked “cash” and stored in a drawer in the supervisor’s office.

3. The company’s accountant makes daily bank deposits.

4. The clerk in the receiving department authorizes all payments for purchases.

5. Blank cheques are kept in the main office.

6. The company’s internal auditor prepares bank reconciliations annually.

Instructions

For each of the above procedures, explain the weakness in internal control, identify the control policy or procedure violated, and suggest a change in procedure that will result in better control.

Exercise 5

Polar Bear Used Books sells all of its products by “mail order.” Customers can select their purchases from an online catalogue. Once the books are selected, the customer sends an order in by email, then prints out the email and mails it in with a cheque. For individual customers, Polar Bear does not send out the order until the payment is received. For corporate customers like bookstores, Polar Bear will send out the order with an invoice before payment is received. Occasionally, “walk in” customers will come in to purchase specific books. These customers are expected to pay cash, and the receptionist prepares the invoices and takes the cash for the cash transactions.

The following procedures relate to the handling of cash payments from customers:

1. Polar Bear’s mail clerk opens all of the mail, which usually takes him the entire day. Orders from customers are placed in one file folder and the cheques received are placed in another file folder.

2. The cheques are delivered to the Accounts Receivable department at the end of the day, and placed in a filing cabinet by Paula, the Accounts Receivable clerk. The file folder of orders is given to the shipping department.

3. The following morning Paula prepares a bank deposit with all of the cheques received the previous day, and gives it to the receptionist to hold in her desk drawer.

4. At the end of the day, the receptionist adds any cash received from “walk in customers” to the deposit and then takes the deposit to the bank on her way to the bus stop.

5. From a photocopy of the bank deposit slip, Paula prepares a list for the shipping department indicating which customers’ orders have been paid so that they know which orders are cleared for shipping. If the list includes payments from corporate customers, the shipping department ignores this information, assuming the orders have been sent previously.

6. Working from a photocopy of the bank deposit slip, Paula enters the customer payments in the accounts receivable subledger, and records the cash received in the cash receipts journal.

7. At the end of the month, Paula adds up all of the bank deposit slips, and reconciles this amount to the total cash receipts (per the cash receipts journal) for the month. There is very seldom a difference between the two amounts.

Instructions

a) For each procedure, explain one weakness in internal control.

b) For each procedure, identify the control activity that is violated.

c) For each weakness, recommend an improvement that will increase internal control over cash receipts.

Exercise 6

The following are internal control procedures over cash payments in place at Harts Music Supplies.

1. Cheques are signed using an automated cheque signing machine. The machine is stored in a safe that requires two keys to open it. The Controller and Vice President Finance each have custody of one of the keys.

2. Only original vendor invoices with unique invoice numbers are approved for payment. Faxes and photocopies are not acceptable, and if a vendor sends two invoices with the same number, they are returned and the vendor is asked to re-issue one of them with a different invoice number.

3. The Purchasing Manager is authorized to approve purchase orders, the Receiving Manager approves invoices after matching them to receiving reports, an Accounts Payable assistant records the purchase invoices, the Accounts Payable manager prepares cheques, and the VP Finance signs them.

4. The computer system produces a log showing how many errors have been made and corrected by each Accounting Assistant in recording vendor invoices.

Instructions

For each internal control, identify which type of control is described, and describe a weakness that the control is designed to prevent or detect.

Exercise 7

Carfox Auto Parts allows customers to pay for merchandise with cash, debit cards, bank credit cards, or a Carfox credit card. The bank charges Carfox $1.00 for each debit card sale and a 4% fee for bank credit card sales. On September 25 a customer makes a $1,200 purchase from Carfox using her debit card.

Instructions

a) Prepare Carfox’s journal entry to record this transaction.

b) Assume instead the customer pays for her purchase using her MasterCard. Record the transaction.

c) Assume instead the customer uses her Carfox store credit card. Record the transaction.

Exercise 8

The following situations are independent of each other:

1. Jim’s Electronic Games is a very relaxed place to work. Unissued blank cheques are left in a box on the floor near the printer.

2. XL Products requires every cheque to be signed by the President and the VP Finance. Because the President travels a lot, he signs several blank cheques in advance of each trip so that his absences will not interfere with the operations of the Accounts Payable department.

3. Dubois Books is short staffed and the accounting department is very busy. As soon as the cheques are printed they are sent to the Executive office to be signed while the invoices that were paid are immediately filed so that the work will not get backlogged.

4. At Nora Sales, two accounting clerks share cheque disbursement duties. They can tell which invoices have been paid by whether they are located in the “unpaid” basket or in the vendor file.

Instructions

For each weakness, describe what could go wrong and make a recommendation to improve internal control.

Exercise 9

The following procedures are used by Pinetree Renovations in handling cash payments. The individuals involved in the cheque preparation and payment process are Rudy, the Accounts Payable clerk, who reports to the Controller, and Crystal, the Construction Manager.

1. When purchase invoices are received, Crystal approves them for payment. After they are approved, Rudy records the purchase invoices in the Accounts Payable subledger and then files them in an “unpaid invoices” file. Once or twice a week, Rudy scans through the file and decides which invoices should be paid.

2. Rudy prepares the cheques manually. He enters cheque numbers on the cheques that are not pre-numbered.

3. The unsigned cheques are put into Crystal’s in-box to be signed.

4. Crystal does not feel she needs to see the invoices again when she signs the cheques so only the cheques are given to her.

5. Crystal is often out of the office on construction projects, but she tries to make sure that she signs the cheques within two or three days.

6. After she has signed the cheques, Crystal returns them to Rudy for mailing. After Rudy has mailed the cheques, he files the paid invoices in the vendor invoice files.

Instructions

For each procedure, describe what could go wrong as a result of the weakness described, and recommend an internal control to correct the weakness.

Exercise 10

The petty cash fund of $300 for Fielding Systems includes the following on December 31, 2021:

Cash $93.60

Petty cash receipts:

Freight in $89.40

Postage 55.00

Balloons for a special occasion 27.00

Meals 30.00

Instructions

a) Briefly describe when the petty cash fund should be replenished. Because there is cash on hand, is there a need to replenish the fund at year end on December 31? Explain.

b) Prepare in general journal form the entry to replenish the fund. The company uses a perpetual inventory system.

c) On December 31, the office manager gives instructions to increase the petty cash fund by $50. Make the appropriate journal entry.

Exercise 11

On October 1, 2021, Wooden Company establishes a petty cash fund by issuing a cheque for $200 to Woody Wood, the custodian of the petty cash fund. On October 31, 2021, Woody Wood submitted the following paid petty cash receipts for replenishment of the petty cash fund when there is $6 cash in the fund:

Freight in $27

Office Supplies Expense 83

Entertainment of Clients 58

Postage Expense 22

Instructions

Prepare the journal entries required to establish the petty cash fund on October 1 and the replenishment of the fund on October 31. The company uses a perpetual inventory system.

Exercise 12

Equipment World established a $500 petty cash fund on July 1. During the month of July, petty cash was issued in exchange for the following receipts:

July 2 Supplies $ 65

July 10 Postage expense 52

July 17 Freight out 125

July 25 Advertising expense 47

July 28 Meals expense 70

On July 31, the cash is counted and the balance remaining is found to be $136. A cheque is issued to replenish the fund.

Instructions

Prepare the necessary journal entries for July 1 and July 31.

Exercise 13

Gadget Overhead Doors established a petty cash fund on April 1, 2021 to facilitate the payment of small items. The following petty cash transactions were noted by the petty cash custodian during the month of April 2021:

Apr 1 Received cash of $200 to establish the petty cash fund.

10 Received cash to replenish the fund (zero cash remaining) for the following expenditures since April 1 and to increase the petty cash fund to $300:

a) $70 for office supplies

b) $25 for postage

c) $45 for overtime meals

d) $50 for floor cleaner

30 Received cash to replenish the fund ($150 cash remaining) for the following expenditures since April 10 and to decrease the petty cash fund to $250:

a) $60 for office supplies

b) $15 for postage

c) $75 for vehicle operation

Instructions

Prepare the journal entries required for the above transactions.

Exercise 14

Isabelle’s Cabinet Design established a petty cash fund on April 1, 2021 to facilitate the payment of small items. The following petty cash transactions were noted by the petty cash custodian during the month of April 2021:

Apr 1 Received cash of $100 to establish the petty cash fund.

10 The petty cash fund was replenished when there was $15 on hand and the following receipts:

a) $20 for office supplies

b) $40 for freight in charges

c) $15 for postage

15 The petty cash fund was increased to $125

Instructions

Prepare the journal entries required for the above transactions.

Exercise 15

Using the code letters below, indicate how each of the items listed would be handled when preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

Code

A Add to books.

B Deduct from books.

C Add to bank.

D Deduct from bank.

E Does not affect the bank reconciliation.

Items

1. Outstanding cheques

2. Bank service charge

3. Cheque for $320 correctly written and paid by the bank but incorrectly entered in the general journal for $230.

4. Deposit in transit

5. Bank returns deposited cheque marked NSF.

6. Bank collects accounts receivable for depositor electronically.

7. Bank debit memorandum for cheque printing fees

8. Petty cash custodian has $86 in paid petty cash vouchers that have not been reimbursed.

9. Bank charged a cheque against the company that should have been charged to another company.

10. A cheque for $236 was correctly paid by the bank but was incorrectly entered in the general journal for $263.

Exercise 16

Listed below are items that may be useful in preparing the March 2021 bank reconciliation for Armstrong Machine Works.

Using the following code, insert in the space before each item the letter where the amount would be located or otherwise treated in the bank reconciliation process.

Code Located or Treated

A Add to the cash balance per books.

B Deduct from the cash balance per books.

C Add to the cash balance per bank.

D Deduct from the cash balance per bank.

E Does not affect the bank reconciliation.

1. Included with the bank statement materials was a cheque from Joe Terrell for $40 stamped "account closed."

2. A personal deposit by Ted Armstrong to his personal account in the amount of $300 for dividends on his Bank of Montreal common shares was credited to the company account.

3. The bank statement included a debit memorandum for $22 for four books of blank cheques for Armstrong Machine Works.

4. The bank statement contains a credit memorandum for $42.75 interest on the average chequing account balance.

5. The daily deposits of March 30 and March 31, for $3,362 and $3,125 respectively, were not included in the bank statement postings.

6. Two cheques totalling $316.86, which were outstanding at the end of February, cleared in March and were returned with the March statement.

7. The bank statement included a credit memorandum dated March 28, 2021 for $62 for the monthly interest on a 6-month, $15,000 guaranteed investment certificate that the company owns.

8. Four cheques, #8712, #8716, #8718, #8719, totalling $5,369.65, did not clear the bank during March.

9. On March 24, 2021, a $3,400 EFT from Tom Jacobs was received as a payment on account. The receipt of funds was determined from a review of the March bank statement.

10. The bank statement included a debit memorandum for $20 for monthly service charges.

Exercise 17

The following journal entries for Stone Company were prepared after completing a bank reconciliation:

1. Bank Charges Expense 20

Cash 20

2. Accounts Receivable—S. Ruder 420

Cash 420

3. Cash 2,200

Accounts Receivable 2,200

4. Sales 81

Cash 81

5. Supplies 150

Cash 150

Instructions

For each of the adjustments, prepare a probable explanation for the journal entry.

Exercise 18

The following information was used to prepare the March 2021 bank reconciliation for Armstrong Machine Works:

1. Included with the bank statement materials was a cheque from Joe Terrell for $40 stamped "NSF."

2. A personal deposit by Ted Armstrong to his personal account in the amount of $300 for dividends on his Bank of Montreal common shares was credited to the company account.

3. The bank statement included a debit memorandum for $22 for four books of blank cheques for Armstrong Machine Works.

4. The bank statement contains a credit memorandum for $42.75 interest on the average chequing account balance.

5. The daily deposits of March 30 and March 31, for $3,362 and $3,125 respectively, were not included in the bank statement postings.

6. Two cheques totalling $316.86, which were outstanding at the end of February, cleared in March and were returned with the March statement.

7. The bank statement included a credit memorandum dated March 28, 2021 for $62 for the monthly interest on a 6-month, $15,000 guaranteed investment certificate that the company owns.

8. Four cheques, #8712, #8716, #8718, #8719, totalling $5,369.65, did not clear the bank during March.

9. On March 24, 2021, an EFT for $3,400 was received from Tom Jacobs as a payment on account. The receipt of funds was determined from a review of the March bank statement.

10. The bank statement included a debit memorandum for $20 for monthly service charges.

Instructions

Identify the items that require adjustment to the cash balance per books and prepare the appropriate journal entries.

Exercise 19

The cash records of Janzen Company show the following:

1. The June 30 bank reconciliation indicated that deposits in transit totalled $390. During July, the general ledger account Cash shows deposits of $9,800, but the bank statement indicates that only $9,540 in deposits were received during the month.

2. The June 30 bank reconciliation also reported outstanding cheques of $800. During the month of July, the Janzen Company books show that $11,070 of cheques were issued, yet the bank statement showed that $11,500 of cheques cleared the bank in July..

There were no bank debit or credit memoranda and no errors were made by either the bank or Janzen Company.

Instructions

a) What were the deposits in transit at July 31?

b) What were the outstanding cheques at July 31?

Exercise 20

Bamby’s Grocery Store developed the following information for the month of March, 2021:

Balance per books March 31 $ 1,905

Balance per bank statement March 31 $11,400

1. Cheques written in March but still outstanding $8,000.

2. Cheques written in February but still outstanding $2,800.

3. Deposits of March 30 and 31 not yet recorded by bank $5,200.

4. NSF cheque of customer returned by bank $700.

5. Cheque No. 210 for $594 was correctly issued and paid by bank but incorrectly entered in the general journal as payment on account for $549.

6. Bank service charge for March was $50.

7. A payment on account was incorrectly entered in the general journal and posted to the Accounts Payable subsidiary ledger for $824 when Cheque No. 318 was correctly prepared for $284. The cheque cleared the bank in March.

8. A review of the bank statement revealed Bamby’s Grocery received electronic payments from customers on account of $4,150 during March.

Instructions

Prepare a bank reconciliation at March 31, 2021.

Exercise 21

Conneaut Lake Boat Company's bank statement for the month of September 2021 showed a balance per bank of $7,000. The company's Cash account in the general ledger had a balance of $5,459 at September 30. Other information is as follows:

1. Cash receipts for September 30 recorded on the company's books were $5,200 but this amount does not appear on the bank statement.

2. The bank statement shows a debit memorandum for $50 for cheque printing charges.

3. Cheque No. 119 payable to Lynch Company was recorded in the general journal and cleared the bank for $248. A review of the Accounts Payable subsidiary ledger shows a $36 credit balance in the account of Lynch Company and that the payment to it should have been for $284.

4. The total amount of cheques still outstanding at September 30 amounted to $6,000.

5. Cheque No. 138 was correctly written and paid by the bank for $409. The cash payment journal reflects an entry for Cheque No. 138 as a debit to Accounts Payable and a credit to Cash in Bank for $490.

6. The bank returned an NSF cheque from a customer for $550.

7. The bank included a credit memorandum for $1,260 which represents an EFT collection of a customer's account.

Instructions

a) Prepare a bank reconciliation for Conneaut Lake Boat Company at September 30, 2021.

b) Prepare any journal entries necessary as a result of the bank reconciliation.

Exercise 22

Fuentes Company's bank statement for the month ended January 31 showed a balance per bank of $34,728. The company's Cash balance at January 31 was $16,398. Other information is as follows:

1. Cash receipts for January were $87,679 of which $5,200 was outstanding at January 31.

2. The bank statement shows a debit memorandum for $40 for cheque printing charges.

3. Cheque No. 119 payable to Cain Company was recorded in the general journal and cleared the bank for $248. A review of the Accounts Payable subsidiary ledger shows a $36 credit balance in the account of Cain Company and that the payment to it should have been for $284.

4. The total amount of cheques written during January was $74,936 of which $5,789 was outstanding at January 31.

5. Cheque No. 127 was correctly written and paid by the bank for $409. The general journal reflects an entry for Cheque No. 127 as a debit to Accounts Payable and a credit to Cash for $490.

6. The bank returned an NSF cheque from a customer for $560.

7. The bank included a credit memorandum for $18,260, which represents an EFT collection of a customer's account.

Instructions

a) Prepare a bank reconciliation for Fuentes Company at January 31.

b) Prepare any journal entries necessary as a result of the bank reconciliation.

Exercise 23

The cash balance per books for Senjavarah Company on October 31, 2021 is $8,736.01. The following cheques and receipts were recorded for the month of October 2021:

Cheques Receipts

No. Amount No. Amount Amount Date

17 $372.96 22 $ 578.84 $843.86 Oct. 5

18 780.62 23 1,687.50 941.54 Oct. 21

19 157.00 24 921.30 808.58 Oct. 27

20 587.50 25 246.03 967.00 Oct. 30

21 234.15

In addition, the bank statement for the month of October is presented below:

Cheques and other debits Deposits Date Balance

—————————————————————————————————————————

No. Amount No. Amount No. Amount

—————————————————————————————————————————

Sep. 30 $5,404.84

14 $148.29 17 $372.96 22 $578.84 $5,484.38 Oct. 1 $9,789.13

18 708.62 24 921.30 843.86 Oct. 8 $9,003.07

19 157.00 25 246.03 941.54 Oct.23 $9,541.58

21 234.15 15.00 SC 808.58 Oct. 29 $10,101.01

250.00 NSF 1,200.00 CM Oct. 31 $11,051.01

—————————————————————————————————————————

Symbols: NSF (Not sufficient funds) SC (Service charge) CM (Credit memo)

Cheque No. 18 was correctly written for $708.62 for a payment on account. The NSF cheque was from S. Horn, a customer, in settlement of an accounts receivable. An entry had not been made for the NSF cheque. The credit memo is for an EFT from a customer account.

Instructions

a) Prepare a bank reconciliation at October 31, 2021.

b) Prepare the journal entries required by the bank reconciliation.

Exercise 24

1. On May 31, 2021, the Cash account of Gowganda Supply Company (GSC) had a balance of $43,708. On that date, the bank statement indicated a balance of $54,600.
2. Outstanding cheques amounted to $13,400.
3. The May 31 cash receipts for $8,900 were deposited but were only processed by the bank after May 31.
4. A debit memorandum of $8 representing bank charges appeared on the bank statement.
5. The bank reported an EFT credit memorandum for the collection of a receivable from Frank Edgar of $6,300.
6. The bank incorrectly recorded a cheque payment of $600 as $500.

Instructions

Prepare a bank reconciliation for GSC as at May 31, 2021.

Exercise 25

1. On May 31, 2021, the Cash account of Gowganda Supply Company (GSC) had a balance of $43,828. On that date, the bank statement indicated a balance of $54,600.

2. After reviewing the April 30, 2021 bank reconciliation, cheque #568 for $3,450 written to Jose’s Catering had still not cleared the bank in May.

3. In checking the disbursements journal, cheques #575 for $4,725 and #588 for $5,225 did not appear on the May bank statement.

4. The bank reported an EFT credit memorandum for the collection of a receivable from Frank Edgar of $6,300. A second credit memoranda was identified for $300 representing interest earned on the bank account.

5. A $1,700 cheque of a customer, Florence Olivier, was returned by the bank because of non-sufficient funds. The bank charged GSC a $60 NSF fee.

6. The bank has not credited the company's account for a $4,200 deposit made on May 30 and a $4,700 deposit made on May 31.

7. The Accounts Payable clerk recorded an insurance expense payment of $160 as $1,600. Cheque #572 was correctly written for $160.

8. There was an $8 service charge on the bank statement.

Instructions

a) Prepare a bank reconciliation for GSC as at May 31, 2021.

b) Prepare the necessary journal entries to adjust GSC's' records based on the bank reconciliation.

Exercise 26

On November 30, 2021, the bank reconciliation for McLaughlin Drilling Company had no deposits in transit, however the following cheque was still outstanding:

#1162 for $55.89

On December 31, the bank balance was $14,081.69. The unadjusted cash balance was $32,695.30. The following is selected information from the December bank statement:

The NSF cheque was from Ray Bronson, a customer, in payment of his account of $12,940; the bank included a $45 service charge for a total of $12,985. Information from the company’s accounting records follows:

Investigation reveals that cheque # 1176 was issued to pay the utilities bill. All deposits are for sales. The bank made no errors.

Instructions

Prepare a bank reconciliation at December 31, 2021.

Exercise 27

The following information has been gathered for Highgate Security for the month ended September 30, 2021:

1. The bank statement indicates a balance of $6,417.
2. The general ledger cash account indicates a balance of $5,422 on September 30, 2021.
3. There was an EFT deposit of $1,700 on the bank statement for the monthly rent from a tenant.
4. The bookkeeper had erroneously recorded a $100 cheque as $1,000. The cheque was to settle the account payable of Janex Supplies.
5. The bank statement revealed $50 in service charges.
6. Cheques #112 and #107 for $1,260 and $785 respectively did not appear on the bank statement.
7. A deposit made on September 29, 2021 for $2,900 did not appear on the bank statement.
8. A bank debit memo indicated an NSF cheque for $700.

Instructions

Prepare a bank reconciliation for Highgate Security at September 30, 2021.

Exercise 28

The following information has been gathered for Daniel Mechanical for the month ended September 30, 2021:

1. The bank statement indicates a balance of $6,000.
2. The general ledger cash account indicates a balance of $5,005 on September 30, 2021.
3. There was an EFT deposit of $1,700 on the bank statement for the monthly rent from a tenant.
4. The bookkeeper had erroneously recorded a $100 cheque as $1,000. The cheque was to settle the account payable of Fanny Ltd.
5. The bank statement revealed $50 in service charges.
6. Cheques #417 and #410 for $1,260 and $785 respectively did not appear on the bank statement.
7. A deposit made on September 29, 2021 for $2,900 did not appear on the bank statement.
8. A bank debit memo indicated an NSF cheque for $700 relating to the account receivable of Joe Dexter.

Instructions

Prepare all journal entries required for Daniel Mechanical’s September 30, 2021 bank reconciliation.

Exercise 29

The following information has been gathered for Highgate Security for the month ended September 30, 2021:

1. The bank statement indicates a balance of $6,417.
2. The general ledger cash account indicates a balance of $5,422 on September 30, 2021.
3. There was an EFT deposit of $1,700 on the bank statement for the monthly rent from a tenant.
4. The bookkeeper had erroneously recorded a $100 cheque as $1,000. The cheque was to settle the account payable of Janex Supplies.
5. The bank statement revealed $50 in service charges.
6. Cheques #112 and #107 for $1,260 and $785 respectively did not appear on the bank statement.
7. A deposit made on September 29, 2021 for $2,900 did not appear on the bank statement.
8. A bank debit memo indicated an NSF cheque for $700 relating to the account receivable of Theodore Childress.

Instructions

1. Prepare a bank reconciliation for Highgate Security at September 30, 2021.
2. Prepare all journal entries required for Highgate Security’s September 30, 2021 bank reconciliation.

Exercise 30

The following is information about Full Moon Auto Repairs cash and related accounts at December 31, 2021:

1. Postdated cheques from customers total $5,500. The cheques are dated January 31, 2022.

2. The petty cash box contains $500 cash.

3. The company has a savings account with a balance of $5,250 after all adjustments are recorded.

4. The company has guaranteed investment certificates totalling $10,000 due in 30 days.

5. The company maintains a cash float of $1,000 for use in the cash registers and which is stored in a locked safe overnight. On December 31, the cash custodian lent the senior manager $100 from the cash float, leaving an “IOU” note in the safe.

6. The chequing account is overdrawn, showing a negative balance of $12,400 after all adjustments.

Instructions

a) Calculate what amount of cash and cash equivalents will be reported on Full Moon’s December 31, 2021 balance sheet.

b) For each of the items listed that is not included in cash on hand, indicate how the amount will be reported in Full Moon’s December 31, 2021 financial statements.

Exercise 31

The following information is taken from the accounting records of Village Pet Shelter at December 31, 2021, the organization’s year end:

1. The petty cash box contained $20 in cash and $280 in receipts on the morning of December 31, 2021 and was replenished before the end of the day.

2. The organization owned $50,000 in guaranteed investment certificates due June 30, 2022.

3. The Bank of Montreal chequing account balance was $4,566 after all adjusting entries had been made.

4. The Bank of Montreal savings account balance was $35,600 before recording $150 in December interest revenue.

5. The Bank of Nova Scotia chequing account balance, after all adjustments, is $80,700. The funds in this account were donated by a private foundation for the purpose of purchasing new shelter furnishings, which they plan to do in February 2022.

Instructions

Prepare a partial balance sheet for Village Pet Shelter at December 31 showing how this information should be presented.

Exercise 32

The following information is taken from the accounting records of Joudrey Law Firm at December 31, 2021, the firm’s year end.

1. The Petty Cash box holds $200 after having been replenished that day.

2. The firm has two chequing accounts:

- The general account has a balance of $67,000 after all adjustments and is used to pay for the firm’s operating expenses.

- The trust account has a balance of $450,000 and contains funds belonging to clients, which can only be used on behalf of the clients to whom the funds belong.

3. The firm has a savings account balance of $22,400 after recording $90 in December interest revenue.

4. On December 31, a client paid a $1,500 invoice in cash. The office manager did not have time to take the funds to the bank on December 31, so the money was locked in the firm’s safe.

5. The cash custodian lent the senior manager $400 from the safe for personal use, and left an “IOU” note. The senior manager repaid the cash on January 3, 2022.

6. In the safe there are two postdated cheques from clients totalling $25,000. Both are dated February 28, 2022.

Instructions

Prepare a partial balance sheet for Joudrey Law Firm at December 31 showing how this information should be presented. Assume the firm has no accounts receivable other than those described in the above information.