Page 369 - Accounting Principles (A Business Perspective)

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Group project I "Kiting" of bank accounts has been used to conceal shortages in bank accounts. With one or
two other students, research this topic in the library. Write a paper to your instructor describing how this technique
works and the steps that can be taken to detect it once it occurs and to prevent it in the future.

Using the Internet—A view of the real world
Visit the following site:
http://www.vfauditmall.com/
This is the internet site for the Vanity Fair Audit Mall. Click on the visitors center, CCA Studio, Tool Box, Job

Shop, Tek Shak, Risk Depot, Contact Plaza, and Arcade. After browsing the site write a one page memo as to what
you learned about internal audit.
Visit the Securities and Exchange website and find the EDGAR database at:
http://www.sec.gov/edgar.shtml
EDGAR stands for the Electronic Data Gathering, Analysis, and Retrieval system. What is its purpose? What
kinds of information can be found at this site? Select a company of your choice and search the EDGAR database for
information on that company. Write a report to your instructor summarizing your findings.

Answers to self-test
True-false
False. Postdated checks are not included as cash.
True. A company should make sure that enough cash is available to pay bills as they come due.
False. The cash balance on a bank statement is not usually the same as the cash balance in the depositor's
books because of deposits in transit, outstanding checks, and bank service charges.

False. A deposit in transit is one of the items that has been correctly recorded as a debit to the Cash account of
the depositor and will be recorded as a deposit by the bank after the bank employees open the night deposit chute.
False. For convenience, a company may use a petty cash fund for small amounts of cash payments such as
delivery charges or postage stamps.
Multiple-choice
d. An effective internal control structure does not necessarily guarantee a certain level of profits.
a.
Balance per bank statement $1,951.20
Add: Deposit in transit 271.20
Less: Outstanding checks (427.80)
Adjusted balance $1,794.60
Balance per ledger $1,869.60
Less: NSF check (61.20)
Service charges (13.80)
Adjusted balance $1,794.60
d. Deposits in transit have been recorded in the company's accounting records but have not yet been recorded in
the bank's records.
b. The entry to record bank service charges on the books is:
Bank Service Charge Expense 13.80
Cash 13.80
d. The entry to replenish the petty cash fund has a credit to Cash, not Petty Cash.
Postage Expense xxx
Cash xxx

Accounting Principles: A Business Perspective 370 A Global Text