E7- The following control procedures are used in Patillo Company for over-the-counter cash receipts.

3
1. Cashiers are experienced; thus, they are not bonded.
2. All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer.
3. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attaché case in the stock room unti
deposited in the bank.
4. At the end of each day the total receipts are counted by the cashier on duty and reconciled to the cash register total.
5. The company accountant makes the bank deposit and then records the day's receipts.
Instructions

a. For each procedure, explain the weakness in internal control and identify the control principle that is violated.

b. For each weakness, suggest a change in the procedure that will result in good internal control.

EXERCISE 7­3
(a) (b)
Recommended
Procedure Weakness Principle Change

1. Cashiers are Other controls. All cashiers should

not bonded. be bonded.

2. Inability to Establishment There should be

establish of responsibility. separate cash
responsibility drawers and register
for cash on a codes for each
specific clerk. clerk.

3. Cash is not Physical, Cash should be

adequately mechanical, stored in a safe until
protected from and electronic it is deposited in
theft. controls. bank.

4. Cash is not Independent A cashier office

independently internal supervisor should
counted. verification. count cash.

5. The accountant Segregation The cashier’s

should not of duties. department should
handle cash. make the deposits.

E7-6 Alana Davis is unable to reconcile the bank balance at January 31. Alana's Prepare bank
 reconciliation is shown here. reconciliation
and adjusting
entries.

(SO 4)

Instructions Interactive
Homework
a. What is the proper adjusted cash balance per bank?
b. What is the proper adjusted cash balance per books?

c. Prepare the adjusting journal entries necessary to determine the

adjusted cash balance per books.

EXERCISE 7­6

(a) Cash balance per bank statement...................
$3,660.20
Add:   Deposits in transit..................................  
590.00
 4,250.20
Less:  Outstanding checks...............................  
730.00
Adjusted cash balance per bank......................
$3,520.20

(b) Cash balance per books...................................
$3,975.20
Less:  NSF check............................................... $430.00
Bank service charge..............................     25.00  
455.00
Adjusted cash balance per books...................
$3,520.20
(c) Accounts Receivable.................................................. 430.00
Cash.....................................................................
430.00

Miscellaneous Expense.............................................  25.00
 Cash.....................................................................
 25.00
E7- At April 30 the bank reconciliation of Trisha Company shows three outstanding checks: No. 254 $650, No. 255 Determ
7 $800, and No. 257 $410. The May bank statement and the May cash payments journal are given here. outstan
checks.

(SO 4)

Interac
Homew

Instructions

Using step 2 in the reconciliation procedure (see page 329), list the outstanding checks at May 31.

EXERCISE 7­7

The outstanding checks are as follows:

No. Amount
255 $  800
260    925
264      360
Total $2,085
P7- The bank portion of the bank reconciliation for Kenya AA Company at November 30, 2004, is shown Prepare bank
4A here. reconciliation
and adjusting
entries from
detailed data.

(SO 4)

(a) Cash bal.

$15,053

The adjusted cash

balance per bank agreed with the cash balance per books at November 30. The December bank
statement showed the following checks and deposits.

The cash records per books for December showed the following.
 The
bank statement contained two memoranda.
1. A credit of $3,145 for the collection of a $3,000 note for Kenya AA Company plus interest of $160
and less a collection fee of $15. Kenya AA Company has not accrued any interest on the note.
2. A debit of $1,027.10 for an NSF check written by J. Ardan, a customer. At December 31 the check
had not been redeposited in the bank.
At December 31 the cash balance per books was $13,034.30, and the cash balance per bank statement
was $19,580.00. The bank did not make any errors, but two errors were made by Kenya AA
Company.

Instructions

a. Using the four steps in the reconciliation procedure described on pages 329–330, prepare a
bank reconciliation at December 31, 2004.

b. Prepare the adjusting entries based on the reconciliation. [Note: The correction of any errors
pertaining to recording checks should be made to Accounts Payable. The correction of any
errors relating to recording cash receipts should be made to Accounts Receivable.]

(a) KENYA AA COMPANY
Bank Reconciliation
December 31, 2004
                                                                                                                                  

Cash balance per bank statement....................................
$19,580.00
 Add:   Deposits in transit..................................................  
1,190.40
 20,770.40
Less:  Outstanding checks
  No. 3470............................................ ................ $1,100.10
  No. 3474..................................... .......................  1,050.00
  No. 3478........................................... .................    538.20
  No. 3481............................................ ................    807.40
  No. 3484................................................ ............    832.00
  No. 3486............................................... .............   1,389.50  
5,717.20
Adjusted cash balance per bank......................................
$15,053.20

Cash balance per books................................................. ...
$13,034.30
Add:   Note collected by bank................................. ..........  
3,145.00
($3,000 + $160 – $15)
 16,179.30
Less:  NSF check............................................... ................ $1,027.10
Error in recording check No. 3485.....................     90.00 *
Error in 12­21 deposit
  ($2,954 – $2,945).............................................. .         9.00  
1,126.10
Adjusted cash balance per books....................................
$15,053.20

*($540.80 – $450.80)

(b) Dec. 31 Cash ................................................ .........3,145.00

Miscellaneous Expense......................... ...............    15.00
Notes Receivable................................ .........
3,000.00
Interest Revenue..................................... .....   
160.00

31 Accounts Receivable—J. Ardan.......................... 1,027.10
 Cash............................... ..............................   
1,027.10

31 Accounts Payable................................................. 90.00
Cash............................... ..............................
90.00

31 Accounts Receivable............................................  9.00
Cash  9.00