Solution to Suggested QS & Exercise-Chapter 6

Solution to Suggested QS & Exercise-Chapter 6 - Quick...

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Quick Study 6-1 (10 minutes) 1. True 2. False 3. True 4. False Quick Study 6-6 (25 minutes) NOLAN COMPANY Bank Reconciliation June 30, 2013 Bank statement balance ....... $21,332 Book balance ............................................................ $22,352 Add: Add: Deposit of June 30 ............. 4,724 Recording error on check ........................................ 9 Interest earned ........................................................ 23 26,056 22,384 Deduct: Deduct: Outstanding checks ........... 3,713 Bank service charge ................................................ 41 Adjusted bank balance ......... $22,343 Adjusted book balance .............................................. $22,343 Quick Study 6-7 (15 minutes) a. A bank reconciliation is a formal review process that requires the person to precisely identify all transactions and events, and their amounts, that cause the cash balance on the bank statement to differ from the cash balance per the company’s records. An online review of the bank statement does not require precise identification of those sources and their amounts. b. A bank reconciliation has the potential to uncover several kinds of frauds or errors that an online review is unlikely to reveal. Those include the following: A company makes a deposit to its account but that deposit is incorrectly added to another company’s account. A bank reconciliation would immediately identify this bank error. However, an online review would not identify this error as nothing would “jump out” as unusual; the only potential way of uncovering this would be if the person doing the review
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remembered each and every deposit throughout the period of the bank statement (not likely). The bank incorrectly pays a common vendor’s bill from the company’s cash account, when that vendor should have been paid from some other company’s account. Common vendors include utilities (light, heat, water), government agencies, and usual suppliers of ordinary items (toiletries, paper, postage). An online review would not identify such a payment as unusual or out-of-the-ordinary. A bank reconciliation would identify this payment as an unauthorized one. The bank incorrectly pays a larger amount to a payee than what is written on the company’s check to that payee. An online review would not identify this bank overpayment as the payment to the payee would be expected in the regular course of business; the only hope is that the person doing the online review remembers all amounts written to all payees or that the amount is especially huge so that it is obvious. A bank reconciliation would readily identify this bank error.
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