3 liquidity refers to a companys ability to pay for

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3. Liquidity refers to a company’s ability to pay for its near-term obligations. Quick Study 8-4 (10 minutes) 1. (a) Petty Cash ......................................................... 75 Cash ........................................................... 75 To establish the petty cash fund. (b) Entertainment Expense .................................... 42 Postage Expense .............................................. 6 Printing Expense .............................................. 13 Cash ........................................................... 61 To reimburse the petty cash fund. 2. The Petty Cash account is credited when either (1) the dollar amount of the fund is being reduced, or (2) the fund is being eliminated. 8-3
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Chapter 08 - Cash and Internal Controls Quick Study 8-5 (15 minutes) (1) (2) a. ( i ) Bank ( ii ) Subtraction No adjustment required b. ( i ) Book ( ii ) Subtraction Adjusting entry required c. ( i ) Book ( ii ) Subtraction Adjusting entry required d. ( i ) Bank ( ii ) Addition No adjustment required e. ( i ) Book ( ii ) Addition Adjusting entry required f. ( i ) Book ( ii ) Addition Adjusting entry required g. ( i ) Book ( ii ) Subtraction Adjusting entry required Quick Study 8-6 (25 minutes) CRUZ COMPANY Bank Reconciliation June 30, 2011 Bank statement balance ..... $10,332 Book balance ................... ....................................... $11,352 Add: Add: Deposit of June 30 .......... 2,724 Recording error on check. 9 Interest earned ................ 5 13,056 11,366 Deduct: Deduct: Outstanding checks ........ 1,713 Bank service charge ........ 23 Adjusted bank balance ...... $11,343 Adjusted book balance ...... $11,343 Quick Study 8-7 (15 minutes) Days' sales uncollected = x 365 2011 2010 x 365 x 365 10.7 days 11.2 days Interpretation : The collection of accounts receivable seems to be slightly improving. It took the company approximately one-half day less to collect on its accounts receivable in 2011 than in 2010. 8-4 Accounts receivable Net sales $75,692 $2,591,933 $70,484 $2,296,673
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Chapter 08 - Cash and Internal Controls Quick Study 8-8 A (10 minutes) The documents in a voucher system are: Purchase requisition, Purchase order, Invoice, Receiving report, Invoice approval, and Voucher. Quick Study 8-9 B (15 minutes) (a) A Discounts Lost account is employed with the Net Method of recording purchases of inventory. (b) The advantage of this method is that the Discounts Lost account highlights for management (on the income statement) the costs incurred by the business that have resulted from the failure to take cash discounts. Management can then determine the reason and possibly correct the handling of future cash payments to ensure that all favorable purchase discounts are taken. Quick Study 8-10 (10 minutes) a. The purposes and principles of internal control systems are fundamentally the same for accounting systems reporting under IFRS and U.S. GAAP. Although cultural and other differences exist, and must be recognized when establishing internal controls, the basic goals and principles do not change. b. Internal controls for cash are fundamentally the same worldwide. Accordingly, there is global demand for tools such as cash monitoring, verification of documents, and petty cash procedures under both IFRS and U.S. GAAP. 8-5
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Chapter 08 - Cash and Internal Controls Quick Study 8-11 (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
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