1. The petty cash fund of the Brooks Agency is established at $150. At the end o
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1. The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the S 6-5 Petty cash accounting P2 fund contained $28 and had the following receipts: film rentals, $24, refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Pre- pare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period. 2. Identify the two events that cause a Petty Cash account to be credited in a journal entry aS 6-6 Bank reconciliation P3 Nolan Company deposits all cash receipts on the day when they are received and it makes all cash payments by check. At the close of business on June 30, 2013, its Cash account shows an $22,352 debit balance. Nolan's June 30 bank statement shows $21,332 on deposit in the bank. Prepare a bank reconciliation for the company using the following information. a. Outstanding checks as of June 30 total $3,713. b. The June 30 bank statement included a $41 debit memorandum for bank services; the company has not yet recorded the cost of these services. c. In reviewing the bank statement, a $90 check written by the company was mistakenly recorded in the company's books at $99. Chapter 6 Reporting and Analyzing Cash and Internal Controls 293 d. June 30 cash receipts of $4,724 were placed in the bank's night depository after banking hours and were not recorded on the June 30 bank statement. e. The bank statement included a $23 credit for interest earned on the cash in the bank. An entrepreneur commented that a bank reconciliation may not be necessary as she regularly reviews her online bank statement for any unusual items and errors. a. Desr Qs Reviewing bank statements P3 ribe how a bank reconciliation and an online review for reading) of the bank statement are not equivalent. b. Identify and explain at least two frauds or errors that would be uncovered through a bank reconcilia- tion and that would not be uncovered through an online review of the bank statement.Explanation / Answer
1… Establishment of the fund Debit Credit a. Petty cash fund 150 Cash 150 a.ii. Entertainment expense(24+46) 70 Postage expense 30 Printing expense 22 Petty cash fund 122 b. Petty cash fund 28 Cash 28 Reimbursement of the fund(150-122) 2.. Two types of events that will cause a Petty Cash account to be credited in a Journal entry: a. Expenses like in a.ii. above, where petty cash goes out, petty cash is credited. b. Petty cash is debited when cash is paid into the fund,like reimbursement, or any sale income of scarp or any small interest income ,concerning the fund. Nolan Company Bank Reconciliation Statement As on June 30 Balance as per Bank Statement 21332 Adjustments: d.Deposits in Transit 4724 a.O/s checks -3713 Adjusted balance per Bank 22343 Balance per Company Books 22352 Adjustments: b.Bank services -41 c.Excess debit in Co.'s books 9 e.Bank Interest earned 23 Corrected book balance 22343 Rectifying Journal entries b. Miscellaneous expense 41 Cash 41 c. Cash Relevant expense account e. Cash 23 Interest Income 23 a.Simple online review or reading of the bank statement will not suffice , as It is only the bank-side of recording of transactions , as they receive instructions from the company to honour checks or credit incomes that are deposited into the account. It may miss out on last minute deposits & checks drawn , thus giving out a mis-leading balance. Reconciling the two balances ,namely company cash & bank pass book balance ,helps the company to know that the figure is fool-proof & make necessary rectifying entries. It helps to identify & explain differences ,in concrete terms , for rectification of books. b..It is no point in just having individual balances ,unless both are reconciled , which help to uncover both manual errors by oversight & wanton, deliberate frauds. Reconciliation of both balances help to identify errors that result incorrect posting of figures by oversight by company officers-in-charge or by the bank people --as for example, deposit of a $ 15000 check by the company ,mistakenly credited as $ 5000 by the bank , can be taken up with the bank after establishing the difference & narrowing on the exact deposit. Similarly,delibearte tampering ,ie. Increasing ,of the amount paid to any of the employees, can be detected while comparing the amount disbursed by bank & the amount authorised to the employee ,as per books.
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