Chapter 7 Self Study Problems Essay

1168 words - 5 pages


(a) July 1 Petty Cash 250
Cash 250

8 Cash 40,024
($40,500 − $41 − $435)
Debit Card Expense (164 × $0.25) 41
Credit Card Expense
($14,500* × 3%) 435
Sales 40,500
*($40,500 − $14,940 − $11,060 = $14,500)

8 Freight Out 60
Supplies 30
Advertising Expense 40
R. Malik, Drawings 50
Cash Over and Short 5
Cash ($250 − $75) 175

15 Cash 37,931
($38,459 − $39 − $489)
Debit Card Expense (156 × $0.25) 39
Credit Card Expense
...view middle of the document...

* Surprise counts should be made to determine whether the fund is properly administered and that the sum of the petty cash receipts and remaining cash is equal to the petty cash fund balance.

Taking It Further:

An advantage of accepting debit and bank credit card transactions, as opposed to accepting only cash and personal cheques from customers, is that the company knows immediately if the customer has enough money or established credit to pay for their purchases. Another advantage is that sales will likely increase if customers can use debit or credit cards. Accepting debit and credit card transactions also acts as an internal control by limiting the amount of cash employees are exposed to. The disadvantage is that the bank charges a fee on all transactions using debit and credit cards.


Bank Reconciliation
October 31, 2014

Cash balance per bank statement $10,173
Add: Deposit in transit $965
Bank error—Lasik cheque 600 1,565
Less: Outstanding cheques
($419 + $555 + $646 + $323) 1,943
Adjusted cash balance per bank $ 9,795

Cash balance per books $ 8,985
Add: Collection of EFT $1,885
Error in recording cheque #1181 for
Accounts Payable ($685 − $568) 117
Interest revenue 27 2,029
Less: NSF cheque $820
Error in Oct. 12 deposit of cash sales
($963 − $639) 324
Bank service charge 35
Cheque printing charge 40 1,219
Adjusted cash balance per books $9,795

PROBLEM 7-6A (Continued)

(b) Oct. 31 Cash 2,029
Accounts Receivable 1,885
Accounts Payable—Helms & Co. 117
Interest Revenue 27

31 Accounts Receivable—W. Hoad 820
Sales 324
Bank Charges Expense ($35 + $40) 75
Cash 1,219
Check: $8,985 + $2,029 − $1,219 = $9,795 adjusted cash balance

Taking It Further:

Any business that chooses not follow the policy of performing bank reconciliations on its bank accounts runs several risks:

1. The business will be relying on a bank balance which is missing reconciling items. This could lead to decisions that might cause the bank account to fall into an overdraft position, causing issues with the bank and additional interest charges.

2. Unauthorized payments will remain undetected. If the perpetrator has since left the business, the amount may not be recoverable.

3. Deposits that did not reach the bank account and have been diverted intentionally could be permanently lost.

4. Errors in the accounting records remain undetected. If the error is with a customer deposit, it will be embarrassing or impossible for the business to rectify the error and obtain additional collections from the customer. Errors made on payments...

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