Financial Accounting 5th Canadian Edition By Seguin – Test Bank

 

 

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Sample Questions

 

Chapter 4   Internal Control and Cash

 

4.1   Describe fraud and its impact

 

1) All of the following are purposes of internal control except:

1.    A) to safeguard assets

2.    B) to ensure accurate and reliable accounting records

3.    C) to encourage adherence to company policies

4.    D) to promote operational inefficiency

Answer:  D

Diff: 1    Type: MC

L.O.:  L.O. 4-1

 

2) Who has the primary responsibility for establishing and maintaining a company’s system of internal control?

1.    A) the company’s top management

2.    B) the company’s internal auditors

3.    C) the company’s external auditors

4.    D) the company’s shareholders

Answer:  A

Diff: 2    Type: MC

L.O.:  L.O. 4-1

 

3) The most common form of management fraud is earnings management.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-1

 

4) The fraud triangle includes: motive, opportunity and rationalization.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-1

 

5) The Canadian Securities Commission developed a strategy incorporating some of the SOX rules for Canadian public companies. Discuss what requirements were incorporated into the Certification of Discloser in Issuers’ Annual and Interim filings.

Answer:  These requirements included:

-the CEO and CFO certification that they have evaluated the effectiveness of their internal controls over financial reporting, their conclusions must be included in the annual MD&A section

-required disclosure of each material weakness related to the internal controls over financial reporting

-annual certification of the disclosure controls and procedures, including their effectiveness plus any other conclusions

 

This list is not exhaustive but does attempt to introduce the key points.

Diff: 2    Type: ES

L.O.:  L.O. 4-1

 

6) Managers must control the operations of their business. A plan of internal control is designed to help management maintain control of a business and its operations. What are the key elements of a plan of internal control?

Answer:   Internal control is defined as an organizational plan and all related measures that a business adopts to optimize the use of resources, prevent and detect error and fraud, safeguard assets and records, and ensure accurate and reliable accounting records.

Diff: 2    Type: ES

L.O.:  L.O. 4-1

 

7) Define internal control. Who is responsible for establishing an effective system of internal control? What are two major constraints of any system of internal control?

Answer:  Internal control is the organizational plan and all the related measures adopted by an entity to safeguard its assets, encourage adherence to company policies, promote operational efficiency, and ensure accurate and reliable accounting records.

 

It is the responsibility of accountants and managers alike, and it is only as effective as the quality of the people in the organization.

 

The major constraints are collusion and cost. Systems designed to thwart one person’s fraud can be costly to implement and maintain and can be beaten by two or more employees working together—colluding—to defraud the firm.

Diff: 2    Type: ES

L.O.:  L.O. 4-1

 

8) Identify and briefly describe the two most common types of fraud that impact financial statements.

Answer:  The two most common types of fraud that impact financial statements are misappropriation of assets and fraudulent financial reporting. Misappropriation of assets involves employees stealing cash or other assets such as inventory from the company. Fraudulent financial reporting occurs when managers make false and misleading entries in the books making financial results of the company appear better than they actually are.

Diff: 2    Type: ES

L.O.:  L.O. 4-1

 

9) Fraudulent financial reporting is a type of fraud than impacts on financial statements. Why do managers undertake this type of fraudulent activity?

Answer:  Managers falsify financial reporting to deceive investors and creditors into loaning money to or investing in the company when they may not have done so otherwise.

Diff: 2    Type: ES

L.O.:  L.O. 4-1

 

 

4.2   Explain the objectives and components of internal control

 

1) For effective internal control in an organization, who should keep the inventory records?

1.    A) accountant

2.    B) treasurer

3.    C) sales persons

4.    D) inventory warehouse supervisor

Answer:  A

Diff: 2    Type: MC

L.O.:  L.O. 4-2

2) Which characteristic will not be found in an effective system of internal control?

1.    A) a combination of duties

2.    B) a separation of duties

3.    C) competent, reliable, and ethical personnel

4.    D) documents and records

Answer:  A

Diff: 1    Type: MC

L.O.:  L.O. 4-2

 

3) Which of the following is a limitation of internal control?

1.    A) safeguarding company assets

2.    B) accurate and reliable accounting records

3.    C) operational efficiency

4.    D) employee collusion

Answer:  D

Diff: 1    Type: MC

L.O.:  L.O. 4-2

 

4) One way to guard against a hacker reading a message sent from one company to another over the Internet is to use:

1.    A) a firewall

2.    B) encryption

3.    C) an intrusion protection device

4.    D) an incident response procedure

Answer:  B

Diff: 2    Type: MC

L.O.:  L.O. 4-2

 

5) Training people thoroughly is an element of which characteristic of internal control?

1.    A) separation of duties

2.    B) competent, reliable, and ethical personnel

3.    C) assignment of responsibilities

4.    D) proper authorization

Answer:  B

Diff: 2    Type: MC

L.O.:  L.O. 4-2

 

 

6) For effective internal control in an organization, the treasurer should have custody of the cash, and the controller should account for the cash.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-2

 

7) Phishing refers to a program that enters program code into your computer without your consent.

Answer:  FALSE

Diff: 2    Type: TF

L.O.:  L.O. 4-2

8) Business risks are risks that companies will not achieve its objectives.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-2

 

9) E-commerce creates risks such as computer viruses and stolen credit card numbers.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-2

 

10) Internal control procedures include: proper approvals, unlimited access, adequate records and safeguard controls.

Answer:  FALSE

Diff: 2    Type: TF

L.O.:  L.O. 4-2

 

11) The controller is the chief accounting officer in an organization.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-2

 

12) An audit represents the examination of an organization’s financial statements excluding its accounting system and controls.

Answer:  FALSE

Diff: 2    Type: TF

L.O.:  L.O. 4-2

 

13) To maintain effective internal control, employees responsible for handling cash should not have access to the accounting records.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-2

 

14) Proper separation of duties in an organization is an effective method of preventing fraud.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-2

 

 

15) The person to whom a cheque is drawn is referred to as the payer.

Answer:  FALSE

Diff: 1    Type: TF

L.O.:  L.O. 4-2

16) Identify and briefly describe the five components of internal control

Answer:  The components of internal control are: the control environment; risk assessment; information systems; control procedures; and the monitoring of controls. Briefly, the control environment involves senior employees demonstrating the importance of internal controls. Risk assessment deals with identifying the firm’s business risks and establishing procedures to deal with those risks. Information systems incorporates the need for accurate information to track assets and measure profitability. Control procedures are designed to ensure that the company’s goals are achieved. Lastly monitoring of controls involves establishing systems so that no one person or group can process a transaction completely without being seen and checked by another person or group.

Diff: 2    Type: ES

L.O.:  L.O. 4-2

 

17) List and describe at least five characteristics of an effective system of internal control. What is one inherent limitation/weakness of any system of internal control?

Answer:  The five characteristics should come from the following list:

∙      competent, reliable, and ethical employees

∙      proper authorization

∙      separation of duties

∙      internal and external audits

∙      prenumbered documents

∙      use of electronic devices such as cash registers and electronic sensors

∙      keep records in fireproof vaults

∙      fidelity bonds on cashiers and other key employees

∙      inventory kept under lock and key

∙      use of a cheque writing machine

 

Inherent limitations/weaknesses of an internal control system include:

∙      collusion

∙      management fraud

∙      the cost of the system versus its benefits to the company

Diff: 2    Type: ES

L.O.:  L.O. 4-2

 

18) In each of the following situations, identify the internal control weakness as well as the business’s potential problem, and suggest a solution.

1.    Susan Scandal purchases supplies for Fraud Fortress Company and stores them in a locked room for which she has the key. She is also responsible for distributing these supplies to employees upon request. At the end of each month, Susan takes an inventory of the supplies on hand and notifies the accounting department of the amount for the adjusting entry for supplies used.

2.    Jim Devious, an accounting clerk, is responsible for opening the mail, recording and depositing cash receipts, and preparing the monthly bank reconciliation. Jim has not taken a vacation in over five years.

3.    The law firm of Dewey, Cheatem & Howe has been extremely busy in recent months. The firm needs another lawyer but has not had the chance to hire one. In the meantime, one of the secretaries has been preparing briefs, writing up wills, and preparing the closing papers for various real estate deals.

Answer:

1.    There is no separation of duties to safeguard the supplies. Susan has too much responsibility and could easily be stealing supplies or even other types of assets since it appears no one reviews what is purchased. Someone in the purchasing department should take the inventory once a month while an accounting clerk should handle the ordering of supplies.

2.    Jim is performing too many functions, there is no separation of duties, and he hasn’t taken a vacation in some time. Jim could be stealing money from the company without being discovered. There are presently no double checks on Jim’s work. One possible solution is to separate some of Jim’s duties. A mail room clerk could open the mail, while another accounting clerk could prepare the bank reconciliation. The company could also establish a policy requiring all employees to take a vacation one time each year.

3.    The internal control weakness here is competent employees. A secretary is not a trained attorney and should not be doing the work of an attorney. The firm may be held to a code of professional conduct violation in this situation as well as a violation of provincial law. The firm should hire a new lawyer immediately.

Diff: 2    Type: ES

L.O.:  L.O. 4-2

 

19) Differentiate between the role of an external and internal auditor.

Answer:  Both types of auditors are intended to test and assess the organization’s internal controls. An external audit is an examination of a company’s financial statements by an independent public accounting firm. This external auditing firm provides an opinion on whether the company’s financial statements “present fairly” the company’s financial position. Internal auditors are employees of the company and should also be independent. This independence comes from reporting to the audit committee.

Diff: 2    Type: ES

L.O.:  L.O. 4-2

 

4.3   Prepare and use a bank reconciliation

 

1) When preparing a bank reconciliation, which of the following items would be subtracted from the bank balance on the bank statement?

1.    A) deposits in transit

2.    B) bank service charges

3.    C) EFT cash payments

4.    D) outstanding cheques

Answer:  D

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

2) When preparing a bank reconciliation, which of the following items would be added to the book balance?

1.    A) EFT payments

2.    B) deposits in transit

3.    C) NSF cheques

4.    D) EFT cash receipts

Answer:  D

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

3) The cheques that have been paid by the bank on behalf of the depositor and included with the bank statement are called:

1.    A) cancelled cheques

2.    B) cheques in transit

3.    C) NSF cheques

4.    D) outstanding cheques

Answer:  A

Diff: 1    Type: MC

L.O.:  L.O. 4-3

 

4) If the balance on the bank statement does not equal the balance in the company’s Cash account, then you can conclude that:

1.    A) the company accountant made an error in the accounting process

2.    B) the bank made an error

3.    C) both the company accountant and the bank made errors

4.    D) there are some reconciling items that, when identified, will explain the differences between the balances

Answer:  D

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

 

5) Which of the following items will not cause a difference between the book balance and the bank balance?

1.    A) deposits in transit

2.    B) bank collections

3.    C) cancelled cheques

4.    D) outstanding cheques

Answer:  C

Diff: 2    Type: MC

L.O.:  L.O. 4-3

6) Which of the following, when prepared correctly, ensures that all cash transactions have been accounted for and that the bank and book records of cash are correct?

1.    A) bank reconciliation

2.    B) bank statement

3.    C) bank remittance

4.    D) setting up a lock-box system

Answer:  A

Diff: 1    Type: MC

L.O.:  L.O. 4-3

 

7) In a bank reconciliation, bank service charges are:

1.    A) added to the bank balance on the bank statement

2.    B) deducted from the bank balance on the bank statement

3.    C) added to the bank balance in the general ledger

4.    D) deducted from the bank balance in the general ledger

Answer:  D

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

8) In a bank reconciliation, a deposit in transit is:

1.    A) added to the bank balance in the general ledger

2.    B) added to the bank balance on the bank statement

3.    C) deducted from the bank balance in the general ledger

4.    D) deducted from the bank balance on the bank statement

Answer:  B

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

9) In a bank reconciliation, outstanding cheques are:

1.    A) added to the bank balance on the bank statement

2.    B) added to the bank balance in the general ledger

3.    C) deducted from the bank balance on the bank statement

4.    D) deducted from the bank balance in the general ledger

Answer:  C

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

 

10) In a bank reconciliation, a bank error:

1.    A) must be added to the bank balance on the bank statement

2.    B) must be deducted from the bank balance on the bank statement

3.    C) may be added or deducted from the bank balance on the bank statement

4.    D) may be added or deducted from the bank balance in the general ledger

Answer:  C

Diff: 2    Type: MC

L.O.:  L.O. 4-3

11) In a bank reconciliation, a book error:

1.    A) may be added or deducted from the bank balance in the general ledger

2.    B) may be added or deducted from the bank balance on the bank statement

3.    C) must be added to the bank balance in the general ledger

4.    D) must be deducted from the bank balance in the general ledger

Answer:  A

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

12) In a bank reconciliation, there might be items which have been recorded by the company that have not yet been recorded by the bank. Examples of such items would include:

1.    A) NSF cheques

2.    B) deposits in transit

3.    C) bank collections

4.    D) bank service charges

Answer:  B

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

13) In a bank reconciliation, items recorded by the bank but not yet recorded by the company include:

1.    A) bank collections

2.    B) deposits in transit

3.    C) outstanding cheques

4.    D) deposits in transit and outstanding cheques

Answer:  A

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

14) In a bank reconciliation, an NSF cheque is:

1.    A) added to the bank balance on the bank statement

2.    B) deducted from the bank balance in the general ledger

3.    C) added to the bank balance in the general ledger

4.    D) deducted from the bank balance on the bank statement

Answer:  B

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

 

15) In a bank reconciliation, an EFT cash receipt is:

1.    A) added to the bank balance on the bank statement

2.    B) added to the bank balance in the general ledger

3.    C) deducted from the bank balance in the general ledger

4.    D) deducted from the bank balance on the bank statement

Answer:  B

Diff: 2    Type: MC

L.O.:  L.O. 4-3

16) In a bank reconciliation, an EFT cash payment is:

1.    A) deducted from the bank balance in the general ledger

2.    B) added to the bank balance in the general ledger

3.    C) deducted from the bank balance on the bank statement

4.    D) added to the bank balance on the bank statement

Answer:  A

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

17) In a bank reconciliation, interest revenue is:

1.    A) added to the bank balance on the bank statement

2.    B) deducted from the bank balance on the bank statement

3.    C) deducted from the bank balance in the general ledger

4.    D) added to the bank balance in the general ledger

Answer:  D

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

18) In a bank reconciliation, a bank collection is:

1.    A) added to the bank balance on the bank statement

2.    B) deducted from the bank balance on the bank statement

3.    C) added to the bank balance in the general ledger

4.    D) deducted from the bank balance in the general ledger

Answer:  C

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

19) If a bookkeeper mistakenly recorded a disbursement of $63 instead of the correct amount of $36, the error would be shown on the bank reconciliation as a:

1.    A) $36 addition to the books

2.    B) $36 deduction from the books

3.    C) $27 addition to the books

4.    D) $27 deduction from the books

Answer:  C

Diff: 3    Type: MC

L.O.:  L.O. 4-3

 

 

20) If a bookkeeper mistakenly recorded a disbursement of $48 instead of the correct amount of $84, the error would be shown on the bank reconciliation as a:

1.    A) $36 addition to the books

2.    B) $36 deduction from the books

3.    C) $48 addition to the books

4.    D) $48 deduction from the books

Answer:  B

Diff: 3    Type: MC

L.O.:  L.O. 4-3

21) If the bank records a deposit of $50 as $150, the error would be shown on a bank reconciliation as:

1.    A) a deduction from the book balance of $100

2.    B) an addition to the book balance of $100

3.    C) a deduction from the bank balance of $100

4.    D) an addition to the bank balance of $100

Answer:  C

Diff: 3    Type: MC

L.O.:  L.O. 4-3

 

22) If the bank records a deposit of $3,300 as $330, the error would be shown on a bank reconciliation as:

1.    A) a deduction from the book balance of $2,970

2.    B) a deduction from the bank balance of $2,970

3.    C) an addition to the bank balance of $2,970

4.    D) an addition to the book balance of $2,970

Answer:  C

Diff: 3    Type: MC

L.O.:  L.O. 4-3

 

23) What is an example of an item recorded by the company but not yet recorded by the bank?

1.    A) an electronic funds transfer

2.    B) a deposit in transit

3.    C) a service charge

4.    D) an NSF cheque

Answer:  B

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

24) If the bookkeeper mistakenly records a deposit of $530 as $350, the error would be shown on the bank reconciliation statement as a:

1.    A) $180 deduction from the book balance

2.    B) $180 deduction from the bank balance

3.    C) $180 addition to the bank balance

4.    D) $180 addition to the book balance

Answer:  D

Diff: 3    Type: MC

L.O.:  L.O. 4-3

 

 

25) If the bookkeeper mistakenly records a deposit of $360 as $630, the error would be shown on the bank reconciliation statement as a:

1.    A) $270 deduction from the bank balance

2.    B) $270 deduction from the book balance

3.    C) $270 addition to the book balance

4.    D) $270 addition to the bank balance

Answer:  B

Diff: 3    Type: MC

L.O.:  L.O. 4-3

26) Which of the following items below may be made to reconcile a book balance to a bank balance?

1.    A) a deposit in transit

2.    B) an EFT receipt

3.    C) outstanding cheques

4.    D) an addition or subtraction to correct a bank error, as appropriate

Answer:  B

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

27) If a bank reconciliation included $600 of outstanding cheques, the journal entry to record this reconciling item would include:

1.    A) a credit to Cash of $600

2.    B) a debit to Cash of $600

3.    C) a credit to Accounts Payable of $600

4.    D) no entry is required

Answer:  D

Diff: 3    Type: MC

L.O.:  L.O. 4-3

 

28) If a bank statement included an NSF cheque for $450, the journal entry to record this reconciling item would include a:

1.    A) debit to Cash for $450

2.    B) credit to Cash for $450

3.    C) credit to Accounts Receivable for $450

4.    D) debit to Accounts Payable for $450

Answer:  B

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

29) If a bank statement included a bank collection and related interest revenue, the journal entry to record this reconciling item would include a:

1.    A) debit to Note Receivable

2.    B) credit to Cash

3.    C) debit to Cash

4.    D) debit to Note Payable

Answer:  C

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

 

30) If a bank reconciliation included deposits in transit amounting to $1,500, the journal entry to record this reconciling item would include:

1.    A) no entry is required

2.    B) a credit to Accounts Receivable for $1,500

3.    C) a debit to Cash for $1,500

4.    D) a credit to Cash for $1,500

Answer:  A

Diff: 2    Type: MC

L.O.:  L.O. 4-3

31) If a bank statement included an EFT payment of $670 for insurance, the journal entry to record this reconciling item would include a:

1.    A) debit to Cash for $670

2.    B) debit to Accounts Payable for $670

3.    C) credit to Cash for $670

4.    D) credit to Prepaid Insurance for $670

Answer:  C

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

32) Which of the following does not require a journal entry for a bank reconciliation?

1.    A) outstanding cheques

2.    B) bank service charge

3.    C) collection by the bank of a note receivable

4.    D) NSF cheque returned by the bank

Answer:  A

Diff: 2    Type: MC

L.O.:  L.O. 4-3

 

33) When preparing a bank reconciliation, deposits in transit are added to the balance shown on the bank statement.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-3

 

34) Outstanding cheques are deposits you have recorded but the bank has not.

Answer:  FALSE

Diff: 2    Type: TF

L.O.:  L.O. 4-3

 

35) The cost of printing cheques should be deducted from the bank side of a bank reconciliation.

Answer:  FALSE

Diff: 2    Type: TF

L.O.:  L.O. 4-3

 

 

36) Once the bank reconciliation has been completed, journal entries must be made for the book side of the reconciliation.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-3

 

37) In a bank reconciliation, interest revenue earned on a chequing account would be deducted from the book balance.

Answer:  FALSE

Diff: 1    Type: TF

L.O.:  L.O. 4-3

 

38) The journal entry for an NSF (nonsufficient funds) cheque involves a debit to Accounts Payable.

Answer:  FALSE

Diff: 2    Type: TF

L.O.:  L.O. 4-3

39) The journal entry for a note collected by the bank with interest requires a debit to Cash and a credit to both Note Receivable and Interest Revenue.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-3

 

40) Outstanding cheques are added to the ending bank balance on the bank statement when preparing the bank reconciliation.

Answer:  FALSE

Diff: 2    Type: TF

L.O.:  L.O. 4-3

 

41) Bank charges are deducted from the ending bank balance in the general ledger when preparing the bank reconciliation.

Answer:  TRUE

Diff: 2    Type: TF

L.O.:  L.O. 4-3

 

42) In a bank reconciliation, adjustments to the bank balance always require preparation of journal entries.

Answer:  FALSE

Diff: 1    Type: TF

L.O.:  L.O. 4-3

 

43) What is a bank reconciliation? Why is it important to prepare a bank reconciliation every month when the bank statement is received from the bank?

Answer:  A bank reconciliation is an internal control procedure that is used to explain differences between the accounting records and the bank records. A bank reconciliation is important because: (1) it helps determine the cash balance that should be reported on the balance sheet at the end of a period; (2) it serves to identify accounting and bank errors; and (3) it may help detect theft of cash by employees.

Diff: 2    Type: ES

L.O.:  L.O. 4-3

44) Prepare a bank reconciliation dated December 31, 2014, for Welcome Inc. based on the following information.

∙       Balance per bank statement is $21,200.68.

∙       Balance per books is $20,559.40.

∙       The December bank statement indicated a service charge of $35.

∙       Cheque #1169 for $410.50 and cheque #1183 for $2,150.00 were not returned with the bank statement.

∙       The bank had not received a deposit in transit of $3,443.22 when the bank statement was generated.

∙       A bank debit memo indicated an NSF cheque written by Bill Broke to Welcome Inc. on December 11, 2014, for $169.

∙       A bank credit memo indicated a bank collection of $1,700 and interest revenue of $28 on December 15, 2014.

Answer:                                          Welcome Inc.

Bank Reconciliation

December 31, 2014

 

Bank Balance                 $21,200.68                Book Balance                              $20,559.40

Add:                                                                      Add:

Deposit in transit              3,443.22                Bank collection                               1,700.00

Interest revenue                                    28.00

Deduct:                                                                 Deduct:

Outstanding cheques                                      NSF cheque                                      (169.00)

#1169                                    (410.50)

#1183                                 (2,150.00)                Service charge                                    (35.00)

Reconciled Balance      $22,083.40                Reconciled Balance                  $22,083.40

Diff: 2    Type: ES

L.O.:  L.O. 4-3

 

45) The following data have been gathered for Rocky Candi Corporation for the month ended September 30, 2014. Prepare a bank reconciliation based on the following information:

∙       The bank statement reveals a balance of $8,936.

∙       The September 30, 2014, book balance was $3,200.

∙       There was an EFT deposit of $1,800 on the bank statement for the monthly rent from a tenant.

∙       The bookkeeper had erroneously recorded a $50 cheque as $500. The cheque was to settle an account payable.

∙       The bank statement revealed $50 in service charges.

∙       Cheques #322 and #330 for $260 and $285 were not returned with the bank statement.

∙       A deposit made on September 29, 2014, for $1,250 did not appear on the bank statement.

∙       A deposit of $500 made on September 10 was erroneously credited to Rocky Candi’s account by the bank for $5,000.

∙       A bank debit memo indicated an NSF cheque for $259.

Answer:                               Rocky Candi Corporation

Bank Reconciliation

September 30, 2014

 

Bank Balance                         $8,936                Book Balance                   $3,200

Add:                                                                      Add:

Deposit in transit                    1,250                EFT collection                    1,800

Book error                              450

 

Deduct:                                                                 Deduct:

Bank error                              (4,500)

Outstanding cheques:

#322                                             (260)                NSF cheque                         (259)

#330                                             (285)                Service charge                      (50)

Reconciled Balance             $5,141                Reconciled Balance       $5,141

Diff: 2    Type: ES

L.O.:  L.O. 4-3

 

46) Prepare a bank reconciliation for Living Life Company as of September 30, 2014, based on the following information. (Hint: you will need to compute Living Life Company’s cash balance per books as of September 30, 2014 using the data below.)

∙       The balance per the September 30, 2014 bank statement is $27,419.55.

∙       Living Life Company’s bookkeeper mistakenly recorded an $885.00 cash disbursement as $855.00.

∙       The bank mistakenly recorded a deposit of $3,000 made by Moral Company on September 10 as $300.

∙       The bank statement indicated bank service charges of $35.00 in September.

∙       Outstanding cheques as of September 30, 2014, amount to $6,400.10.

∙       Deposits in transit as of September 30, 2014, amount to $3,405.65.

Answer:                                   Living Life Company

Bank Reconciliation

September 30, 2014

Bank balance as of Sept. 30       $27,419.55            Book balance as Sept. 30              X