DISCUSSION QUESTIONS. Suggested Responses

Transcription

1 DISCUSSION QUESTIONS Suggested Responses 1. The signature card provides the bank with a copy of the official signature(s) of the person or persons authorized to sign checks. The bank can use it to verify signatures on any checks issued by the depositor. 2. A check must be endorsed when deposited in a bank, because the bank must have legal title to it in order to collect payment from the drawer of the check (the person or firm who wrote the check). 3. There is generally a difference between the balance in the Cash account on the company s books and the balance on the bank statement because of deposits in transit (deposits made but not in time for the current bank statement), outstanding checks (checks that you have written, but the bank has not yet honored or paid out), bank errors, bank credit memos, bank debit memos, or checkbook errors. 4. a. 2 d. 3 b. 3 e. 2 c It is necessary to make general journal entries for the ledger balance side of a bank reconciliation because the customer just learned from the statement about new transactions, such as bank service charges, that are not yet reflected in the books. 6. a. A Petty Cash Fund provides an efficient way for small immediate cash payments to be made instead of writing checks. b. The entry to establish the fund is a debit to Petty Cash Fund for $50, and a credit to Cash for $50. The entry to reimburse the fund is a debit to each account that petty cash funds were made for and a credit to Cash. 7. a. A debit balance in Cash Short and Over means there is a net shortage of cash. b. A debit balance appears on the income statement under Miscellaneous Expense. c. A credit balance in Cash Short and Over represents a net overage of cash. d. A credit balance appears on the income statement under Miscellaneous Income Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 269

2 SOLUTIONS TO EXERCISES Exercise 6-1 Bank Statement Balance Add: Deposit in transit Deduct: Outstanding checks No. 211 $ No. 225 (b) No Adjusted Bank Statement Balance (a) (c) $3, $4, $3, Ledger Balance of Cash Add: Note collected by bank Deduct: Bank service and collection charges (e) $ NSF check from customer Adjusted Ledger Balance of Cash (d) (f) $2, $3, $3, Exercise July 31 Cash Notes Receivable Interest income Collected principal and interest 5 6 on note from D. Dansky Cash Accounts Payable Error in recording Ck. No in checkbook payable to Denton Company Accounts Receivable Cash NSF check received from J. Kenyon Miscellaneous Expense Cash Bank service and collection charges Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

3 Exercise 6-3 Bank Statement Balance $3,600 Add: Deposit in transit 1,500 $5,100 Deduct: Outstanding checks 2,600 ($5,100 $2,500) Adjusted Bank Statement Balance $2,500 Exercise 6-4 ITEM ADD TO BANK STATEMENT BALANCE SUBTRACT FROM BANK STATEMENT BALANCE ADD TO LEDGER BALANCE OF CASH SUBTRACT FROM LEDGER BALANCE OF CASH a. A check-printing charge b. An outstanding check c. A deposit for $197 listed incorrectly on the bank statement as $179 d. e. A collection charge the bank made for a note it collected for its depositor A check written for $41.73 and recorded incorrectly in the checkbook as $41.37 f. A deposit in transit g. An NSF check received from a customer h. A check written for $82.40 and recorded incorrectly in the checkbook as $ Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 271

4 Exercise 6-5 Hosung Company Bank Reconciliation August 31, 20 Bank Statement Balance $1, Add: Error in recording check $1, Deduct: Outstanding checks $ , Adjusted Bank Statement Balance $ Ledger Balance of Cash $ Add: Deduct: NSF check $ Bank service and collection charges Adjusted Ledger Balance of Cash $ Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

5 Exercise a. Petty Cash Fund Cash Established a Petty Cash Fund, 3 4 Ck. No b. Store Supplies Expense Office Supplies Expense Miscellaneous Expense Cash Reimbursed the Petty Cash Fund, Ck. No c. Petty Cash Fund Cash Increased the amount of the Petty Cash Fund, Ck. No d. Store Supplies Expense Delivery Expense Miscellaneous Expense Cash Reimbursed the Petty Cash Fund, Ck. No Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 273

6 Exercise Cash Cash Short and Over Income from Services To record revenue earned 4 5 during the day involving a cash 5 6 shortage of $ Exercise 6-8 a. On January 3, the cash register tape showed that sales were $1,520, whereas the cash count, after deducting the Change Fund, was $1,522. This means that there was a $2 overage. On January 4, the cash register tape showed that sales were $1,421, whereas the cash count, after deducting the Change Fund, was $1,418. This means that there was a $3 shortage. On January 6, the cash register tape showed that sales were $1,665, whereas the cash count, after deducting the Change Fund, was $1,664. This means that there was a $1 shortage. b. On the income statement, the $2 debit balance of Cash Short and Over is added to the debit balance of Miscellaneous Expense. (Credit Cash Short and Over, debit Miscellaneous Expense.) Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

7 Problem 6-1A Arthur's Men's Shop Bank Reconciliation November 30, 20 Bank Statement Balance $2, Add: Deposit in transit (November 30) $3, Deduct: Outstanding checks No $ No No No No Adjusted Bank Statement Balance $2, Ledger Balance of Cash $2, Add: Error in recording Check No payable to M. A. Golden for personal use $ 9.00 Note collected (principal $600, interest $15, C. G. Tolson) $2, Deduct: Bank service and collection charges Adjusted Ledger Balance of Cash $2, Nov. 30 Cash M. A. Golden, Drawing Error in recording Check No Cash Notes Receivable Interest Income Bank collected note signed 9 10 by C. G. Tolson Miscellaneous Expense Cash Bank service and collection charges Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 275

8 Problem 6-2A May 1 Petty Cash Fund Cash Established Petty Cash Fund, 4 5 Ck. No Office Supplies Expense Delivery Expense Miscellaneous Expense B. Ellsworth, Drawing Cash Reimbursed Petty Cash Fund, Ck. No Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

9 Problem 6-2A (concluded) PETTY CASH PAYMENTS RECORD DISTRIBUTION OF PAYMENTS VOUCHER NO. EXPLANATION PAYMENTS OFFICE SUPPLIES EXPENSE DELIVERY EXPENSE MISC. EXPENSE OTHER ACCOUNTS ACCOUNT AMOUNT May 1 Established fund, 2 3 Ck. No. 956, $ Postage stamps Taxi fare Delivery charge Withdrawal by B. Ellsworth, 7 8 B. Ellsworth Drawing Postage Pens for office Box of staples Clean windows Pencils for office Totals Balance in Fund $ Reimbursed Ck No Total $ Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 277

10 Problem 6-3A July 28 Cash Cash Short and Over Income from Services To record revenue earned 5 6 during the day involving a 6 7 cash shortage of $ Cash Cash Short and Over Income from Services To record revenue earned during the day involving a cash shortage of $ Cash Income from Services Cash Short and Over To record revenue earned during the day involving a cash overage of $ Cash 1, Cash Short and Over Income from Services 1, To record revenue earned during the day involving a cash shortage of $ Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

11 Problem 6-4A Baginski and Company Bank Reconciliation August 31, 20 Bank Statement Balance $1, Add: Deposit in transit (August 31) $1, Deduct: Outstanding checks No. 928 $ No Adjusted Bank Statement Balance $1, Ledger Balance of Cash $1, Add: Error in recording Check No. 925 payable to Jardin Company $1, Deduct: NSF check from L. Pitts $ Bank service and collection charges Adjusted Ledger Balance of Cash $1, Aug. 31 Cash Accounts Payable Error in recording Ck. No payable to Jardin Company Accounts Receivable Cash NSF check received from L. Pitts Miscellaneous Expense Cash Bank service and collection charges Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 279

12 Problem 6-4A (concluded) CHECKS OUTSTANDING NOT CHARGED TO ACCOUNT No. 928 $ THIS FORM IS PROVIDED TO HELP YOU BALANCE YOUR BANK STATEMENT BEFORE YOU START PLEASE BE SURE YOU HAVE ENTERED IN YOUR CHECK- BOOK ALL AUTOMATIC TRANSACTIONS SHOWN ON THE FRONT OF YOUR STATEMENT. YOU SHOULD HAVE ADDED IF ANY OCCURRED: 1. Loan advances. 2. Credit memos. 3. Other automatic deposits. YOU SHOULD HAVE SUB- TRACTED IF ANY OCCURRED: 1. Automatic loan payments. 2. Automatic savings transfers. 3. Service charges. 4. Debit memos. 5. Other automatic deductions and payments. ADD BANK BALANCE SHOWN ON THIS STATEMENT DEPOSITS NOT SHOWN ON THIS STATEMENT (IF ANY) $ 1, $ TOTAL $ 1, SUBTRACT CHECKS OUTSTANDING $ BALANCE $ 1, TOTAL $ SHOULD AGREE WITH YOUR CHECKBOOK BALANCE AFTER DEDUCTING SERVICE CHARGE (IF ANY) SHOWN ON THIS STATEMENT. Please examine immediately and report if incorrect. If no reply is received within 10 days, the account will be considered correct. IN CASE OF ERRORS OR INQUIRIES ABOUT YOUR BILL Send your inquiry in writing on a separate sheet so that the creditor receives it within 60 days after the bill was mailed to you. Your written inquiry must include: 1. Your name and account number; 2. A description of the error and why (to the extent you can explain) you believe it is an error; and 3. The dollar amount of the suspected error. If you have authorized your creditor to automatically pay your bill from your checking or savings account, you can stop or re- verse payment on any amount you think is wrong by mailing your notice so that the creditor receives it within 11 days after the bill was sent to you. You remain obligated to pay the parts of your bill not in dispute, but you do not have to pay any amount in dispute during the time the creditor is resolving the dispute. During that same time, the creditor may not take any action to collect disputed amounts or report disputed amounts as delinquent. This is a summary of your rights; a full statement of your rights and the creditor's responsibilities under the Federal Fair Credit Billing Act will be sent to you both upon request and in response to a billing error notice Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

13 Problem 6-1B Bank Statement Balance $3, Add: Deposit in transit (November 30) Deduct: Merkle Company Bank Reconciliation November 30, 20 $4, Outstanding checks No. 732 $ No No No No Adjusted Bank Statement Balance $3, Ledger Balance of Cash $3, Add: Note collected (principal $600, interest $7.50, O. L. Leland) $3, Deduct: Cash withdrawal by C. R. Merkle $ Bank service and collection charges Adjusted Ledger Balance of Cash $3, Nov. 30 Cash Notes Receivable Interest Income Bank collected note signed 5 6 by O. L. Leland Miscellaneous Expense Cash Bank service and collection charges C. R. Merkle, Drawing Cash Withdrawal from ATM not recorded Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 281

14 Problem 6-2B Mar. 1 Petty Cash Fund Cash Established Petty Cash Fund, 4 5 Ck. No Office Supplies Expense Delivery Expense Miscellaneous Expense Advertising Expense R. C. Stowe, Drawing Cash Reimbursed Petty Cash Fund, Ck. No Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

15 Problem 6-2B (concluded) PETTY CASH PAYMENTS RECORD DISTRIBUTION OF PAYMENTS VOUCHER NO. EXPLANATION PAYMENTS OFFICE SUPPLIES EXPENSE DELIVERY EXPENSE MISC. EXPENSE OTHER ACCOUNTS ACCOUNT AMOUNT Mar. 1 Established fund, 2 3 Ck. No. 314, $ Taxi fare Memo pads Basketball Advertising 6 7 programs Expense Postage stamps Snow removal Delivery charge Withdrawal by R. C. Stowe, R. C. Stowe Drawing Postage Delivery charge Totals Balance in Fund $ Reimbursed fund, Ck. No Total $ Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 283

16 Problem 6-3B Apr. 1 Cash Cash Short and Over Income from Services To record revenue earned 5 6 during the day involving a 6 7 cash shortage of $ Cash Income from Services Cash Short and Over To record revenue earned during the day involving a cash overage of $ Cash Cash Short and Over Income from Services To record revenue earned during the day involving a cash shortage of $ Cash Incomes from Services Cash Short and Over To record revenue earned during the day involving a cash overage of $ Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

17 Problem 6-4B Northern Motel Bank Reconciliation July 31, 20 Bank Statement Balance $1, Add: Deposit in transit (July 31) $2, Deduct: Outstanding checks No $ No No Adjusted Bank Statement Balance $1, Ledger Balance of Cash $1, Add: Deduct: NSF check from T. R. Royce $ Bank service and collection charges Error in recording Check No payable to Mitchel Company Adjusted Ledger Balance of Cash $1, July 31 Accounts Receivable Cash NSF check received from 4 5 T. R. Royce Miscellaneous Expense Cash Bank service and collection 9 10 charges Accounts Payable Cash Error in recording Ck. No payable to Mitchel Company Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 285

18 Problem 6-4B (concluded) THIS FORM IS PROVIDED TO HELP YOU BALANCE YOUR BANK STATEMENT BEFORE YOU START CHECKS OUTSTANDING NOT CHARGED TO ACCOUNT No $ PLEASE BE SURE YOU HAVE ENTERED IN YOUR CHECK- BOOK ALL AUTOMATIC TRANSACTIONS SHOWN ON THE FRONT OF YOUR STATEMENT. YOU SHOULD HAVE ADDED IF ANY OCCURRED: 1. Loan advances. 2. Credit memos. 3. Other automatic deposits. YOU SHOULD HAVE SUB- TRACTED IF ANY OCCURRED: 1. Automatic loan payments. 2. Automatic savings transfers. 3. Service charges. 4. Debit memos. 5. Other automatic deductions and payments. ADD BANK BALANCE SHOWN ON THIS STATEMENT DEPOSITS NOT SHOWN ON THIS STATEMENT (IF ANY) $ 1, $ TOTAL $ 2, SUBTRACT CHECKS OUTSTANDING $ BALANCE $ 1, TOTAL $ SHOULD AGREE WITH YOUR CHECKBOOK BALANCE AFTER DEDUCTING SERVICE CHARGE (IF ANY) SHOWN ON THIS STATEMENT. Please examine immediately and report if incorrect. If no reply is received within 10 days, the account will be considered correct. IN CASE OF ERRORS OR INQUIRIES ABOUT YOUR BILL Send your inquiry in writing on a separate sheet so that the creditor receives it within 60 days after the bill was mailed to you. Your written inquiry must include: 1. Your name and account number; 2. A description of the error and why (to the extent you can explain) you believe it is an error; and 3. The dollar amount of the suspected error. If you have authorized your creditor to automatically pay your bill from your checking or savings account, you can stop or reverse payment on any amount you think is wrong by mailing your notice so that the creditor receives it within 11 days after the bill was sent to you. You remain obligated to pay the parts of your bill not in dispute, but you do not have to pay any amount in dispute during the time the creditor is resolving the dispute. During that same time, the creditor may not take any action to collect disputed amounts or report disputed amounts as delinquent. This is a summary of your rights; a full statement of your rights and the creditor's responsibilities under the Federal Fair Credit Billing Act will be sent to you both upon request and in response to a billing error notice Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

19 SOLUTIONS TO ACTIVITIES CONSIDER AND COMMUNICATE Suggested Response The Petty Cash Fund operation will be more efficient if the company requires a completed and signed voucher, listing date, amount paid, and the name of the account charged for every withdrawal. The company should limit the fund to business use by discouraging personal check cashing. Management should put the cash in a locked place and limit its access to you and perhaps one other responsible person you designate. The owner or accountant should monitor the amount in the fund to see that it is adequate and that all records are accurate. WHAT'S WRONG WITH THIS PICTURE? Suggested Response This practice is unethical and possibly illegal. While the amounts may be small, it is still the owner s job (after taxes) to attempt to make things balance after errors have been made. It is not your job. Also, if the owner does not know there are overages and shortages and the amount of each, no effort will be made to improve the company s process of handling cash Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 287