CHAPTER 7
1. Many transactions affect cash, and it is the asset most susceptible to improper diversion and
use because of its high value in relation to its mass and its ease of transfer among parties. For these reasons, the control of cash often warrants special attention. 2. a. Cash Short and Over； b.
Cash shortages are debited to this account.
3. Other income section
4. The three documents supporting the liability are vendor’s invoice, purchase order, and
receiving report. The invoice should be compared with the receiving report to determine that the items billed have been received and with the purchase order to verify quantities, prices, and terms.
5. A voucher is recorded after it has been approved for payment.
6. The prenumbering of checks and the paying of all obligations by check are desirable elements
of internal control. The fundamental weakness in internal control is the failure to separate the responsibility for the maintenance of the accounting records (bookkeeping) from the responsibility for operations (payment of obligations).
7. a. In the unpaid voucher file, the vouchers should be filed by the due dates so that each
voucher can be paid when due.
b. In the paid voucher file, the vouchers should be filed in numerical order so that they can
be easily located when needed.
8. The Cash balance and the bank statement balance are likely to differ because of (1) a delay by
bank or depositor in recordingtransactions (such as checks or deposits) or (2) errors by bank or depositor in recording transactions.
9. The purpose of a bank reconciliation is to determine the reasons for the difference between
the balance according to the depositor’s records and the balance according to the bank statement, and to correct those items representing errors in recording that may have been made by the bank or by the depositor.
10. Additions made by the bank to the depositor’s balance
11. Accounts Receivable should be debited and Cash should be credited.
12. Payments of small amounts by check often result in delay, annoyance, and excessive expense
of maintaining records and processing the payments. For these reasons, small cash payments are made from a petty cash fund. 13. a. Petty Cash；b. Various expense and asset accounts as indicated by a summary of expenditures
14. The fund should be replenished as of the last day of the period. It is the simplest means of
recording the $690 of expenditures in the appropriate accounts and restoring the amount of the petty cash to the amount shown in the ledger account.
15. Cash and cash equivalents are usually reported as one amount in the Current Assets section of
the balance sheet.
16. The details of a compensating balance are reported in notes to the financial statements. Ex. 7–1
a. The sales clerks should not have access to the cash register tapes.
b.
The cash register tapes should be locked in the cash register and the key retained by the cashier. An employee of the cashier’s office should remove the cash register tape, record the total on the memorandum form, and note discrepancies. Ex. 7–2 Cash ........................................................................................... 17,572.40 Cash Short and Over .................................................................. 17.25 Sales .................................................................................... 17,5.65 Ex. 7–3 Cash ........................................................................................... 6,973.60 Sales .................................................................................... 6,932.15 Cash Short and Over ........................................................... 41.45 Ex. 7–4
To prevent the embezzlement scheme described, Satchell must separate responsibilities for related operations. As in the past, all service requisitions should be submitted to the Purchasing Department. After receiving the service request, Purchasing should complete a Service Verification form, stating what service has been ordered and the name of the company that will provide the service. This form should be delivered via intercompany mail to the person responsible for verifying that the service was performed. This person should be someone who has firsthand knowledge of whether the service has been performed. This person, who must be someone other than the manager requesting the service, should fill in the date and time the service was received and sign the form. In addition, the vendor providing the service should sign the form before leaving the premises. When completed, the Service Verification form should be forwarded to the Accounting Department. Accounting will authorize payment of the vendor’s invoice after the Service Verification form has been compared with the invoice. Ex. 7–5 a.
Addition to the balance per bank: (4), (6)；b.Deduction from the balance per bank: (5)
c. Addition to the balance per depositor’s records: (1), (7) d. Deduction from the balance per depositor’s records: (2), (3) Ex. 7–6 (1), (2), (3), (7) Ex. 7–7 Cash ........................................................................................... Notes Receivable ................................................................ Interest Revenue .................................................................. Ex. 7–8
a. Petty Cash .................................................................................... Cash ............................................................................................. b. Office Supplies ............................................................................ Miscellaneous Selling Expense ................................................... Miscellaneous Administrative Expense ....................................... Cash Short and Over .................................................................... Cash ............................................................................................. Ex. 7–9 a. 2003: 0.27 ($2,188,000,000 ÷ $8,035,000,000)
15,300.00
15,000.00 300.00
750.00 750.00 415.83 107.90 88.10 18.60 630.43
b.
2002: 0.38 ($2,477,000,000 ÷ $6,501,000,000)
The doomsday ratio is normally less than one. Although there is little risk of Home Depot going out of business, the trend from 2002 to 2003 indicates less safety for short-term creditors. The doomsday ratio is most useful for companies that are likely to enter bankruptcy.
