# Welcome Back Atef Abuelaish 1 Welcome Back Time

Welcome Back Atef Abuelaish 1 Welcome Back Time for Any Question Atef Abuelaish 2 Chapter 05 Review Atef Abuelaish 3 NEED-TO-KNOW A company reported the following December purchases and sales data for its only product. Date Dec. 01 Dec. 08 Dec. 09 Dec. 19 Dec. 24

Dec. 30 Activities Beginning inventory Purchase Sales Purchase Sales Purchase Units Acquired at Cost Units Sold at Retail 5 units @ \$3.00 = \$15.00 10 units @ \$4.50 = \$45.00 8 units @ \$7.00 13 units @ \$5.00 = \$65.00 18 units @ \$8.00 8 units @ \$5.30 = \$42.40 36 units \$167.40 26 units The company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) FIFO, (c) LIFO, and (d) weighted average. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase. P1

Atef Abuelaish 4 NEED-TO-KNOW A company reported the following December purchases and sales data for its only product. Date Dec. 01 Dec. 08 Dec. 09 Dec. 19 Dec. 24 Dec. 30 Activities Units Acquired at Cost Beginning inventory 5 units @ \$3.00 = \$15.00 Purchase 10 units @ \$4.50 = \$45.00 Sales Purchase 13 units @ \$5.00 = \$65.00 Sales Purchase 8 units @ \$5.30 = \$42.40 36 units \$167.40

Units Sold at Retail 8 units @ \$7.00 18 units @ \$8.00 26 units The company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) FIFO, (c) LIFO, and (d) weighted average. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase. Regardless of the method used, the cost of 26 units are included in Cost of Goods Sold, and the cost of 10 units are included in Ending Inventory P1 Atef Abuelaish 5 NEED-TO-KNOW A company reported the following December purchases and sales data for its only product. Date Dec. 01 Dec. 08

Dec. 09 Dec. 19 Dec. 24 Dec. 30 Activities Units Acquired at Cost Beginning inventory 5 units @ \$3.00 = \$15.00 Purchase 10 units @ \$4.50 = \$45.00 Sales Purchase 13 units @ \$5.00 = \$65.00 Sales Purchase 8 units @ \$5.30 = \$42.40 36 units \$167.40 Units Sold at Retail 8 units @ \$7.00 18 units @ \$8.00 26 units The company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) FIFO, (c) LIFO, and (d) weighted average. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory

consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase. Specific Identification Method Not an inventory assumption - Actual Cost of Goods Sold represents the actual cost of the units selected by the customer. Ending Inventory represents the actual cost of the units that remain in ending inventory. P1 Atef Abuelaish 6 NEED-TO-KNOW Date Dec. 01 Dec. 08 Dec. 09 Dec. 19 Dec. 24 Dec. 30 Activities Units Acquired at Cost Beginning inventory 5 units @ \$3.00 = \$15.00 Purchase

10 units @ \$4.50 = \$45.00 Sales Purchase 13 units @ \$5.00 = \$65.00 Sales Purchase 8 units @ \$5.30 = \$42.40 36 units \$167.40 Units Sold at Retail 8 units @ \$7.00 18 units @ \$8.00 26 units Ending inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase. Specific Identification Cost of exact units sold are expensed as Cost of Goods Sold. Date Dec. 01 Dec. 08 Dec. 19 Dec. 30 Activities Beginning inventory Purchase

Purchase Purchase Cost of Goods Sold Ending inventory Goods available for sale P1 Atef Abuelaish Units Acquired at Cost 5 @ \$3.00 = \$15.00 10 @ \$4.50 = \$45.00 13 @ \$5.00 = \$65.00 8 @ \$5.30 = \$42.40 36 units \$167.40 Cost of Goods Sold 5 @ \$3.00 = \$15.00 8 @ \$4.50 = \$36.00 13 @ \$5.00 = \$65.00 26 units \$116.00 Cost of Ending Inventory

2 @ \$4.50 = \$9.00 8 @ \$5.30 = \$42.40 10 units \$51.40 \$116.00 51.40 \$167.40 7 NEED-TO-KNOW Date Dec. 01 Dec. 08 Dec. 09 Dec. 19 Dec. 24 Dec. 30 Activities Units Acquired at Cost Beginning inventory 5 units @ \$3.00 = \$15.00 Purchase 10 units @ \$4.50 = \$45.00 Sales Purchase 13 units @ \$5.00 = \$65.00

Sales Purchase 8 units @ \$5.30 = \$42.40 36 units \$167.40 Units Sold at Retail 8 units @ \$7.00 18 units @ \$8.00 26 units Perpetual FIFO Cost of Goods Sold is calculated at the time of the sale. The first items in are the first items out expensed as Cost of Goods Sold. Date Dec. 1 Dec. 8 Goods Purchased 10 @ \$4.50 Dec. 9 Dec. 19 5 @ \$3.00 3 @ \$4.50 P1

} = \$28.50 13 @ \$5.00 Dec. 24 Dec. 30 Cost of Goods Sold 7 @ \$4.50 11 @ \$5.00 } = \$86.50 8 @ \$5.30 Cost of Goods Sold \$115.00 Ending inventory 52.40 Goods available for sale \$167.40 Atef Abuelaish Inventory Balance 5 @ \$3.00 = \$15.00 5 @ \$3.00

} = \$60.00 10 @ \$4.50 7 @ \$4.50 7 @ \$4.50 13 @ \$5.00 2 @ \$5.00 2 @ \$5.00 8 @ \$5.30 = \$31.50 } = \$96.50 = \$10.00 } = \$52.40 \$115.00 8 NEED-TO-KNOW Date Dec. 01 Dec. 08 Dec. 09 Dec. 19 Dec. 24 Dec. 30

Activities Units Acquired at Cost Beginning inventory 5 units @ \$3.00 = \$15.00 Purchase 10 units @ \$4.50 = \$45.00 Sales Purchase 13 units @ \$5.00 = \$65.00 Sales Purchase 8 units @ \$5.30 = \$42.40 36 units \$167.40 Units Sold at Retail 8 units @ \$7.00 18 units @ \$8.00 26 units Perpetual LIFO Cost of Goods Sold is calculated at the time of the sale. The last items in are the first items out expensed as Cost of Goods Sold. Date Dec. 1 Dec. 8 Goods Purchased

10 @ \$4.50 Dec. 9 Dec. 19 8 @ \$4.50 = \$36.00 13 @ \$5.00 Dec. 24 Dec. 30 Cost of Goods Sold } 3 @ \$3.00 2 @ \$4.50 13 @ \$5.00 }= \$83.00 8 @ \$5.30 Cost of Goods Sold

Ending inventory P1 Atef Abuelaish Goods available for sale Inventory Balance 5 @ \$3.00 = \$15.00 5 @ \$3.00 } = \$60.00 10 @ \$4.50 5 @ \$3.00 } = \$24.00 2 @ \$4.50 5 @ \$3.00 2 @ \$4.50 = \$89.00 13 @ \$5.00 2 @ \$3.00 = \$6.00 2 @ \$3.00 8 @ \$5.30 \$119.00 48.40 \$167.40 } = \$48.40

\$119.00 9 NEED-TO-KNOW Date Dec. 01 Dec. 08 Dec. 09 Dec. 19 Dec. 24 Dec. 30 Activities Units Acquired at Cost Beginning inventory 5 units @ \$3.00 = \$15.00 Purchase 10 units @ \$4.50 = \$45.00 Sales Purchase 13 units @ \$5.00 = \$65.00 Sales Purchase 8 units @ \$5.30 = \$42.40 36 units \$167.40 Units Sold at Retail

8 units @ \$7.00 18 units @ \$8.00 26 units Weighted Average Cost of Goods Sold is calculated at the time of the sale. Average cost is equal to cost of goods available at the time of the sale divided by number of units available at the time of the sale. Date Goods Purchased Cost of Goods Sold Inventory Balance Dec. 1 5 @ \$3.00 = \$15.00 Dec. 8 10 @ \$4.50 5 @ \$3.00 } = \$60.00 10 @ \$4.50 \$60 / 15 units = \$4.00 avg. cost Dec. 9 Dec. 19 8 @ \$4.00 13 @ \$5.00 Dec. 24 Dec. 30

= \$32.00 18 @ \$4.65 = \$83.70 8 @ \$5.30 Cost of Goods Sold Ending inventory P1 Goods available for sale Atef Abuelaish 7 @ \$4.00 = \$28.00 7 @ \$4.00 } = \$93.00 13 @ \$5.00 \$93 / 20 units = \$4.65 avg. cost 2 @ \$4.65 = \$9.30 2 @ \$4.65 } = \$51.70 8 @ \$5.30 \$51.70 / 10 units = \$5.17 avg. cost \$115.70 51.70 \$167.40 \$115.70

10 Chapter 06 Cash and Atef Abuelaish 11 Chapter 06 Cash and internal control Atef Abuelaish 12 Internal Control Atef Abuelaish 13 Internal Control System Policies and procedures managers use to: o Protect assets. o Ensure reliable accounting. o Urge adherence to company policies.

o Promote efficient operations. C1 Atef Abuelaish 14 Sarbanes-Oxley Act (SOX) The Sarbanes-Oxley Act requires managers and auditors of public companies to document and certify the system of internal controls. Section 404 of SOX requires that managers document and assess the effectiveness of all internal control processes that can impact financial reporting. C1 Atef Abuelaish 15 Principles of Internal Control Internal control principles common to all companies: 1.

Establish responsibilities. 2. Maintain adequate records. 3. Insure assets and bond key employees. 4. Separate recordkeeping from custody of assets. 5. Divide responsibility for related transactions. 6. Apply technological controls. 7. Perform regular and independent reviews. C1

Atef Abuelaish 16 Technology and Internal Control Reduced Processing Errors More Extensive Testing of Records Limited Evidence of Processing Crucial Separation of Duties Increased E-Commerce C1 Atef Abuelaish

17 Limitations of Internal Control Human Error Human Fraud Negligence Fatigue Misjudgment Confusion Intent to defeat internal controls for personal gain Human fraud triple-threat: Opportunity, Pressure, and Rationalization C1 Atef Abuelaish 18 Limitations of Internal

Control The costs of internal controls must not exceed their benefits. C1 Atef Abuelaish 19 NEED-TO-KNOW Identify the following phrases/terms as best linked with the (a) purposes of an internal control system, (b) principles of internal control, or (c) limitations of internal control. 1) Protect assets 2) Establish responsibilities 3) Human error 4) Maintain adequate records 5) Apply technological controls 6) Ensure reliable accounting 7) Insure assets and bond key employees 8) Human fraud 9) Separate recordkeeping from custody of assets 10) Divide responsibility for related transactions 11) Cost-benefit principle 12) Promote efficient operations 13) Perform regular and independent reviews 14) Urge adherence to company policies

C1 Atef Abuelaish 20 NEED-TO-KNOW 1) Protect assets 2) Establish responsibilities 3) Human error 4) Maintain adequate records 5) Apply technological controls 6) Ensure reliable accounting 7) Insure assets and bond key employees 8) Human fraud 9) Separate recordkeeping from custody of assets 10) Divide responsibility for related transactions 11) Cost-benefit principle 12) Promote efficient operations 13) Perform regular and independent reviews 14) Urge adherence to company policies a) C1 a) Purpose of internal controls a) Purpose of internal controls

a) Purpose of internal controls a) Purpose of internal controls Purposes of internal controls Protect assets. Promote efficient operations. Ensure reliable accounting. Urge adherence to company policies. Atef Abuelaish 21 NEED-TO-KNOW 1) Protect assets 2) Establish responsibilities 3) Human error 4) Maintain adequate records 5) Apply technological controls 6) Ensure reliable accounting 7) Insure assets and bond key employees 8) Human fraud 9) Separate recordkeeping from custody of assets 10) Divide responsibility for related transactions 11) Cost-benefit principle 12) Promote efficient operations 13) Perform regular and independent reviews

14) Urge adherence to company policies C1 a) Purpose of internal controls b) Principles of internal controls b) b) a) b) Principles of internal controls Principles of internal controls Purpose of internal controls Principles of internal controls b) Principles of internal controls b) Principles of internal controls a) Purpose of internal controls b) Principles of internal controls a) Purpose of internal controls a) Purposes of internal controls Protect assets. Promote efficient operations. Ensure reliable accounting.

Urge adherence to company policies. b) Principles of internal controls Establish responsibilities. Maintain adequate records. Insure assets and bond key employees. Separate recordkeeping from custody of assets. Divide responsibility for related transactions. Apply technological controls. Perform regular and independent reviews. Atef Abuelaish 22 NEED-TO-KNOW 1) Protect assets 2) Establish responsibilities 3) Human error 4) Maintain adequate records 5) Apply technological controls 6) Ensure reliable accounting 7) Insure assets and bond key employees 8) Human fraud 9) Separate recordkeeping from custody of assets 10) Divide responsibility for related transactions

11) Cost-benefit principle 12) Promote efficient operations 13) Perform regular and independent reviews 14) Urge adherence to company policies a) Purpose of internal controls b) Principles of internal controls c) Limitations of internal controls b) Principles of internal controls b) Principles of internal controls a) Purpose of internal controls b) Principles of internal controls c) Limitations of internal controls b) Principles of internal controls b) Principles of internal controls c) Limitations of internal controls a) Purpose of internal controls b) Principles of internal controls a) Purpose of internal controls a) c) Limitations of internal controls Human elements include: Human error. Human fraud. Cost-benefit principle.

Purposes of internal controls Protect assets. Promote efficient operations. Ensure reliable accounting. Urge adherence to company policies. b) Principles of internal controls Establish responsibilities. Maintain adequate records. Insure assets and bond key employees. Separate recordkeeping from custody of assets. Divide responsibility for related transactions. Apply technological controls. Perform regular and independent reviews. C1 Atef Abuelaish 23 Cash, Cash Equivalents, and Liquidity Atef Abuelaish 24

Control of Cash An effective system of internal control that protects cash and cash equivalents should meet three basic guidelines: Handling cash is separated from recordkeeping for cash. C2 Cash receipts are promptly deposited in a bank. Cash disbursements are made by check. Atef Abuelaish 25 Cash, Cash Equivalents, and Liquidity Cash and similar assets are called liquid assets because they

can be readily used to settle such obligations. Cash Currency, coins, and amounts on deposit in bank accounts, checking accounts, and some savings accounts. Also includes items such as customer checks, cashier checks, certified checks, and money orders. Cash Equivalents Short-term, highly liquid investments that are: 1. Readily convertible to a known cash amount. 2. Close to maturity date and not C2 sensitive to interest rate changes. Atef Abuelaish 26 Cash Management The goals of cash management are twofold: 1. Plan cash receipts to meet cash payments when due. 2. Keep a minimum level of cash necessary to operate. Effective cash management involves applying

the following cash management principles: C2 Encourage collection of receivables. Delay payment of liabilities. Keep only necessary levels of assets. Plan expenditures. Invest excess cash. Atef Abuelaish 27 Control of Cash Receipts Atef Abuelaish 28 Over-the-Counter Cash Receipts This graphic illustrates that none of the people involved can make a mistake or divert cash

without the difference being revealed. P1 Atef Abuelaish 29 Cash Over and Short Sometimes errors in making change are discovered from differences between the cash in the cash register and the record of the amount of cash receipts. If a cash registers record shows \$550 but the count of cash in the register is \$555, we would prepare the following journal entry: P1 Atef Abuelaish 30 Cash Over and Short Sometimes errors in making change are discovered from differences between the cash in the cash register and the record of the amount of cash receipts. On the other hand, if a cash registers record shows \$625 but the count of cash in the register is

\$621, the entry to record cash sales and its shortage is: P1 Atef Abuelaish 31 Cash Receipts by Mail Preferably, two people are assigned the task of opening the mail. P1 Atef Abuelaish The cashier deposits the money in a bank. The recordkeeper records the amounts

received in the accounting records. 32 Control of Cash Disbursements Control of cash disbursements is especially important as most large thefts occur from payment of fictitious invoices. Keys to Controlling Cash Disbursements Require all expenditures to be made by check. Limit access to checks except for those who have the authority to sign checks. P1 Atef Abuelaish 33 Voucher System of Control A A voucher system system establishes establishes

procedures procedures for: 1. 1. Verifying, Verifying, approving, approving, and and recording recording obligations obligations for for eventual eventual cash cash disbursements. disbursements. 2. 2. Issuing Issuing checks checks for for payment payment of of verified, verified, approved, approved, and and recorded recorded obligations. obligations.

P1 Atef Abuelaish 34 Voucher System of Control P1 Atef Abuelaish 35 NEED-TO-KNOW A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Which of the following statements are true regarding the control of cash receipts and disbursements? 1. Over-the-counter cash receipts from sales should be recorded on a cash register at the time of each sale. True All sales should be recorded on a cash register. 2. Custody over cash should be separate from the recordkeeping of cash. True Segregation of duties 3. For control of cash receipts that arrive through the mail, two people should be assigned the task of, and be present for, opening that mail. True Segregation of duties 4. One key to controlling cash disbursements is to require that no expenditures be made by check; instead, all expenditures should be made from petty cash. False Only small amounts should be paid from petty cash. 5. A voucher system of control should be applied only to purchases of inventory and never to other

expenditures. False A voucher system should be applied to all purchases. P1 Atef Abuelaish 36 Control of Cash Disbursements Atef Abuelaish 37 Petty Cash System of Control Small Small payments payments required required in in most most companies companies for for items items such such as

as postage, postage, courier courier fees, fees, repairs, repairs, and and supplies. supplies. P2 Atef Abuelaish 38 Operating a Petty Cash Fund P2 Atef Abuelaish 39 Operating a Petty Cash Fund P2

Atef Abuelaish 40 Operating a Petty Cash Fund P2 Atef Abuelaish 41 NEED-TO-KNOW Bacardi Company established a \$150 petty cash fund with Eminem as the petty cashier. When the fund balance reached \$19 cash, Eminem prepared a petty cash payment report, which follows. Receipt No. 12 13 15 16 Account Charged Delivery Expense Merchandise Inventory (Omitted) Miscellaneous Expense Total

\$29 18 32 41 \$120 Approved by Eminem Eminem Eminem (Omitted) Received by A. Smirnoff J. Daniels C. Carlsberg J. Walker Required: 1. Identify four internal control weaknesses from the payment report. Petty cash ticket no. 14 is missing. All petty cash tickets should be pre-numbered and all numbers should be accounted for. Since total cash on hand is only \$19, \$131 has been withdrawn (\$150 - \$19). Only \$120 in expenditures has been documented. Management should investigate the \$11 cash shortage. The petty cashier did not sign petty cash receipt no. 16. Was the expense approved, or was this an oversight? Petty cash receipt no. 15 does not indicate the account to be charged. If possible, management

should determine the correct account; if impossible, Miscellaneous Expense should be charged. P2 Atef Abuelaish 42 NEED-TO-KNOW Bacardi Company established a \$150 petty cash fund with Eminem as the petty cashier. When the fund balance reached \$19 cash, Eminem prepared a petty cash payment report, which follows. Receipt No. 12 13 15 16 Account Charged Delivery Expense Merchandise Inventory (Omitted) Miscellaneous Expense Total \$29 18 32 41

\$120 Approved by Eminem Eminem Eminem (Omitted) Received by A. Smirnoff J. Daniels C. Carlsberg J. Walker 2. Prepare general journal entries to record the establishment of the fund and the reimbursement of the fund. (Assume that management was unable to verify the account number for receipt no. 15.) Date Establish P2 Atef Abuelaish General Journal Petty cash Cash

Debit 150 Reimburse Delivery expense Merchandise inventory Miscellaneous expense Cash short and over Cash (\$150 - \$19) 29 18 73 11 Credit 150 131 43 NEED-TO-KNOW Bacardi Company established a \$150 petty cash fund with Eminem as the petty cashier. When the fund balance reached \$19 cash, Eminem prepared a petty cash payment report, which follows. Receipt No. 12 13 15

16 Account Charged Delivery Expense Merchandise Inventory (Omitted) Miscellaneous Expense Total \$29 18 32 41 \$120 Approved by Eminem Eminem Eminem (Omitted) Received by A. Smirnoff J. Daniels C. Carlsberg J. Walker 3. What is the Petty Cash account balance immediately before reimbursement? \$150

Immediately after reimbursement? \$150 The balance in Petty cash remains constant unless the amount of the fund is changed. P2 Atef Abuelaish 44 Basic Bank Services Signature Signature Cards Cards Deposit Deposit Tickets Tickets Bank Bank Accounts Accounts Bank Bank Statements Statements Checks

Checks Electronic Electronic Funds Funds Transfer Transfer P2 Atef Abuelaish 45 Bank Statement Usually once a month, the bank sends each depositor a bank statement showing the activity in the account. P2 Atef Abuelaish 46

Bank Reconciliation Atef Abuelaish 47 Bank Reconciliation A bank reconciliation is prepared periodically to explain the difference between cash reported on the bank statement and the cash balance on companys books. P3 Atef Abuelaish 48 Bank Reconciliation The balance of a checking account reported on the bank statement rarely equals the balance in the depositors accounting records. Cash Balance per Bank Cash Balance per Book + Deposits in Transit

+ Collections & Interest - Outstanding Checks - Uncollectible items +/- Errors +/- Errors Adjusted Cash Balance = Adjusted Cash Balance Adjusting entries are recorded for the reconciling items on the book side of the reconciliation. P3 Atef Abuelaish 49 Bank Reconciliation We follow nine steps in preparing the bank reconciliation.

Cash Balance per Bank + Deposits in Transit - Outstanding Checks +/- Errors Adjusted Cash Balance P3 Atef Abuelaish 50 Bank Reconciliation We follow nine steps in preparing the bank reconciliation. Cash Balance per Book + Collections & Interest - Uncollectible items +/- Errors Adjusted Cash Balance P3 Atef Abuelaish 51 Bank Reconciliation We follow nine steps in preparing the bank reconciliation.

Adjusting entries are recorded for the reconciling items on the book side of the reconciliation. P3 Atef Abuelaish 52 Bank Reconciliation Only the items reconciling the book balance require adjustment. P3 Atef Abuelaish 53 NEED-TO-KNOW The following information is available to reconcile Guccis book balance of cash with its bank statement cash balance as of December 31. Prepare the bank reconciliation for this company as of December 31. a. The December 31 cash balance according to the accounting records is \$1,610, and the bank statement cash balance for that date is \$1,900. b. Guccis December 31 daily cash receipts of \$800 were placed in the banks night depository on December 31, but do not appear on the December 31 bank statement. c. Check No. 6273 for \$400 and Check No. 6282 for \$100, both written and entered in the accounting records in December, are not among the canceled checks. Two checks, No. 6231 for \$2,000 and No.

6242 for \$200, were outstanding on the most recent November 30 reconciliation. Check No. 6231 is listed with the December canceled checks, but Check No. 6242 is not. d. When the December checks are compared with entries in the accounting records, it is found that Check No. 6267 had been correctly drawn for \$340 to pay for office supplies but was erroneously entered in the accounting records as \$430. e. A credit memorandum indicates that the bank collected \$500 cash on a note receivable for the company, deducted a \$30 collection fee, and credited the balance to the companys Cash account. Gucci had not recorded this transaction before receiving the statement. f. Two debit memoranda are enclosed with the statement and are unrecorded at the time of the reconciliation. One debit memorandum is for \$150 and dealt with an NSF check for \$140 received from a customer, Prada Inc., in payment of its account. The bank assessed a \$10 fee for processing it. The second debit memorandum is a \$20 charge for check printing. Gucci had not recorded these transactions before receiving the statement. P3 Atef Abuelaish 54 NEED-TO-KNOW Bank statement balance Gucci Bank Reconciliation December 31 Book balance

55 NEED-TO-KNOW Gucci Bank Reconciliation December 31 \$1,900 Book balance Add: 800 Bank statement balance Add: Deposit of December 31 Deduct: Checks No. 6273 6282 6242 Adjusted bank balance \$400 100 200 \$1,610 Deduct:

Adjusted book balance a. The December 31 cash balance according to the accounting records is \$1,610, and the bank statement cash balance for that date is \$1,900. b. Guccis December 31 daily cash receipts of \$800 were placed in the banks night depository on December 31, but do not appear on the December 31 bank statement. c. Check No. 6273 for \$400 and Check No. 6282 for \$100, both written and entered in the accounting records in December, are not among the canceled checks. Two checks, No. 6231 for \$2,000 and No. 6242 for \$200, were outstanding on the most recent November 30 reconciliation. Check No. 6231 is listed with the December canceled checks, but Check No. 6242 is not. P3 Atef Abuelaish 56 NEED-TO-KNOW Gucci Bank Reconciliation December 31 \$1,900 Book balance Add: 800 Error (Ck 6267) \$90 2,700

Proceeds of note less \$30 fee 470 Bank statement balance Add: Deposit of December 31 Deduct: Checks No. 6273 6282 6242 Adjusted bank balance \$400 100 200 700 \$2,000 Deduct: NSF check Printing fee Adjusted book balance \$150 20

\$1,610 560 2,170 170 \$2,000 d. When the December checks are compared with entries in the accounting records, it is found that Check No. 6267 had been correctly drawn for \$340 to pay for office supplies but was erroneously entered in the accounting records as \$430. e. A credit memorandum indicates that the bank collected \$500 cash on a note receivable for the company, deducted a \$30 collection fee, and credited the balance to the companys Cash account. Gucci had not recorded this transaction before receiving the statement. f. Two debit memoranda are enclosed with the statement and are unrecorded at the time of the reconciliation. One debit memorandum is for \$150 and dealt with an NSF check for \$140 received from a customer, Prada Inc., in payment of its account. The bank assessed a \$10 fee for processing it. The second debit memorandum is a \$20 charge for check printing. Gucci had not recorded these transactions before receiving the statement. P3 Atef Abuelaish 57 NEED-TO-KNOW Gucci

Bank Reconciliation December 31 \$1,900 Book balance Add: 800 Error (Ck 6267) \$90 2,700 Proceeds of note less \$30 fee 470 Bank statement balance Add: Deposit of December 31 Deduct: Checks No. 6273 6282 6242 Adjusted bank balance Date Dec. 31 Dec. 31 Dec. 31 Dec. 31

P3 Atef Abuelaish \$400 100 200 700 \$2,000 Deduct: NSF check Printing fee Adjusted book balance General Journal Cash Office supplies 560 2,170 \$150 20 Debit

90 170 \$2,000 Credit 90 Cash Collection expense Notes receivable 470 30 Accounts receivable - Prada Inc. Cash 150 Miscellaneous expenses Cash \$1,610 500 150

20 20 58 Global View Internal Control Purposes, Principles, and Procedures The purposes and principles of internal control systems are fundamentally the same across the globe. Control of Cash Accounting definitions for cash are similar for U.S. GAAP and IFRS. Banking Activities as Controls There is a global demand for banking services, bank statements, and bank reconciliations. To the extent feasible, companies utilize banking services as part of their effective control procedures. Atef Abuelaish 59 Days Sales Uncollected Atef Abuelaish 60 9) Days Sales Uncollected

Indicates Indicates how how much much time time is is likely likely to to pass pass before before we we receive receive cash cash receipts receipts from from credit credit sales. sales. Days = sales uncollected A1 Atef Abuelaish Accounts receivable

Net sales 365 61 Documentation and Verification Atef Abuelaish 62 Documentation and Verification Purchase Requisition Purchase Order Invoice Receiving Report P4 Atef Abuelaish 63 Control of Purchase Discounts

Atef Abuelaish 64 Appendix 6B: Control of Purchase Discounts The net method gives management an advantage in controlling and monitoring cash payments involving purchase discounts. When purchases are recorded at net amounts, a Discounts Lost expense account is recorded and brought to managements attention. P5 Atef Abuelaish 65 Homework assignment Using Connect 6 Questions for 60 Points For Chapter 6. Next meeting, in class, Group Case # 1. Prepare chapters 7 Accounting for Receivables.

Happiness is having all homework up to date Atef Abuelaish 66 Thank you and See You Next Week at the Same Time, Take Care Atef Abuelaish 67

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