Ch789Answers

Ch789Answers - CHAPTER 7 Internal Control and Cash...

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CHAPTER 7 Internal Control and Cash SOLUTIONS TO BRIEF EXERCISES EXERCISE 7-2 1. Establishment of responsibility. The counter clerk is responsible for handling cash. Other employees are responsible for making the pizzas. 2. Segregation of duties. Employees who make the pizzas do not handle cash. 3. Documentation procedures. The counter clerk uses your order invoice (ticket) in registering the sale on the cash register. The cash register produces a tape of all sales. 4. Physical, mechanical, and electronic controls. A cash register is used to record the sale. 5. Independent internal verification. The counter clerk, in handling the pizza, compares the size of the pizza with the size indicated on the order. 6. Other controls. No visible application possible. EXERCISE 7-4 (a) (b) Procedure Weakness Principle Violated Recommended Change 1. Checks are not stored in a secure area. Physical, mechanical, and electronic controls. Checks should be stored in a safe or locked file drawer. 2. The approval and payment of bills is done by the same individual. Segregation of duties. The store manager should approve bills for payment and the treasurer should sign and issue checks.
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Checks are not prenumbered. Documentation procedures. Checks should be prenumbered and subsequently accounted for. 4. Filing does not prevent a bill from being paid more than once. Other controls. Bills should be stamped PAID after payment. 5. The bank reconciliation is not inde- pendently prepared. Independent internal verification. Someone with no other responsibilities relating to cash should prepare the bank reconciliation. EXERCISE 7-6 (a) Cash balance per bank statement. ........................................... $3,660.20 Add: Deposits in transit. .......................................................... 590.00 4,250.20 Less: Outstanding checks. ....................................................... 670.00 Adjusted cash balance per bank. .............................................. $3,580.20 (b) Cash balance per books. .......................................................... $3,975.20 Less: NSF check. ..................................................................... $370.00 Bank service charge. .................................................. 25.00 395.00 Adjusted cash balance per books. ............................................ $3,580.20 (c) Accounts Receivable. ........................................................................... 370.00 Cash. .......................................................................................... 370.00 Miscellaneous Expense. ....................................................................... 25.00 Cash. .......................................................................................... 25.00
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Ch789Answers - CHAPTER 7 Internal Control and Cash...

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