Post on 21-Jan-2016
Demonstration Problems
Chapter 7
Internal Control and Cash
Copyright © 2016 Pearson Education, Inc. 7-1
Copyright © 2016 Pearson Education, Inc. 7-2
Demonstration of E7-16
Wave Dance Studio created a $500 imprest petty cash fund. During the month, the fund custodian authorized and signed petty cash tickets as follows:
Petty Cash
Ticket No. Item Account Debited Amount
1 Delivery of programs to customers Delivery Expense $30
2 Mail package Postage Expense 20
3 Newsletter Printing Expense 50
4 Key to closet Miscellaneous Expense 75
5 Copier paper Office Supplies 100
Requirements
1. Make the general journal entry to create the petty cash fund.
2. Make the general journal entry to record the petty cash fund replenishment. Cash in the fund totals $150.
3. Assume that Wave Dance Studio decides to decrease the petty cash fund to $300. Make the general journal entry to record this decrease.
Copyright © 2016 Pearson Education, Inc. 7-3
Date Accounts and Explanation Debit Credit
1. Petty Cash 500
Cash 500
To open the petty cash fund.
Make the general journal entry to create the petty cash fund.
Demonstration of E7-16-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-4
Date Accounts and Explanation Debit Credit
2. Delivery Expense 30
Postage Expense 20
Printing Expense 50
Miscellaneous Expense 75
Office Supplies 100
Cash Short & Over 75
Cash ﴾$500 − $150﴿ 350
To replenish the petty cash fund.
Make the general journal entry to record the petty cash fund replenishment. Cash in the fund totals $150.
Demonstration of E7-16-Req. 2
Copyright © 2016 Pearson Education, Inc. 7-5
Date Accounts and Explanation Debit Credit
3. Cash 200
Petty Cash 200
To decrease the petty cash fund to $300.
Assume that Wave Dance Studio decides to decrease the petty cash fund to $300. Make the general journal entry to record this decrease.
Demonstration of E7-16-Req. 3
Copyright © 2016 Pearson Education, Inc. 7-6
Demonstration of E7-19
Date Check No. Item Check Deposit BalanceAug. 1 $1,000
4 701 Quick Mailing $500 500 9 Service Revenue $2,000 2,500
13 702 Salaries Expenses 250 2,250 14 703 Utilities 150 2,100 18 704 Cash 75 2,025 26 705 Office Supplies 85 1,940 28 706 Alpha Printers 300 1,640 30 Service Revenue 1,500 3,140
Peter Publishers' check book lists the following:
Copyright © 2016 Pearson Education, Inc. 7-7
Balance $1,000
Deposits 2,000
Debit Checks: No. Amount
701 $500
702 250
703 175 *
704 75 (1,000)
Other charges:
Printed checks 50
Service charge 25 (75)
Balance $1,925
*This is the correct amount for check number 703.
Peter’s August bank statement shows the following:
Requirements
1. Prepare Peter Publisher's bank reconciliation at August 31, 2016.
2. How much cash does Peter actually have on August 31, 2016?
3. Journalize any transactions required from the bank reconciliation.
Demonstration of E7-19
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Calculation of ending book balance:
Aug. 1 Book Balance $1,000 Add: Deposits ($2,000 + $1,500) 3,500 Less: Checks ($500 + $250 + $150 + $75 + $85 + $300) 1,360
Aug. 31 Book Balance $3,140
Demonstration of E7-19-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-9
PETER PUBLISHERSBank Reconciliation
August 31, 2016BANK BOOK
Balance, August 31, 2016 [Previous slide] $3,140ADD:
3,140
LESS:Book error check 703 $25 Printed checks 50 Service charge 25 100
Demonstration of E7-19-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-10
PETER PUBLISHERSBank Reconciliation
August 31, 2016BANK BOOK
Balance, August 31, 2016 $3,140ADD:
3,140
LESS:Book error check 703 $25 Printed checks 50 Service charge 25 100
Adjusted book balance, August 31, 2016 $3,040
Demonstration of E7-19-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-11
PETER PUBLISHERSBank Reconciliation
August 31, 2016BANK BOOK
Balance, August 31, 2016 $1,925 Balance, August 31, 2016 $3,140ADD: ADD: Deposit in transit 1,500 3,425 3,140
LESS:Book error check 703 $25 Printed checks 50 Service charge 25 100 Adjusted book balance, August 31, 2016
$3,040
Demonstration of E7-19-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-12
PETER PUBLISHERSBank Reconciliation
August 31, 2016BANK BOOK
Balance, August 31, 2016 $1,925 Balance, August 31, 2016 $3,140ADD: ADD: Deposit in transit 1,500 3,425 3,140 LESS: LESS:Outstanding checks Book error check 703 $25 Check 707 $85 Printed checks 50 Check 708 300 385 Service charge 25 100
Adjusted book balance, August 31, 2016
$3,040
Demonstration of E7-19-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-13
PETER PUBLISHERSBank Reconciliation
August 31, 2016BANK BOOK
Balance, August 31, 2016 $1,925 Balance, August 31, 2016 $3,140ADD: ADD: Deposit in transit 1,500 3,425 3,140 LESS: LESS:Outstanding checks Book error check 703 $25 Check 707 $85 Printed checks 50 Check 708 300 385 Service charge 25 100 Adjusted bank balance, August 31, 2016 $3,040
Adjusted book balance, August 31, 2016
$3,040
Demonstration of E7-19-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-14
PETER PUBLISHERSBank Reconciliation
August 31, 2016BANK BOOK
Balance, August 31, 2016 $1,925 Balance, August 31, 2016 $3,140ADD: ADD: Deposit in transit 1,500 3,425 3,140 LESS: LESS:Outstanding checks Book error check 703 $25 Check 707 $85 Printed checks 50 Check 708 300 385 Service charge 25 100 Adjusted bank balance, August 31, 2016 $3,040
Adjusted book balance, August 31, 2016
$3,040
Peter has $3,040 on August 31, 2016.
Demonstration of E7-19-Req. 2
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Date Accounts and Explanation Debit Credit
Aug. 31 Utilities Expense 25
Cash 25
To record check error #703.
Demonstration of E7-19-Req. 3
Copyright © 2016 Pearson Education, Inc. 7-16
Date Accounts and Explanation Debit Credit
Aug. 31 Utilities Expense 25
Cash 25
To record check error #703.
31 Bank Expense 50
Cash 50
To record printed check charge incurred.
Demonstration of E7-19-Req. 3
Copyright © 2016 Pearson Education, Inc. 7-17
Date Accounts and Explanation Debit Credit
Aug. 31 Utilities Expense 25
Cash 25
To record check error #703.
31 Bank Expense 50
Cash 50
To record printed check charge incurred.
31 Bank Expense 25
Cash 25
To record bank service charges incurred.
Demonstration of E7-19-Req. 3
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Demonstration of E7-20
Robin Knight Company operates four bowling alleys. The owner just received the September 30 bank statement from City National Bank, and the statement shows an ending balance of $1,000. Listed on the statement are an EFT rent collection of $300, a service charge of $15, NSF checks totalling $60, and a $25 charge for printed checks. In reviewing his cash records, Knight identified outstanding checks totalling $500 and a deposit in transit of $1,500. During September, he recorded a $250 check by debiting Salaries Expense and crediting Cash for $50. His Cash account shows a September 30 balance of $2,000.
Requirements
1. Prepare the bank reconciliation at September 30.
2. Journalize any transactions required from the bank reconciliation.
ROBIN KNIGHT COMPANY Bank Reconciliation
September 30BANK BOOK
Balance, September 30 $2,000
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Demonstration of E7-20-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-20
ROBIN KNIGHT COMPANY Bank Reconciliation
September 30BANK BOOK
Balance, September 30 $2,000ADD:EFT collection on rent 300
2,300
Demonstration of E7-20-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-21
ROBIN KNIGHT COMPANY Bank Reconciliation
September 30BANK BOOK
Balance, September 30 $2,000ADD:EFT collection on rent 300
2,300LESS:Correction of book error $200NSF checks 60Printed checks 25Service charge 15 300
Demonstration of E7-20-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-22
ROBIN KNIGHT COMPANY Bank Reconciliation
September 30BANK BOOK
Balance, September 30 $2,000ADD:EFT collection on rent 300
2,300LESS:Correction of book error $200NSF checks 60Printed checks 25Service charge 15 300Adjusted book balance, September 30 $2,000
Demonstration of E7-20-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-23
ROBIN KNIGHT COMPANY Bank Reconciliation
September 30BANK BOOK
Balance, September 30 $1,000 Balance, September 30 $2,000ADD:EFT collection on rent 300
2,300LESS:Correction of book error $200NSF checks 60Printed checks 25Service charge 15 300Adjusted book balance, September 30 $2,000
Demonstration of E7-20-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-24
ROBIN KNIGHT COMPANY Bank Reconciliation
September 30BANK BOOK
Balance, September 30 $1,000 Balance, September 30 $2,000ADD: ADD:Deposit in transit 1,500 EFT collection on rent 300 2,500 2,300
LESS:Correction of book error $200NSF checks 60Printed checks 25Service charge 15 300Adjusted book balance, September 30 $2,000
Demonstration of E7-20-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-25
ROBIN KNIGHT COMPANY Bank Reconciliation
September 30BANK BOOK
Balance, September 30 $1,000 Balance, September 30 $2,000ADD: ADD:Deposit in transit 1,500 EFT collection on rent 300 2,500 2,300LESS: LESS:
Correction of book error $200NSF checks 60Printed checks 25
Outstanding checks 500 Service charge 15 300Adjusted book balance, September 30 $2,000
Demonstration of E7-20-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-26
ROBIN KNIGHT COMPANY Bank Reconciliation
September 30BANK BOOK
Balance, September 30 $1,000 Balance, September 30 $2,000ADD: ADD:Deposit in transit 1,500 EFT collection on rent 300 2,500 2,300LESS: LESS:
Correction of book error $200NSF checks 60Printed checks 25
Outstanding checks 500 Service charge 15 300Adjusted bank balance, September 30 $2,000
Adjusted book balance, September 30 $2,000
Demonstration of E7-20-Req. 1
Copyright © 2016 Pearson Education, Inc. 7-27
Date Accounts and Explanation Debit CreditSept. 30 Cash 300
Rent Revenue 300 To record EFT rent collection.
Demonstration of E7-20-Req. 2
Copyright © 2016 Pearson Education, Inc. 7-28
Date Accounts and Explanation Debit CreditSept. 30 Cash 300
Rent Revenue 300 To record EFT rent collection.
30 Salaries Expense 200 Cash 200 To record error on salary check.
Demonstration of E7-20-Req. 2
Copyright © 2016 Pearson Education, Inc. 7-29
Date Accounts and Explanation Debit CreditSept. 30 Cash 300
Rent Revenue 300 To record EFT rent collection.
30 Salaries Expense 200 Cash 200 To record error on salary check.
30 Accounts Receivable 60 Cash 60 To record NSF checks.
Demonstration of E7-20-Req. 2
Copyright © 2016 Pearson Education, Inc. 7-30
Date Accounts and Explanation Debit CreditSept. 30 Cash 300
Rent Revenue 300 To record EFT rent collection.
30 Salaries Expense 200 Cash 200 To record error on salary check.
30 Accounts Receivable 60 Cash 60 To record NSF checks.
30 Bank Expense 25 Cash 25 To record printed check charge incurred.
Demonstration of E7-20-Req. 2
Copyright © 2016 Pearson Education, Inc. 7-31
Date Accounts and Explanation Debit CreditSept. 30 Cash 300
Rent Revenue 300 To record EFT rent collection.
30 Salaries Expense 200 Cash 200 To record error on salary check.
30 Accounts Receivable 60 Cash 60 To record NSF checks.
30 Bank Expense 25 Cash 25 To record printed check charge incurred.
30 Bank Expense 15Cash 15
To record bank service charges incurred.
Demonstration of E7-20-Req. 2