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Chap008 Solution Manual

Statement does not require precise identification of

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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 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. A company check writer incorrectly records a check to a regular vendor for services provided at an amount larger than the bill received. A bank reconciliation would identify this error as the check amount in the bank statement would differ from the amount recorded by the bookkeeper. An online review would not identify this error as nothing unusual would “jump out”; the only potential way of uncovering this error would be if the person doing the review remembered the exact amounts of all bills from all vendors during the period of the bank statement (not likely). Numerous other examples can be listed… 8-6
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Chapter 08 - Cash and Internal Controls EXERCISES Exercise 8-1 (15 minutes) 1. A cash register (with a locked record) should be used at the sales stand —it should also be anchored to the stand. If a cash register cannot be used, the total sales value of the towels, coolers, and sunglasses given to the employee each day should be calculated. The employee should sign a receipt for the merchandise and the amount of cash that he or she has been given. At the end of each day, the employee should be required to return cash plus remaining towels, coolers, and sunglasses equal to the amount taken to the stand—possibly consider one or two return trips if the amounts are large.
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