This post answers questions regarding internal cash control in a business organization. Specifically, how to recognize and account specific transactions related to working capital control.
Why is cash the asset that often warrants the most attention in the design of an effective internal control structure?
To detect errors, businesses are all concerned about cash. Inadequate controls can lead to theft misuse of fund and other embarrassing situations.
The combined cash count of all cash registers at the close of business is USD$110 less than the cash sales indicated by the cash register tapes.
In what account is the cash shortage recorded? It should be debited in the account cash short and over.
Are cash shortages debited or credited to this account? Cash shortages must be debited.
In which section of Profit and Loss Account (P&L) would a credit balance in cash short and over be reported?
It should be reported in the other income section.
Before a voucher for the purpose of merchandise is approved for payment, supporting documents should be compared to verify the accuracy of the liability. Name an example of a supporting document for the purchase of merchandise.
An invoice with a purchase order.
When is a voucher recorded?
After prepared, containing its supporting documents, and approval from the proper official where it is recorded in accounts. In unpaid voucher file.
The accounting clerk pays all obligations by pre-numbered checks. What are the strengths and weaknesses in the internal control over cash payments in this situation??
They can easily be kept track of by both the issuer and the bank. It makes easy for banks to sort and post checks. Also, not useful for small payments.
In what order are vouchers originally filed ‘In the unpaid voucher file’ and ‘In the paid voucher file’?
It is filed by due date because needs a control to know which ones should be paid previously and by date. After paid they are filed by voucher number, to keep a better track and be ready to examination about past payments.
The balance of cash is likely to differ from the bank statement balance. What two factors are likely to be responsible for the difference?
- By delay in either party in recording transactions.
- Charges are made by the bank and the depositor is not informed until later.
- Errors recording transactions.
What is the purpose of preparing a bank reconciliation?
For effective control, the reasons for the difference between the cash balance on the bank statement and the cash balance in the accounting records.
Do items reported on the bank statement as credits represent additions made by the bank to the depositors balance or deductions made by the bank from the depositors balance?
Increase the depositors balance.
What entry should be made if a check is received from a customer and deposited is returned by the bank for lack of sufficient funds (a Non-Sufficient Funds check)?
- Debit to Accounts Receivable.
- Credit to Cash.
Explain why some cash payments are made in coins and currency from a petty cash fund.
It is usually not practical to for a business to write checks to pay small amounts, these small payments may occur often enough to add up a significant total amount.
What account or accounts are debited when establishing a petty cash fund and replenishing a petty cash flow?
Petty cash should be debited as miscellaneous expenses.
The petty cash account has a debit balance of USD$750. At the end of the accounting period, there is USD$112 in the petty cash fund, along with petty cash receipts totaling USD$638. Should the fund be replenished as of the last day of the period?
Yes, because the next period you should start it with the total amount presented in books besides you will need the money to cover any small payment.
How are cash equivalents reported in the financial statements?
Along with the cash account.
How is a compensating balance reported in the financial statements?
They should be disclosed in notes to financial statements.
