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Assignment: Chap8_HW_CNOW

1.

Blueprint Problem: Cash and bank reconciliation

Cash and Cash Controls

Many companies list cash and cash equivalents on the balance sheet. Cash on the balance sheet includes currency and coins on hand for cash registers and petty cash, amounts in checking and savings accounts, and checks and money orders received from customers. For the most part, a company's cash is maintained in savings and checking accounts. A bank account is a safeguard for cash. This reduces the amount of cash on hand, and the bank maintains a separate set of records that can be compared to the company's records to deter theft. These records are presented to the company in a monthly bank statement.

The Bank Reconciliation

Using a bank account is one of the most important controls over cash. However, due to timing differences, the cash balance in the ledger rarely equals the balance according to the bank. A bank reconciliation must be done to ensure that the accounting records of both the bank and the company are accurate. This process will also determine the actual amount of cash. A bank reconciliation has two parts: reconciliation of the bank's records and reconciliation of the company's records. When the account is reconciled, the adjusted balance will be the same for both parties.

The bank's records are reported to the company on the bank statement. Adjustments are made to the ending balance on the statement for deposits in transit, outstanding checks, and bank errors.

Complete the table:

Balance per bank statement:
_________________	Deposits in transit
_________________	Outstanding checks
_________________	Bank errors
Adjusted balance

The company records its transactions for cash in the ledger. Adjustments are made to the balance in the ledger for credit memorandums, debit memorandums, NSF checks, and errors in the ledger.

Complete the table:

Balance per ledger:
_________________	Credit memorandums
_________________	Debit memorandums
_________________	NSF checks
_________________	Ledger errors
Adjusted balance

If a balance sheet was prepared immediately after the bank reconciliation, what

amount would be reported for Cash?   _________________

Adjusting Entries

The adjusted balance on the reconciliation is rarely equal to the ending balance on the bank statement or the balance of Cash in the ledger. As the deposits in transit and outstanding payments clear the bank, the bank's records will be updated. However, adjustments must be made to the company's records to bring its Cash balance to the adjusted balance. Reconciling items under the balance according to the ledger have not been recorded in the company's records, because the company did not know about these transactions until it received the bank statement. Each adjusting entry depends on the reconciling item. Keep in mind that Cash will be either debited or credited in each entry, because we are adjusting the Cash account.

Using the dropdown lists, select the accounts to be debited and credited for each reconciling item.

Reconciling item	Account to be debited	Account to be credited
Receivable collected by the bank	_________________	_________________
Interest paid by the bank	_________________	_________________
Bank service charges	_________________	_________________
Automatic payment to the company's gas and electric provider	_________________	_________________
NSF checks	_________________	_________________

APPLY THE CONCEPTS: Prepare a bank reconciliation

On August 10, Marden Co. received its statement from Last National Bank for its checking account. The statement showed all transactions recorded by the bank for the period of July 1 through July 31. The general ledger account can now be reconciled to the bank's records of the checking account. The accountant confirms that all transactions have been posted from the journal to the ledger. (This tells us that the Cash account balance reflects all transactions involving cash.) Comparing the bank statement to the Cash account in the general ledger reveals several items to be reconciled. Review each item below and determine which balance will need to be adjusted by the item and whether it is to be added or deducted from that balance.

	Reconciling item	Balance to be adjusted	Effect on balance
1.	A deposit in the amount of $1510.0 made on July 31 was not reported on the bank statement.	_________________	_________________
2.	The accountant notices that a deposit made on July 6 has been reported on the bank statement as $230.0. The ledger account and the deposit receipt from the bank both show that the deposit was actually $500.0.	_________________	_________________
3.	Check number 1281 was written on July 26 in the amount of $450.0 and is not listed on the bank statement.	_________________	_________________
4.	Check number 1282 was written on July 28 in the amount of $680.0 and is not listed on the bank statement.	_________________	_________________
5.	Check number 1286 was written on July 8 in the amount of $450.0 and is not listed on the bank statement.	_________________	_________________
6.	Check number 1284 was written on July 31 in the amount of $1005.0 and is not listed on the bank statement.	_________________	_________________
7.	One of Marden's customers deposited $740.0 directly to Marden's bank account for payment of its amount due. This appeared on the bank statement as a credit memo.	_________________	_________________
8.	An additional credit memo in the amount of $45.0 reflected the amount of interest that the customer owed.	_________________	_________________
9.	Marden Co. has its payment for phone service taken directly from its checking account. $250.0 appeared as a debit memo for July's payment.	_________________	_________________
10.	Marden Co. had received and deposited a check from one of its customers as payment on account. The check was returned for nonsufficient funds. The amount of the check was $515.0.	_________________	_________________
11.	Check number 1282 was written for $680.0 to a supplier in payment on the amount due. The check cleared the bank for the written amount, $680.0. However, the check was recorded in the journal and posted to Marden Co.'s ledger in the amount of $655.0. (The journal entry was a debit to Accounts Payable and a credit to Cash for $655.0.)	_________________	_________________

Based on the 11 items above, prepare the bank reconciliation. The beginning balance per the bank and general ledger cash account are provided. Enter all amounts as positive numbers. Marden Co. Bank Reconciliation For Bank Statement Ended July 31 Balance per bank statement, July, 31 $5,000 Adjusted balance $   Balance per ledger, July, 31 $4,200 Adjusted balance $

APPLY THE CONCEPTS: Prepare the adjusting entries and determine their effect

Prepare the journal entries required to update the accounting records after reconciling the checking account. The date that the entry is prepared is August 10, but, for your convenience, in this problem the date column has been replaced with the reconciling item number. (Hint: Click on each item number below for more information about the item.)

If an amount box does not require an entry, leave it blank.

GENERAL JOURNAL
	ITEM	DESCRIPTION		DEBIT	CREDIT
1	7	_________________		_________________	_________________	1
2		_________________		_________________	_________________	2
3						3
4	8	_________________		_________________	_________________	4
5		_________________		_________________	_________________	5
6						6
7	9	_________________		_________________	_________________	7
8		_________________		_________________	_________________	8
9						9
10	10	_________________		_________________	_________________	10
11		_________________		_________________	_________________	11
12						12
13	11	_________________		_________________	_________________	13
14		_________________		_________________	_________________	14

Click on each number below for information about the adjustments. ITEM

+ 7 One of Marden's customers deposited $740.0 directly to Marden's bank account for payment of its amount due. This appeared on the bank statement as a credit memo.

+ 8 An additional credit memo in the amount of $45.0 reflected the amount of interest that the customer owed.

+ 9 Marden Co. has its payment for phone service taken directly from its checking account. $250.0 appeared as a debit memo for July's payment.

+ 10 Marden Co. had received and deposited a check from one of its customers as payment on account. The check was returned for nonsufficient funds. The amount of the check was $515.0.

+ 11 Check number 1282 was written for $680.0 to a supplier in payment on the amount due. The check cleared the bank for the written amount, $680.0. However, the check was recorded in the journal and posted to Marden Co.'s ledger in the amount of $655.0. (The journal entry was a debit to Accounts Payable and a credit to Cash for $655.0.)

Indicate the effect on the accounting equation of each transaction in the journal entries above.

Row	Assets	=	Liabilities	+	Equity	Appears on:
1	_________________		_________________		_________________	_________________
2	_________________		_________________		_________________	_________________
4	_________________		_________________		_________________	_________________
5	_________________		_________________		_________________	_________________
7	_________________		_________________		_________________	_________________
8	_________________		_________________		_________________	_________________
10	_________________		_________________		_________________	_________________
11	_________________		_________________		_________________	_________________
13	_________________		_________________		_________________	_________________
14	_________________		_________________		_________________	_________________

2.

Blueprint Problem: Petty Cash

Petty Cash

A best practice in an internal control system is to pay all amounts with   _________________   , because it provides a paper trail of the payment, which includes proof that the payment was made.

However, most businesses find this payment method is not always logical or efficient. Therefore, a company will set up a petty cash system.

One part of a petty cash system is the petty cash fund, which is a relatively small amount of cash kept on hand to pay out small amounts in cash. The account, Petty Cash, is   _________________   account and appears on the   _________________   .

APPLY THE CONCEPTS: Establish the petty cash fund

When the petty cash fund is established, the company writes a check to itself, cashes the check, and places the money in a safe place. By doing this, the company is transferring money from   _________________   account (Cash) to   _________________   account (Petty Cash).

Example: Journal entry to establish the petty cash fund On November 1, Rhodenbaugh Co. wishes to establish a petty cash fund in the amount of $300. Complete the entry necessary to record this transaction. Not sure about the account title? Click here to view the chart of accounts. + Assets Inventory Accounts Receivable Accumulated Depreciation-Office Equipment Allowance for Doubtful Accounts Cash Interest Receivable Notes Receivable Office Equipment Petty Cash Prepaid Insurance Prepaid Rent Supplies + Liabilities Federal Unemployment Tax Payable Medicare Tax Payable Social Security Tax Payable State Unemployment Tax Payable Payable State Income Tax Payable Accounts Payable Income Tax Payable Interest Payable Notes Payable Utilities Payable Wages Payable + Equity Income Summary Paul Rhodenbaugh, Capital Paul Rhodenbaugh, Drawing + Revenues/Gains Sales Interest Revenue Rent Revenue Sales Discounts Sales Returns and Allowances + Expenses/Losses Cost of Merchandise Sold Depreciation Expense Payroll Tax Expense Bad Debt Expense Delivery Expense Income Tax Expense Insurance Expense Interest Expense Miscellaneous Expense Postage Expense Rent Expense Repairs and Maintenance Expense Salaries Expense Supplies Expense Utilities Expense GENERAL JOURNAL page                DATE         DESCRIPTION  DOC.  NO.  POST.  REF.  DEBIT   CREDIT       1 Nov 1           1 2                       2

How does each row of the preceding journal entry affect the accounting equation, and on which financial statement is it reported?

If the entry is not effected select "No effect" as answer.

Row	Assets =	Liabilities	+ Equity	Appears on:
1	_________________	_________________	_________________	_________________
2	_________________	_________________	_________________	_________________

APPLY THE CONCEPTS: Make payments from the petty cash fund

Even though the petty cash fund never has a large amount of cash in it, it is still important to have good controls in place to protect this company asset. When cash is paid out of the fund, a petty cash receipt is prepared. Because there is no canceled check connected with the payment, the signed receipt serves as proof of payment.

If a company writes a check to pay for postage purchased, an entry recorded in a journal would include a debit to   _________________   and a credit to   _________________   .

True or False: When the same payment for postage is made out of the petty cash fund, no journal entry is recorded at the time of payment.   _________________  

Each petty cash receipt must be saved so that it can be used when the petty cash fund is replenished. At any time, the balance in the petty cash fund can be proved as follows:

_________________

+ Total Petty Cash Receipts

_________________

APPLY THE CONCEPTS: Replenish the petty cash fund

The petty cash fund must be replenished when the fund balance is low and at the end of each fiscal period. To do this, the company writes a check for   _________________   the fund. The check is cashed, and the cash is deposited in the petty cash fund.

On November 30, Rhodenbaugh Co. replenishes the petty cash fund. The fund custodian adds the petty cash receipts by category to determine the following amounts paid out of the fund:

Delivery Expense, $11

Miscellaneous Expense, $16

Postage Expense, $32

To complete the ensuing journal entry, you must understand the following:

• One expense paid out of the fund was for Delivery Expense. When replenishing petty cash, Delivery Expense is   _________________   for $   _________________   .
• Another expense was paid in the amount of $16. Therefore, this amount is recorded as a   _________________   to the   _________________   account.
• The remaining expense paid from the petty cash fund should be recorded as a   _________________   to the   _________________   account for $   _________________   .
• Finally, to record the replenishment of the petty cash fund, you must   _________________   the Cash account for the   _________________   .

You should now be able to complete the journal entry. If an amount box does not require an entry, enter "0". Not sure about the account title? Click here to view the chart of accounts. + Assets Inventory Accounts Receivable Accumulated Depreciation-Office Equipment Allowance for Doubtful Accounts Cash Interest Receivable Notes Receivable Office Equipment Petty Cash Prepaid Insurance Prepaid Rent Supplies + Liabilities Federal Unemployment Tax Payable Medicare Tax Payable Social Security Tax Payable State Unemployment Tax Payable Payable State Income Tax Payable Accounts Payable Income Tax Payable Interest Payable Notes Payable Utilities Payable Wages Payable + Equity Income Summary Paul Rhodenbaugh, Capital Paul Rhodenbaugh, Drawing + Revenues/Gains Sales Interest Revenue Rent Revenue Sales Discounts Sales Returns and Allowances + Expenses/Losses Cost of Merchandise Sold Depreciation Expense Payroll Tax Expense Bad Debt Expense Delivery Expense Income Tax Expense Insurance Expense Interest Expense Miscellaneous Expense Postage Expense Rent Expense Repairs and Maintenance Expense Salaries Expense Supplies Expense Utilities Expense GENERAL JOURNAL page                DATE         ACCOUNT TITLE  DOC.  NO.  POST.  REF.  DEBIT   CREDIT       1 Nov 30           1 2                       2 3                       3 4                       4

How does each row of the preceding journal entry affect the accounting equation, and on which financial statement is it reported?

If the entry is not effected select "No effect" as answer.

Row	Assets =	Liabilities	+ Equity	Financial Statement
1	_________________	_________________	_________________	_________________
2	_________________	_________________	_________________	_________________
3	_________________	_________________	_________________	_________________
4	_________________	_________________	_________________	_________________

It is very important to understand that the Petty Cash account is only debited when you record the   _________________   of the petty cash fund. When the Petty Cash fund is   _________________   , the accounts paid out of petty cash are debited. After the petty cash fund has been replenished, the balance in the fund will be $   _________________   .

If the petty cash account is not replenished at the end of a fiscal period, the amounts paid out of the fund during that period will not be recorded as expenses. Which accounting concept requires that expenses are recorded in the same period in which they are incurred?   _________________  

3.

Cash and Bank Reconciliation

Cash and Cash Controls

Cash includes coins, paper currency, checks, money orders, and money deposited with a financial institution that the company can withdraw at any time. Cash is a   _________________   reported on the   _________________   . When cash is received, a cash account is   _________________   with a   _________________   ; and when cash is paid out, a cash account is   _________________   with a   _________________   .

Bank Reconciliation A properly prepared bank reconciliation explains the causes for any differences between a company's account balance on its bank statement and its cash balance in the ledger. Allez Company discovers that its monthly bank statement account balance, $6,280.11, does not equal the cash balance in its ledger, $5,287.64. A thorough bank reconciliation investigation yields the following information: The bank erroneously recorded a check written by the company for $324.27 as $334.27. The company erroneously recorded a check it wrote for $351.70 as $531.70. The company recently made a $637.42 deposit that has not yet been recorded on the bank statement. The bank collected a $570.00 note receivable, plus $14.00 in interest, which had not been recorded in the company's journal. Bank service charges of $17.00 have been assessed to the customer's account. There are two checks outstanding (not yet recorded by the bank) that were written for $824.06 and $496.97. A $428.14 check from a customer, Phil Conners, was returned by the bank because of insufficient funds (NSF) in the customer's account. Prepare the bank reconciliation for Allez Co. Enter amounts to the nearest cent. Allez Co. Bank Reconciliation January 31, 2012 Balance per bank statement $   $   $   Adjusted balance $   Cash balance according to company records $   $   $   $   Adjusted balance $

Cash management and Control

Effective cash management and control over cash includes which of the following?

1.	Keeping inventory levels low	_________________
2.	Delaying payment of liabilities as long as possible	_________________
3.	Speeding up collection of receivables	_________________
4.	Investing idle cash to earn the greatest possible return while still being able to meet cash needs	_________________
5.	Extending payment terms to customers who may need more time to pay	_________________
6.	Making daily deposits and recording of cash receipts and disbursements timely	_________________
7.	Paying suppliers earlier than payment terms require	_________________
8.	Preparing bank reconciliations	_________________
9.	Purchasing excess inventory with excess cash	_________________
10.	Deploying procedures to safeguard cash	_________________
11.	Setting up a just-in-time inventory system	_________________
12.	Deploying accounting procedures for petty cash funds	_________________
13.	Approving suppliers before purchasing from them	_________________
14.	Segregating cash duties	_________________

4.

eBook Learning Objective 2 Animated Example Exercise Animated Example Exercise 1 Internal Control Elements Identify each of the following as relating to the control environment, control procedures, or information and communication. 1. Management's philosophy and operating style   _________________   2. Report of company's conformity with environmental laws and regulations   _________________   3. Separating related operations   _________________

5.

eBook Learning Objective 2 Animated Example Exercise Animated Example Exercise 1 Internal Control Elements Identify each of the following as relating to the control environment, control procedures, or monitoring. 1. Hiring of external auditors to review the adequacy of controls   _________________   2. Personnel policies   _________________   3. Safeguarding inventory in a locked warehouse   _________________

6.

eBook Learning Objective 4 Animated Example Exercise Animated Example Exercise 2 Items on Company's Bank Statement The following items may appear on a bank statement: 1.  Bank correction of an error from recording a $4,800 deposit as $8,400 2.  EFT payment 3.  Note collected for company 4.  Service charge Indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company's account. Item Appears on the Bank Statement as a Debit or Credit Memo Increases or Decreases the Balance of the Company's Bank Account 1.  Bank correction of an error from recording a $4,800 deposit as $8,400   _________________     _________________   2.  EFT payment   _________________     _________________   3.  Note collected for company   _________________     _________________   4.  Service charge   _________________     _________________

7.

eBook Learning Objective 4 Animated Example Exercise Animated Example Exercise 2 Items on Company's Bank Statement The following items may appear on a bank statement: 1.  Bank correction of an error from posting another customer's check (disbursement) to the company's account 2.  EFT deposit 3.  Loan proceeds 4.  NSF check Indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company's account. Item Appears on the Bank Statement as a Debit or Credit Memo Increases or Decreases the Balance of the Company's Bank Account 1.  Bank correction of an error from posting another customer's check (disbursement) to the company's account   _________________     _________________   2.  EFT deposit   _________________     _________________   3.  Loan proceeds   _________________     _________________   4.  NSF check   _________________     _________________

8.

Click here to watch the Bank Reconciliation video and then answer the questions included below. 1.  An addition to the cash balance on the bank statement for items such as the collection of interest is known as: Outstanding check. Debit memorandum. Credit memorandum. Deposit in transit.   _________________   2.  A check that has been distributed by the company but has not cleared the bank as of the statement date is known as: Outstanding check. Deposit in transit. Credit memorandum. Debit memorandum.   _________________   3.  Checks written in late December do not appear on a December 31 Bank Statement because they were not cleared by the bank as of March 31. How would you treat this difference while reconciling the bank balance? Add them to the bank balance. Subtract them from the bank balance. Add them to the company's cash balance. Subtract them from the company's cash balance.   _________________   4.  The December 31 Bank Statement shows the collection of $1,100 receivable from one of the company’s customers. The company had not recorded this. How would you treat this while reconciling the company book balance? Add $1,100 as collection of a receivable to the company’s balance. Add $1,100 as an error to the company’s balance. Add $1,100 as a collection of a receivable to the bank balance. Add $1,100 as an error to the bank balance.   _________________

9.

eBook Learning Objective 8 Cash to Monthly Cash Expenses Ratio During 2014, Pierport Inc. has monthly cash expenses of $72,000. On December 31, 2014, the cash balance is $576,000. a.  Compute the ratio of cash to monthly cash expenses.   _________________   months b.  At the current rate of operations, Pierport has a specific number of months of cash remaining. Pierport should:   _________________

10.

eBook Learning Objective 8 Cash to Monthly Cash Expenses Ratio Cabin Craft Air Lines reported the following financial data (in millions) for a recent year: Net cash flows from operating activities $(1,512) Cash and cash equivalents 2,898 a.  Determine the monthly cash expenses. $   _________________   million b.  Determine the ratio of cash to monthly cash expenses.   _________________   months c.  Based on your analysis, is it likely that Cabin Craft will remain in business?   _________________

11. eBook Learning Objective 3 Learning Objective 6 Problem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving Strategy Problem-Solving Strategy 2

Transactions for Petty Cash, Cash Short and Over

Picasso Restoration Company completed the following selected transactions during August 2014:

Aug. 1.	Established a petty cash fund of $940.
12.	The cash sales for the day, according to the cash register records, totaled $8,811.
	The actual cash received from cash sales was $8,839.
30.	Petty cash on hand was $71. Replenished the petty cash fund for the following
	disbursements, each evidenced by a petty cash receipt:
	Aug.   2. Store supplies, $103.
	Aug. 10. Express charges on merchandise sold, $150 (Delivery Expense).
	Aug. 14. Office supplies, $66.
	Aug. 15. Office supplies, $75.
	Aug. 18. Postage stamps, $79 (Office Supplies).
	Aug. 20. Repair to fax, $188 (Miscellaneous Administrative Expense).
	Aug. 21. Repair to office door lock, $66 (Miscellaneous Administrative Expense).
	Aug. 22. Postage due on special delivery letter, $51 (Miscellaneous Administrative Expense).
	Aug. 28. Express charges on merchandise sold, $75 (Delivery Expense).
30.	The cash sales for the day, according to the cash register records, totaled $18,957.
	The actual cash received from cash sales was $18,904.
30.	Decreased the petty cash fund by $235.

Required:

Journalize the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. 2014, Aug. 1 Aug. 12 Aug. 30-Replenish Aug. 30-Sale Aug. 30-Petty cash

12. eBook Learning Objective 5 Problem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving StrategyProblem-Solving Strategy Problem-Solving Strategy 3

Bank Reconciliation and Entries

The cash account for Online Medical Co. at June 30, 2014, indicated a balance of $12,365. The bank statement indicated a balance of $14,390 on June 30, 2014. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

1. Checks outstanding totaled $5,180.
2. A deposit of $5,400, representing receipts of June 30, had been made too late to appear on the bank statement.
3. The bank had collected $2,810 on a note left for collection. The face of the note was $2,660.
4. A check for $770 returned with the statement had been incorrectly recorded by Online Medical Co. as $700. The check was for the payment of an obligation to Hirsch Co. for the purchase on account.
5. A check drawn for $50 had been erroneously charged by the bank as $500.
6. Bank service charges for June amounted to $45.

Required:

1.  Prepare a bank reconciliation. Online Medical Co. Bank Reconciliation June 30, 2014 Cash balance according to bank statement $   $   $   Adjusted balance $   Cash balance according to company's records $   $   $   Adjusted balance $

2.  Journalize the necessary entries (a.) that increase cash and (b.) that decrease cash. The accounts have not been closed. For a compound transaction, if an amount box does not require an entry, leave it blank. a. b.

3.  If a balance sheet were prepared for Online Medical Co. on June 30, 2014, what amount should be reported as cash? $   _________________