Chapter 7

The procedures used for over-the-counter receipts are as follows. At the close of each day's business, the sales clerks count the cash in their respective cash drawers, after which they determine the amount recorded by the cash register and prepare the memorandum cash form, noting any discrepancies. An employee from the cashier's office counts the cash, compares the total with the memorandum, and takes the cash to the cashier's office. a. Indicate the weak link in internal control. b. How can the weakness be corrected?

Deana Crisman works at the drive-through window of Awesome Burgers. Occasionally, when a drive-through customer orders, Deana fills the order and pockets the customer's money. She does not ring up the order on the cash register. 1\. Identify the internal control weaknesses that exist at Awesome Burgers, and discuss what can be done to prevent this theft.

The mailroom employees send all remittances and remittance advices to the cashier. The cashier deposits the cash in the bank and forwards the remittance advices and duplicate deposit slips to the Accounting Department. a. In Indicate the weak link in internal control in the handling of cash receipts. b. I_ How can the weakness be corrected?

The actual cash received from cash sales was \(\$ 17,572.40\), and the amount indicated by the cash register total was \(\$ 17,589\).65. Journalize the entry to record the cash receipts and cash sales.

The actual cash received from cash sales was \(\$ 6,973.60\), and the amount indicated by the cash register total was \(\$ 6,932\).15. Journalize the entry to record the cash receipts and cash sales.

Migraine Co. is a medium-size merchandising company. An investigation revealed that in spite of a sufficient bank balance, a significant amount of available cash discounts had been lost because of failure to make timely payments. In addition, it was discovered that several purchases invoices had been paid twice. 1\. Outline procedures for the payment of vendors' invoices, so that the possibilities of losing available cash discounts and of paying an invoice a second time will be minimized.

Satchell Company, a communications equipment manufacturer, recently fell victim to an embezzlement scheme masterminded by one of its employees. To understand the scheme, it is necessary to review Satchell's procedures for the purchase of services. The purchasing agent is responsible for ordering services (such as repairs to a photocopy machine or office cleaning) after receiving a service requisition from an authorized manager. However, since no tangible goods are delivered, a receiving report is not prepared. When the Accounting Department receives an invoice billing Satchell for a service call, the accounts payable clerk calls the manager who requested the service in order to verify that it was performed. The embezzlement scheme involves Drew Brogan, the manager of plant and facilities. Drew arranged for his uncle's company, Brogan Industrial Supply and Service, to be placed on Satchell's approved vendor list. Drew did not disclose the family relationship. On several occasions, Drew would submit a requisition for services to be provided by Brogan Industrial Supply and Service. However, the service requested was really not needed, and it was never performed. Brogan would bill Satchell for the service and then split the cash payment with Drew. 1\. Explain what changes should be made to Satchell's procedures for ordering and paying for services in order to prevent such occurrences in the future.

Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank statement, (b) a deduction from the cash balance according to the bank statement, (c) an addition to the cash balance according to the depositor's records, or (d) a deduction from the cash balance according to the depositor's records. (None of the transactions reported by bank debit and credit memorandums have been recorded by the depositor.) 1\. Check drawn by depositor for \(\$ 300\) but incorrectly recorded as \(\$ 3,000\). 2\. Check of a customer returned by bank to depositor because of insufficient funds, \(\$ 775 .\) 3\. Bank service charges, \(\$ 35\). 4\. Check for \(\$ 129\) incorrectly charged by bank as \(\$ 219\). 5\. Outstanding checks, \(\$ 6,137.68\). 6\. Deposit in transit, \(\$ 7,500\). 7\. Note collected by bank, \(\$ 12,000\).

Accompanying a bank statement for Covershot Company is a credit memorandum for \(\$ 15,300\), representing the principal \((\$ 15,000)\) and interest \((\$ 300)\) on a note that had been collected by the bank. The depositor had been notified by the bank at the time of the collection, but had made no entries. Journalize the entry that should be made by the depositor to bring the accounting records up to date.

Prometheus Co. records all cash receipts on the basis of its cash register tapes. Prometheus Co. discovered during April 2006 that one of its sales clerks had stolen an undetermined amount of cash receipts when she took the daily deposits to the bank. The following data have been gathered for April: \(\begin{array}{lr}\text { Cash in bank according to the general ledger } & \$ 12,573.22 \\ \text { Cash according to the April } 30,2006 \text { bank statement } & 13,271.14 \\ \text { Outstanding checks as of April } 30,2006 & 1,750.20 \\ \text { Bank service charge for April } & 45.10 \\ \text { Note receivable, including interest collected by bank in April } & 5,200.00\end{array}\) No deposits were in transit on April 30, which fell on a Sunday. a. Determine the amount of cash receipts stolen by the sales clerk. b. What accounting controls would have prevented or detected this theft?

Journalize the entries to record the following: a. Check No. 2715 is issued to establish a petty cash fund of \(\$ 750\). b. The amount of cash in the petty cash fund is now \(\$ 119.57\). Check No. 3120 is issued to replenish the fund, based on the following summary of petty cash receipts: office supplies, \(\$ 415.83\); miscellaneous selling expense, \(\$ 107.90\); miscellaneous administrative expense, \(\$ 88.10\). (Since the amount of the check to replenish the fund plus the balance in the fund do not equal \(\$ 750\), record the discrepancy in the cash short and over account.)

For a recent fiscal year, Circuit City's quarterly balances of cash and cash equivalents were as follows: \(\begin{array}{lr}\text { End of February } & \$ 885 \text { million } \\\ \text { End of May } & \$ 1,176 \text { million } \\ \text { End of August } & \$ 847 \text { million } \\ \text { End of November } & \$ 438 \text { million }\end{array}\) What would you expect would be the cause of the variation in Circuit City's balances of cash and cash equivalents?