Chapter_8_Solutions - Chapter 8 Internal Control and Cash...

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Chapter 8 Internal Control and Cash Quick Check Answers: 1. c 3. c 5. c 7. c 9. b 2. d 4. d 6. d 8. b 10. d Explanations: 8. b. Adjusted cash balance is $650 ($770 Service charge $20 NSF check $100) Chapter 8 Internal Control and Cash 31
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Short Exercises (5 min.) S 8-1 Safeguarding assets is most important because all organizations need assets to survive. (5 min.) S 8-2 Sarbanes-Oxley requires public companies to issue an internal control report, and the outside auditor must evaluate the client’s internal controls. (5-10 min.) S 8-3 Separation of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. With both duties, the person can steal the asset and hide the theft by making a false entry in the accounting records. Accounting 7/e Solutions Manual 32
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(5 min.) S 8-4 Differences : 1. External auditors are entirely independent of the business. Internal auditors are employees of the business. 2. External audits are designed to determine whether the company’s financial statements are prepared in accordance with generally accepted accounting principles. Internal audits are designed to ensure that employees follow company policies and that operations run efficiently. Similarity : 1. Both types of auditors suggest improvements that help the business run more efficiently. 2. Both types of auditors determine whether the company is following legal requirements. Chapter 8 Internal Control and Cash 33
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(5 min.) S 8-5 1. A bank reconciliation is neither a journal, a ledger, an account, nor a financial statement. Instead, it is an accountant’s tool, separate from the journals and ledgers, that explains all differences between the firm’s cash records and the bank statement figures. 2. A bank statement reports what the bank did with the depositor’s cash. The statement shows the bank account’s beginning and ending cash balances, cash receipts and payments. A bank reconciliation is a document prepared by the company to explain all the differences between your cash records and your bank balance. Accounting 7/e Solutions Manual 34
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(10 min.) S 8-6 Ranger Security Systems Bank Reconciliation May 31, 20XX BANK BOOKS Balance, May 31 $3,800 Balance, May 31 $2,480 Add: Add: Deposit in transit 200 Bank collection 630 4,000 Interest revenue 10 3,120 Less: Less: Outstanding checks (900 ) Service charge (20 ) Adjusted bank balance $3,100 Adjusted book balance $3,100 Amounts agree Chapter 8 Internal Control and Cash 35
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(5 min.) S 8-7 Journal DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT May 31 Cash 630 Accounts Receivable— Kelly Brooks 630 Collection on account. 31 Cash 10 Interest Revenue 10 Interest earned on bank balance. 31 Miscellaneous Expense
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This note was uploaded on 05/05/2010 for the course BUSINESS 71395 taught by Professor Brown during the Spring '09 term at Miss. College.

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Chapter_8_Solutions - Chapter 8 Internal Control and Cash...

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