financial accounting tools for business decision making 6e solution manual chapter 7

A bank contributes significantly to internal control over cash because it: 1 safeguards cash on deposit, 2 minimizes the amount of cash that must be kept on hand, and 3 provides another

CHAPTER 7

Internal Control and Cash

ASSIGNMENT CLASSIFICATION TABLE

Study Objectives Questions

Brief Exercises Exercises

A Problems

B Problems

BPY

2, 6

ASSIGNMENT CHARACTERISTICS TABLE

Problem

Number Description

Difficulty Level

Time Allotted (min.)

1A Identify control activities over cash receipts Simple 20-30

5A Prepare bank reconciliation and adjusting entries Moderate 30-40

5B Prepare bank reconciliation and adjusting entries Moderate 30-40

ANSWERS TO QUESTIONS

1 The five primary components of a good internal control system include the control environment, risk assessment, control activities, information and communication, and monitoring

A control environment encourages integrity and a high standard of ethical behaviour Risk assessment involves identification and management of key business risks Control activities are policies and procedures to help mitigate the business risks Information and communication ensures that the internal control system captures and communicates the appropriate information to internal and external users Monitoring the internal control system for its adequacy is a recurring process

2 The six control activities that apply to most companies are authorization of transactions and activities, segregation of duties, documentation, physical controls, independent checks of performance, and human resource controls

3 Documentation procedures contribute to good internal control by providing evidence of the occurrence of transactions and events and, when signatures (or initials) are added, the documents establish responsibility for the transactions The prompt transmittal of documents to the accounting department contributes to recording transactions in the proper period, and the pre-numbering of documents helps to ensure that a transaction is recorded only once

4 Independent review is necessary because employees can forget to, or intentionally fail

to follow internal controls, or they might become careless if there is no one to observe and evaluate their performance Segregating the physical custody of assets from accounting record keeping is not enough to ensure that nothing has been stolen A performance review still needs to be done In such a review, the accounting records are compared with existing assets or with external sources of information The review helps ensure accuracy

5 Retail stores that do not conduct criminal checks when hiring employees are missing the human resource control activity These stores are accepting increased risk of employee theft and fraud

6 A company’s system of internal control can only give reasonable assurance that assets are properly safeguarded and that accounting records are reliable because the cost of a perfect system outweighs its benefits For example, if a company wanted flawless accounting records, they could double the number of accountants on staff and have the new accountants check all of the work that was done by experienced accountants but the benefit of this is outweighed by the costs Absolute assurance is too costly

7 Electronic funds transfers normally result in better internal control since no cash or cheques are handled by employees, thereby limiting the possibility of misappropriation However, controls over EFT payments (and collections) do need to be put in place

8 This is a violation of authorization of transactions Each cash register should only be used

by one employee and an independent verification of the cash in each register at the end

of each shift should be compared to the total of the sales recorded in the cash register plus the float (coins and bills for making change) in the register If a discrepancy arises, the employee responsible for that register can be held responsible

9 Cash registers are visible to the customer Thus, they prevent the sales clerk from ringing

up a lower amount and pocketing the difference In addition, the customer receives an itemized receipt, and the cash register tape is locked into the register for further verification Having scanners reduces the chance of error in entering the price of an item

10 This statement is true if the alternative to a cheque payment is one done with cash It is not always practical to make all payments by cheque but payment by cheque contributes

to effective internal control over cash disbursements as it provides a record of all payments Also, having only authorized individuals sign the cheques reduces the likelihood of payments being made for unauthorized amounts or to unauthorized vendors

11 The receptionist has an opportunity to commit fraud In the case of an appointment where the customer pays cash, the cash can be pocketed by the receptionist The receptionist can then cancel the appointment, leaving no trace in the accounting records of the revenue generated by the service This is a clear case of lack of segregation of duties

12 An employee who has no other responsibilities that relate to cash should prepare the bank reconciliation If a person had responsibility for handling cash and also prepared the bank reconciliation, they could use the bank reconciliation to hide fraud by falsifying the bank balance or misstating reconciling items

13 A bank contributes significantly to internal control over cash because it: (1) safeguards cash on deposit, (2) minimizes the amount of cash that must be kept on hand, and (3) provides another record of all bank transactions

14 The lack of agreement between the cash balances may be due to either:

(1) Time lags—caused by recording a transaction on the company’s books in one month and the bank recording it another month (example – outstanding cheque) or the bank recording a transaction first which the company will record after completing the bank reconciliation (example – a bank service charge, or an NSF cheque)

(2) Errors—made by either the company or the bank For example, a cheque for $110 is recorded by the depositor at $101

Answers to Questions (Continued)

15 (a) An NSF cheque is a cheque issued by a customer that was recorded by the

company when it was received and then deposited in the bank only to discover later that the customer did not have the funds to cover the cheque payment

(b) An NSF cheque makes the bank balance lower than the book balance and requires the book balance to be adjusted Consequently, it is deducted from the balance per

books

(c) An NSF cheque results in an adjusting entry in the company’s books, as a debit to Accounts Receivable and a credit to Cash (assuming the cheque deposited was a collection on account) The debit to Accounts Receivable includes any additional charge that the bank may add for their services with respect to the NSF cheque or the company may add for late payment

16 Since the March cheque has still not cleared the bank at April 30, it must be included in the April 30th bank reconciliation as an outstanding cheque

17 When performing a bank reconciliation, outstanding cheques are subtracted from the bank balance to “move” that balance closer to the one recorded on the company’s books Since the bank balance is lower than the book balance by the amount of this fraud, Sam will understate the amount of outstanding cheques on the reconciliation For example, if there was no fraud, let’s assume that the bank balance would be $5,000 and that the outstanding cheques were $3,000 so the book balance should be $2,000 After the fraud the book balance is still $2,000 but the bank balance is now $3,300 instead of $5,000 When Sam does the reconciliation he has to make sure that the $3,300 will reconcile to

$2,000 so he will list the outstanding cheques as only $1,300, thereby understating them

by the amount of cash he has stolen The real outstanding cheques of $3,000 less the

stolen amount of $1,700, equals $1,300

18 Cash includes cash on hand and cash in bank accounts, including any debit and bank credit card slips Cash equivalents include short-term, highly liquid trading investments less any bank overdrafts Together, these two amounts combine and are reported as cash and cash equivalents in the current assets section of the statement of financial

position

19 Restricted cash is not available for general use as it is restricted for a special purpose When the restricted purpose is of a long-term nature, the restricted cash is reported as a non-current asset If it is expected to be used within one year of the statement of financial position date, it would be classified as a current asset and disclosed in the financial statements Compensating balances are minimum cash balances which lenders specify that a borrower must maintain in the borrower’s bank account to provide support for a loan A compensating balance should be reported as a non-current asset and the details

of the loan conditions should be disclosed in the notes to the financial statements

Answers to Questions (Continued)

20 The line of credit facility of $16 million does not represent a liability, until Brandon Corporation borrows (or draws) money under the line of credit In the notes to the financial statement the terms of the line of credit facility and its available limit of $16 million should be reported to demonstrate how the business is well positioned to deal with future cash flow demands or take advantage of investment opportunities

21 The basic principles of cash management are: (1) increase the speed of collection on receivables, (2) keep inventory levels low, (3) delay payment of liabilities, (4) plan the timing of major expenditures, (5) invest idle cash, and (6) prepare a cash budget The first three principles are ways to increase cash on hand The last three principles focus

on making sure management understands when cash balances will be high so that investment income can be earned from idle cash and when cash balances will be low so that bank loans or other financing can be obtained

22 Having too much cash on hand may hinder a business’ performance if the cash cannot

be used effectively and therefore not give a proper return to the shareholders Effective uses of cash can include upgrading existing property, plant, and equipment, expanding the business, paying down debt, repurchasing shares, or paying dividends

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 7-1

Control Activity Example

Authorization of transactions and

activities

One person operates the cash register at the exit of the parking garage

Segregation of duties Tickets are provided to those entering the garage by an

automated machine This ticket is given to the attendant

on exiting the parking garage In this way, the attendant does not authorize the parking and collect the cash

Documentation The time on the ticket is entered into a machine to

determine the amount owed, which is keyed into the cash register before the gate will open In this way the total time

in the parking garage is recorded

Physical controls Cash is kept in a cash register

Independent checks of performance If a customer is overcharged, they will complain

Review to make sure parking gate is not being raised prior

to payment being received

Human resource controls Employees working the cash register are bonded This

allows for insurance to be purchased covering theft or robbery

BRIEF EXERCISE 7-2

(a) 3 All transactions should include original, detailed receipts

(b) 4 Undeposited cash should be stored in the company safe

(c) 6 Employees must take their full vacation allotment each year

(d) 5 Surprise cash counts are performed by internal audit

(e) 1 Responsibility for related activities should be assigned to specific employees

(f) 2 Cheque signers are not allowed to record cash transactions

1 Documentation and physical controls

2 Human resource controls

3 Independent checks of performance

January deposits in transit:

Deposits in transit at beginning of month $ 0 Add: Deposits recorded in company books this month 5,000 Less: Deposits recorded on this month’s bank statement 4,000 Deposits in transit at end of month $1,000 February deposits in transit:

Deposits in transit at beginning of month $1,000 Add: Deposits recorded in company books this month 5,600 Less: Deposits recorded on this month’s bank statement 4,600 Deposits in transit at end of month $2,000

BRIEF EXERCISE 7-7

November outstanding cheques:

Outstanding cheques at beginning of month $ 0

Add: Cheques recorded in company books this month 12,600

Less: Cheques recorded on this month’s bank statement 11,100

Outstanding cheques at end of month $ 1,500

December outstanding deposits:

Outstanding cheques at beginning of month $1,500

Add: Cheques recorded in company books this month 9,500

Less: Cheques recorded on this month’s bank statement 9,900

Outstanding cheques at end of month $1,100

BRIEF EXERCISE 7-10

Cash balance per bank $15,840

Add: Deposits in transit 4,300

20,140 Less: Outstanding cheques 2,300

Adjusted cash balance per bank $17,840

Cash balance per books (as per BE7-9) $16,320

Add: EFT collections on account 1,960

18,280

Less: Bank service charge $ 70

NSF cheque and fee ($290 + $80) 370

440

Adjusted cash balance per books $17,840 BRIEF EXERCISE 7-11 July 31 Cash 1,960 Accounts Receivable 1,960 Bank Charges Expense 70

Cash 70

Accounts Receivable 370

Cash 370

BRIEF EXERCISE 7-12

Ouellette Ltée should report the cash in the bank, the payroll bank account, and the cash register floats as cash The trading investments would be reported as cash equivalents because they mature within 90 days Cash and cash equivalents are recorded as a current asset Assuming the restricted cash is not expected to be used during the next year, the restricted cash for the plant expansion should be reported as a non-current asset The compensating balance should also be reported as a non-current asset and disclosed in the notes

BRIEF EXERCISE 7-13

Cash and cash equivalents should be reported at $45,100 ($12,000 + $1,700 + $24,000 +

$5,000 + $2,400) Note that all of these items are actually cash The company has no cash

SOLUTIONS TO EXERCISES

EXERCISE 7-1

Control Strength or Weakness Suggested Improvements

1 No establishment of responsibility over

the cash – weakness

Cash counts not performed

2 By shredding the receipts there is no

record maintained of sales for

independent internal or external

verification – weakness

Retain supporting information until such time

as all independent verification is complete (a comparison of the receipts to the sales recorded in the accounting records) Shred the receipts only after the verification is complete

3 Cash receipts procedures appear to

illustrate good internal control – the

segregation of duties between

receiving, recording and depositing

cash greatly reduces the likelihood of

cash being stolen or recorded

incorrectly – strength

NA

4 Improper segregation of duties could

result in the misappropriation of cash

and the ability to misstate the

accounting records to cover up the

5 The procedures in place to conduct the

physical inventory count appear to be

reasonable – strength

NA

1 (a) It is possible to detect this type of fraud by comparing the amount of inventory

consumed during the evening with the sales that were recorded in cash registers (b) This fraud can be prevented by segregating the duties of those individuals handling the drinks to those individuals having access to the cash register If additional staff is not available, the floor supervisor should keep a close eye on the bartender or inventory could be counted once a day

2 (a) It is possible to detect this type of fraud as the bottles of liquor sold to

establishments are not the same as those sold at a liquor store A special label is attached, which can be detected at the end of the shift As well, if the additional empty bottles are on hand at the end of the shift, when the inventory consumed (including the bartender’s bottle) at the end of the bartender’s shift is compared to sales, a discrepancy will be noticed

(b) This fraud can be prevented by segregating the duties of those individuals handling the drinks to those individuals having access to the cash register If additional staff is not available, the floor supervisor should keep a close eye on the bartender and do a bottle count at the end of the shift

3 (a) It is possible to detect this type of fraud if someone notices that the number of

appointments and services given by the spa does not reconcile to the revenue deposited in the bank account for the day Most businesses of this nature will have someone comparing the bank deposit slips with the appointment schedule (often the schedule will be printed off a day or day prior to the schedule date)

(b) This fraud can be prevented by segregating the duties of those individuals handling the appointments, to those handing the cash, and again to those individuals making the bank deposit If additional staff is not available, the owner of the spa should at least make the bank deposit and require that the appointments

be written in ink

4 (a) It is possible to detect this type of fraud but likely only after the first instance of

fraud The individual in charge of approving the bank reconciliation could insist on looking at the cheques returned by the bank and detect the unauthorized cheque (b) This fraud can be prevented by segregating the duties of those individuals handling the cheques with the individual preparing the bank reconciliation, and by being vigilant in scrutinizing the bank reconciliation and its supporting documents

EXERCISE 7-3

Weakness Control Activity

Recommended Improvement

2 Inability to fix responsibility

for cash to a specific clerk

Authorization of transactions and activities

There should be separate cash drawers and register codes for each clerk

3 Cash is not adequately

protected from theft

Physical controls Cash should be stored in a

locked safe until it is deposited in the bank

5 The accountant should not

handle cash and record cash

transactions

Segregation of duties The cashier’s department

should make the deposits

6 Some sales will not be

recorded so that they can be

independently verified later;

cash is not adequately

protected from theft

Documentation and physical controls

All sales should be entered in the cash register to provide evidence the transaction has occurred In addition, the loose change box should be locked to keep it safe until the funds are deposited

(a) (b)

Weakness Control Activity

Recommended Improvement

1 Cheques are not

stored in a secure

area

Physical controls Cheques should be stored in a safe or

locked file drawer

The purchasing manager should not approve bills for payment nor should this manager have signing authority An employee, other than one involved with purchasing, who is aware of delivery of goods and services should be authorizing the payment and another member of senior management should be signing cheques

3 Blank cheques are

signed

Authorization of transactions and activities

Establish a second signing authority with the bank

4 Cheques are not

prenumbered

Documentation Cheques should be prenumbered and

their serial continuity subsequently tested for completeness

A person independent of the accountant should prepare the bank reconciliation If this is not possible, then the accountant can prepare the reconciliation but the owner not the store manager (because they can access cash) should approve it

EXERCISE 7-5

(a)

August 31 adjusted cash balance per bank reconciliation $ 54,700 Add: (4) Cash deposits in September 128,658 Less: (1) Cheques issued $127,492

(2) Salaries deposited to employees accounts 49,900

(3) Monthly EFT payment for insurance 1,500 178,892 September, unadjusted cash balance $ 4,466

(b) None of the above items would be included in the bank reconciliation as they are included in the starting (unadjusted) cash balance and already have been recorded by the company

EXERCISE 7-6

Item

Bank Books Add

(Credit)

Deduct (Debit)

Add (Debit)

Deduct (Credit)

Adjusting Entry

1 Deposits in transit at the end of

April

2 Deposits in transit at the

beginning of April that cleared

the bank in April

NA NA NA NA No

3 Outstanding cheques at the end

of April

4 Outstanding cheques at the

beginning of April that cleared

the bank in April

NA NA NA NA No

5 Cheque written for $250

recorded in error as $520 on the

books

6 Deposit of $400 made in error

by the bank to the company’s

account

7 Bank service charges √ Yes

8 EFT, collection on account not

previously recorded by company

(a) Deposits in transit: July 31

Deposits in transit, June 30 $ 2,000 Add: Deposits recorded in company books in July 14,750 Less: Deposits recorded on bank statement in July 15,820 Deposits in transit, July 31 $ 930

Deposits in transit: August 31

Deposits in transit, July 31 $ 930 Add: Deposits per books in company books in August 22,900 Less: Deposits recorded on bank statement in August 22,500 Deposits in transit, August 31 $ 1,330

(b) Outstanding cheques: July 31

Outstanding cheques, June 30 $ 570 Add: Cheques recorded in company books in July 18,200 Less: Cheques recorded on July bank statement 17,200 Outstanding cheques, July 31 $ 1,570 Outstanding cheques: August 31

Outstanding cheques, July 31 $ 1,570 Add: Cheques recorded in company books in August 22,700 Less: Cheques recorded on August bank statement 23,520 Outstanding cheques, August 31 $ 750

EXERCISE 7-8

(a)

NEOPOLITAN LTD

Bank Reconciliation

July 31

Cash balance per bank statement $ 8,833

Add: Deposits in transit $1,575

Cheque No 373 error ($762 – $672) 90

1,665 10,498 Less: Outstanding cheques 2,449 Adjusted cash balance per bank $ 8,049 Cash balance per books $7,190 Add: EFT deposits 883

8,073 Less: Bank service charges 24

Adjusted cash balance per books $8,049 (b) July 31 Cash 883

Accounts Receivable 883

31 Bank Charges Expense 24

Cash 24

(a) Items that are considered cash but not cash equivalents would include:

1 Currency and coin $ 87

5 Royal Bank chequing account 2,575

6 Royal Bank savings account 4,000

9 Cash register floats 250

10 Over-the-counter receipts ($550 + $185 + $685 + $755) 2,175

2 The $10,000 government treasury bill is considered a cash equivalent because it matures within 90 days and the value at which it will mature at is certain

(b) Cash and cash equivalents = $9,387 [from (a)] + $10,000 = $19,387

(c) 4 Post-dated cheque—Accounts Receivable; Statement of Financial Position

7 Prepaid postage in postage meter—Supplies; Statement of Financial Position

8 IOU from company receptionist—Advances to Employees; Statement of Financial Position

EXERCISE 7-10

Suggestions to improve cash management practices for Tory, Hachey, and Wedunn:

1 Prepare a cash budget

2 Adopt a time docketing accounting system which will track work performed on files for individual clients

3 Invoice clients monthly as work progresses using the accounting records established for docketing time

4 To the extent practicable, ask clients for retainers before work on files begins Use the retainers received to apply payments for monthly invoices sent to clients

5 When retainers are used up, request additional retainers until the case is completed

6 Establish an operating line of credit with the bank for day-to-day operations

7 Arrange a non-current loan for renovations and equipment with repayment terms structured to coincide with expected future cash inflows

8 Negotiate terms with suppliers that allow for delayed payments

9 To the extent necessary, obtain additional investments from the three lawyers to ensure payment to suppliers and employees are made on time

SOLUTIONS TO PROBLEMS

(a) Control Activities Application to Cash Receipts

Authorization of transactions and

activities

Only cashiers are authorized to sell tickets Only the manager and cashier can handle cash Only ushers authorize entrance

Segregation of duties The duties of receiving cash and admitting

customers are assigned to the cashier and to the doorperson The manager maintains custody of the cash, and the company accountant records the cash

Documentation Tickets are prenumbered Cash count sheets are

prepared and initialled Deposit slips are prepared

Physical controls Cash is deposited in a bank vault nightly

Prenumbered tickets are locked into the machine

by the manager and the machine is used to issue tickets

Independent checks of

performance

Cash counts are made by the manager at the end of each cashier’s shift Daily comparisons are made by the head cashier and accounting department of cash received, deposited and recorded

Human resource controls Cashiers are bonded

(b) Actions by the usher and cashier to collaborate to misappropriate cash include:

1 Instead of tearing the tickets, the usher could return the tickets to the cashier who could resell them, and the two could divide the cash

2 The cashier could issue a lower priced ticket than paid for and the usher would admit the customer The difference between the ticket issued and the cash received could be divided between the usher and cashier

PROBLEM 7-1A

(a)Control Weaknesses (b) Improvements

Fred or Asmaa can order goods (authorization)

and approve invoices for payment (up to $20,000

for Fred and up to $5,000 for Asmaa) Fred is the

sole signer of cheques less than $20,000 Fred

could purchase items for personal use or create

and pay invoices to companies that he owns

John or Rehana should be authorizing the purchase of goods

Fred signs cheques and prepares the bank

reconciliation Fred could write a cheque to

himself and cover it up in the bank reconciliation

and/or through adjusting journal entries

Someone who does not record cash transactions or has access to cash and cheques should prepare the bank reconciliation If this is not possible, then one of the owners should either prepare or at least review and

approve the reconciliation

One person can sign cheques At least two individuals should sign

each cheque to prevent inappropriate expenditures

PROBLEM 7-2A

(a) Control Weaknesses (b) Recommendations

1 No segregation of duties between receiving the

cash and admitting students to the lessons The

instructor could admit students for free or charge

extra and pocket the difference or report fewer

students and pocket the extra money

The duties of receiving cash and admitting students should be assigned to separate individuals

2 There is no segregation of duties in the accounting

function The general manager could prepare

fictitious invoices for payment or write cheques to

himself and not be detected because the general

manager also prepares the bank reconciliation

An independent person should approve the invoices for payment and prepare the bank

reconciliations

3 Each sales person is responsible for determining

credit policies and they receive a commission

based on sales They could provide credit to

customers who should not receive credit in order to

earn the commission on the sale

An independent and experienced person should be responsible for setting credit limits for customers Credit limit criteria should be determined by the company and consistently applied

4 All programmers have access to the accounting

software which could provide unauthorized

changes to the accounting records (such as wage

5 Eliminating receiving reports and purchase orders

causes problems when invoices from suppliers are

received Accountants will not be able to verify if

the invoice pertains to items that have actually

been received or approved Incorrect or fictitious

invoices may be paid or unauthorized orders made

Receiving reports and purchase orders should be reinstated

PROBLEM 7-3A

(a) Control Weaknesses

(b) Improvements The tickets were unnumbered so there is no

way of knowing if duplicates were made and

sold

Tickets should be prenumbered so that the students could be held more accountable for the tickets and a final reconciliation could be performed between cash receipts and sales

No record was kept of which students took

tickets to sell or how many they took so there is

no way of knowing if tickets were given away for

free and how many tickets were actually sold

Roger should have kept a record of which tickets were issued to each student for resale (Note: This problem could have been largely avoided if the tickets had been sold at the door on the day of the dance.)

There was no control over unsold tickets This

deficiency made it possible for students to sell

tickets, keep the cash, and tell Roger that they

had disposed of the unsold tickets

Students should have been required

to return the unsold tickets to Roger

as well as the cash In each case, the students should have been issued a receipt for the cash they turned in and the tickets they returned

Did not receive a receipt from Obnoxious Al

Without a receipt, there is no way to verify how

much Obnoxious Al was actually paid For

example, it is possible that he was only paid

$100 and that Roger took the rest

A receipt should have been obtained from Obnoxious Al

Inadequate control over the cash box Only Roger should have had access

to the key and dispersed funds when necessary for purchases

Praveen Patel counted the funds, made out the

deposit slip, and took the funds to the bank

Praveen could have taken some of the money

Roger should have counted the funds, with someone observing him Then he could have made out the deposit slip and had Praveen deposit the funds

PROBLEM 7-4A

PROBLEM 7-4A (Continued)

(a) and (b) (Continued)

(a) Control Weaknesses (b) Improvements

Students taking money for decorations were not

required to have a receipt and had unrestricted

access to the cash box to pay for their

purchases

Roger should reimburse each student when a receipt is provided

Sara Wu was collecting tickets and receiving

cash for additional tickets sold

There should have been one person selling tickets at the door and a second person collecting tickets The tickets collected times the price per ticket could then be compared to the cash collected

Net cash receipts were less than anticipated A final reconciliation should have been

performed between cash on hand, ticket sales and purchase receipts

(a) BEAUPRÉLTD

Bank Reconciliation July 31

Cash balance per bank statement $21,062 Less: Outstanding cheques ($1,844 – $1,378) $ 466

Deposit incorrectly posted by bank 1,800 2,266 Adjusted cash balance per bank $18,796 Cash balance per books $14,786 Add: EFT collections 4,110

18,896 Less: Bank service charges 100 Adjusted cash balance per books $18,796 The salaries are not a reconciling item because they were recorded by both the bank and the company

(a)

February 28, adjusted cash balance per bank reconciliation $13,103

Add: Cash receipts in March 4,813

Less: Cash disbursements in March 3,375

March 31, unadjusted cash balance $14,541

(b) Deposits in transit: $1,025 (dated March 31)

(c) Outstanding cheques: #3473 for $487(dated March 29)

(d)

YAP LTD

Bank Reconciliation March 31 Balance per bank statement $12,287 Add: Deposits in transit [from (b)] $1,025

Error in recording cheque #3472 ($1,641 – $1,461) 180 1,205

13,492 Less: Outstanding cheques

No 3473 [from (c)] 487 Adjusted cash balance per bank $13,005 Balance per books [from (a)] $14,541 Add: EFT collection—Boudreault 230

14,771 Less: Service charges ($49 + $65) $ 114

NSF cheque and fee—Aubut ($550 + $40) 590 EFT loan payment 1,062 1,766 Adjusted cash balance $13,005

PROBLEM 7-6A

(e) Mar 31 Cash 230

Accounts Receivable 230

31 Bank Charges Expense 114 Cash 114

31 Accounts Receivable 590 Cash 590

31 Bank Loan Payable 1,000

Interest Expense 62 Cash 1,062

(a)

October 31, adjusted cash balance per bank reconciliation $23,812 Add: Cash receipts in November 21,438 Less: Cash disbursements in November 30,968 November 30, unadjusted cash balance $14,282 (b) HAMPTONS LIMITED

Bank Reconciliation November 30

Balance per bank statement $18,958 Add: Deposits in transit (Nov 30 cash receipt) 2,676

21,634 Less: Outstanding cheques

No 2474 $1,008

No 2480 1,224

No 2482 1,660 3,892 Adjusted cash balance per bank $17,742 Balance per books [from (a)] $14,282 Add: EFT collection 5,008

19,290 Less: NSF cheque and fee ($500 + $80) $580

Bank service charges 50 Error in recording cheque No 2476

($4,760 – $5,660) 900 Error in Nov 20 deposit ($5,908– $5,890) 18 1,548 Adjusted cash balance per books $17,742

PROBLEM 7-7A

(c) Nov 30 Cash 5,008

Notes Receivable 4,400 Interest Revenue 608

30 Bank Charges Expense 50