Page 361 - Accounting Principles (A Business Perspective)

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➢ List six essential features of internal control over cash disbursements.

➢ What types of items cause the balance per ledger and the balance per bank statement to disagree?
➢ "The difference between a company's Cash account balance and the balance on its bank statement is
usually a matter of timing." Do you agree or disagree? Why?
➢ Explain how transfer bank accounts can help bring about effective cash management.
➢ Describe the operation of a petty cash fund and its advantages. Indicate how control is maintained
over petty cash transactions.

➢ When are entries made to the Petty Cash account?
➢ The Limited, Inc. Based on the financial statements of The Limited, Inc., in the Annual report
appendix, what was the quick ratio for each of the two years shown?
➢ The Limited, Inc. Based on the financial statements of The Limited, Inc., in the Annual report
appendix, what was the ending cash and equivalents balance? What percentage of current assets
does the amount of cash and equivalents represent for each of the two years shown?
Exercises
Exercise A State whether each of the following statements about internal control is true or false:

a. Those employees responsible for safeguarding an asset should maintain the accounting records for that asset.
b. Complete, accurate, and up-to-date accounting records should be maintained.
c. Whenever possible, responsibilities should be assigned and duties subdivided in such a way that only one
employee is responsible for a given function.
d. Employees should be assigned to one job and should remain in that job so that skill levels will be as high as
possible.
e. The use of check protectors, cash registers, and time clocks is recommended.

f. An internal auditing function should not be implemented because it leads the employees to believe that
management does not trust them.
g. One of the best protections against theft is to hire honest, competent employees.
h. A foolproof internal control structure can be devised if management puts forth the effort.
Exercise B Concerning internal control, which one of the following statements is correct? Explain.
a. Broadly speaking, an internal control structure is only necessary in large organizations.
b. The purposes of internal control are to check the accuracy of accounting data, safeguard assets against theft,
promote efficiency of operations, and ensure that management's policies are being followed.
c. Once an internal control structure has been established, it should be effective as long as the formal

organization remains unchanged.
d. An example of internal control is having one employee count the day's cash receipts and compare the total
with the total of the cash register tapes.
Exercise C The bank statement for Yarley Company at the end of August showed a balance of USD 12,862.
Checks outstanding totaled USD 3,937, and deposits in transit were USD 5,990. If these amounts are the only
pertinent data available to you, what was the adjusted balance of cash at the end of August?
Exercise D From the following data, prepare a bank reconciliation and determine the correct available cash

balance for Reed Company as of 2010 October 31.
Balance per bank statement, 2010 October 31 $13,974

Accounting Principles: A Business Perspective 362 A Global Text