Bank Transfer Ch 10 Cycle 1 Problem [Read-Only) Compatibility Mode]-Word GE LAYO

Question

Bank Transfer Ch 10 Cycle 1 Problem [Read-Only) Compatibility Mode]-Word GE LAYOUTREFERENCES MAILINGS REVIEW VIE Blue River Faith Company has a major branch located in Hattiesburg. The branch deposits cash receipts daily into the bank and periodically transfers the receipts to the company's home office in Jackson. The transfers are accounted for as inter-company entries into the home office and branch office accounts. All accounting, however, is performed at the home office under the direction of the assistant controller. The assistant controller is also responsible for the transfers. The controller, however, independently reconciles the bank account each month or assigns this reconciliation to someone in the department. Often times the assistant controller is assigned this duty. The company is relatively small; therefore the controller is also the financial planner and treasurer for the company. As part of the year-end audit, you are assigned the task of conducting an audit of bank transfers. As part of the process, you are provided the following schedule of transfers: Dollar Date disbursement Amount deposited Home Office Bank per Branch per Branch Date Date Cleared Bank per Date Cleared Bank Statement Statement Office 12-29-2011 01-02-2012 01-05-2012 12-31-2011 01-03-2012 12-27-2011 $80,000 12-31-2011 $41,000 12-31-2011 $82,000 01-03-2012 S54,000 01-02-2012 $11,000 01-03-2012 $32.000 12-31-2011 12-31-2011 12-31-2011 01-07-2012 01-03-2012 12-31-2011 12-31-2011 01-07-2012 01-05-2012 01-12-2012 01-08-2012 01-05-2012 01-03-2012 Required

Explanation / Answer

1. The basic objective of audit here is that, the total receipts at the bank and periodical transfers do tally each other. Though there are intercompany transfers, it should be ensured that all the transfers are genuine in nature. There should be reconciliations of all the transactions.

2. First of all we should try to understand the total amount of cash receipts daywise the branch uses to deposit in the bank and how much of amount used to be transferred to Company’s home office to Orlando on a daily basis. We have to take out some of big amount cash receipts and should satisfy when these cash receipts were liquidated and money has come to the account and how the branch has transferred money to home office and the amount of transfer. It should be ensured that, total year end transfer to the home office is equal to the total amount of cash receipts liquidated in the account. The cash receipts presented everyday need to be verified on random basis and it would be ensured that, the total transfer to home office each day is equal to the total cash receipts liquidated in the that particular day. Some of the bigger transactions need to be verified and it should be ensured there would certain cash receipts which would not have been cleared till the end of the year and would be in transit as well. We basically follow random sampling as a process of testing.

3. We do not observe any adjusting entries that would be needed on either home office or branch officer accounting records as a result of the preceding transactions.

4. We have to only consider the amounts that are presented on December 31, 2011 and all these cash receipts would be shown as cash payables in the books of branch offices and as cash receivables in the books of home office. We do not consider here, the deposits after 12-31-2011.

5. No transactions require adjustments. Transactions for amount of $80,000 and $82,000 indicate kiting as it takes more time to get cleared and liquidated. No transactions represent errors and it is difficult to say unless we have details of the transactions.

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