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Chapter 9: Cash Receipts, Cash Payments, and Banking Procedures

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Chapter 9: Cash Receipts, Cash Payments, and Banking Procedures

Chapter Opener: Thinking Critically

Office expenditures may include petty cash disbursements for office supplies and postage. Cash expenditures might also include payments for rent and utilities. Receipts might include cash sales for services or payments for services on account.

Fast Facts

• H&R Block worked with the IRS to file the first electronic tax returns in 1986, 22,000 in all. In 2005, over 55 million (63%) of all tax returns were filed electronically.

• The company employs 15,300 full-time employees, but these numbers swell to 96,000 during tax season. • In 2005 H&R Block generated $4.2 billion in revenues.

• The company operates over 9,500 offices.

Computers in Accounting: Thinking Critically

Answers will vary. Students may express concerns about security of funds or access to account balances. Benefits include 24-hour access to bank accounts and convenience, while disadvantages may include security concerns and increased account costs.

Computers in Accounting: Internet Application

Banking services will vary, but may include electronic bill payment, account transfers and deposits, wire transfers, monitoring of mortgage payments and balance, online application for loans.

Managerial Implications: Thinking Critically

Answers will vary, but should include a recognition of need to weigh the earning power (interest income) and the need for liquidity (access to the cash).

(2)

Discussion Questions

These questions are designed to check students’ understanding of new terms, concepts, and procedures presented in the chapter.

1. Access to checkbook is restricted; use of prenumbered check forms; checks examined by someone who did not prepare them before they are signed; bank statement reconciled by someone other than employees who handle cash.

2. To record items that have not yet been entered in firm’s records. 3. Outstanding checks, deposits in transit, service charges. 4. Balance of Cash account in the general ledger.

5. To reconcile any difference between depositor’s checkbook, Cash account, and bank statement. 6. Day-by-day checking account activity, as well as beginning and ending balances.

7. Date, amount, payee, current balance, purpose of check. Stub should be prepared before the check so that it will not be forgotten.

8. Signed, authorized written order instructing a bank to pay a specific sum of money to a designated person.

9. Electronic processing of documents. 10. Restrictive endorsement.

11. Shortages are debited and overages are credited to the Cash Short or Over account

12. Use only for minor payments; establishment check made out to person to be in charge of funds; keep funds locked; payments made from funds should be documented with signatures of recipient.

13. At month-end or when petty cash is replenished. 14. Contra cost account, deduction from Purchases.

15. Cash Payments Journal: total amount of purchase is a debit to Accounts Payable. Discount is recorded as a credit to Purchases Discounts. Amount of cash paid is recorded as a credit to Cash.

16. Cash Receipts Journal: Original sale was recorded as a Credit to Accounts Receivable; amount of the discount is recorded as a debit to Sales Discounts. Amount of cash received is recorded as a debit to Cash.

17. Encourages fast payment.

18. Written promise to pay amount on specific date. Cr. Notes Rec., Cr. Int. Inc., Dr. Cash. Cash receipts journal.

19. Payments made by check and issued only with approved invoice; invoices approved only by designated personnel; checks prepared and recorded in the checkbook or check register by someone different from the person who approves the payments; use prenumbered checks.

20. Employees are investigated by an insurance company, and, if their backgrounds are satisfactory, their employer is insured against losses that may occur because of employee theft or mishandling of funds. 21. Only approved employees can handle cash; keep cash in locked location; record cash receipts as they

arrive; check funds against receipt log before deposits to bank made; make deposits promptly; separation of cash deposits, recording, reconciliation duties.

(3)

Ex

er

cises

Ex er cise 9.1

CASH RECEIPTS JOURNAL

P AGE 12 Accounts Sales T a x Other Accounts Credit Post. Receivable Payable Sales Post. Cash Date Description Ref Credit Credit Credit Account Name Ref. Amount Debit 2007 Sept. 1 Cash Sales 448 5,600

Cash Short or Over

16 6,064 2 James Floyd 720 720 3 Cash Sales 420 5,250 5,670 4 Investment by Owner Susan Anderson, Capital 17,000 17,000 5 Cash Sales 512 6,400

Cash Short or Over

(30) 6,882 Ex er cise 9.2 CASH P A YMENTS JOURNAL P AGE 15 Accounts Other Accounts Debit Purchases Ck. Post Payable Post Discounts Cash Date No. Description Ref. Debit Account Name Ref. Amount Credit Credit 2007 Sept. 1 3850 September rent Rent Expense 2,400 2,400 1 3851 Carter Company 2,950 2,950 2 3852 Bought equipment Equipment 10,250 10,250 2 3853

Paid sales tax

Sales T ax Payable 1,380 1,380 3 3854 W aller Company 1,500 30 1,470 4 3855 Cash purchase Purchases 2,675 2,675 5 3856 Withdrawal by owner Susan Anderson, Drawing 1,800 1,800

(4)

Ex er cise 9.3 CASH P A YMENTS JOURNAL P AGE 1 Accounts Other Accounts Debit Purchases Ck. Post Payable Post Discounts Cash Date No. Description Ref. Debit Account Name Ref. Amount Credit Credit 2007 Jan. 2 2108

Established petty cash fund

Petty Cash 175 175 Ex er cise 9.4 CASH P A YMENTS JOURNAL P AGE Accounts Other Accounts Debit Purchases Ck. Post Payable Post Discounts Cash Date No. Description Ref. Debit Account Name Ref. Amount Credit Credit 2007 Jan. 31 3144

Replenished petty cash fund

Supplies 42 Delivery Expense 36 Misc. Expense 30 108

(5)

Exercise 9.5

CHENG CORPORATION Bank Reconciliation

October 31, 2007

Balance on bank statement . . . 14,920 Additions:

Deposit in transit . . . 857 15,777 Deductions for outstanding checks:

Check 7017 . . . 129 Check 7098 . . . 65 Check 7107 . . . 1,533

Total outstanding checks . . . 1,727 Adjusted bank balance . . . 14,050 Balance in books . . . 14,362 Deductions:

Bank service charge . . . 12

NSF charge . . . 300 312 Adjusted book balance . . . 14,050

GENERAL JOURNAL PAGE 14

Post.

Date Description Ref. Debit Credit

2007

Nov. 5 Misc. Expense . . . 12

Cash . . . 12 Bank service charge for October

5 Accounts Receivable/James Dear . . . 300

Cash . . . 300 To record NSF check returned by bank

Exercise 9.6

Bank Balance Book Balance Accounting Entry

1. X 2. X X 3. X X 4. X X 5. X 6. X X 7. X

(6)

Exercise 9.7

CANTU OFFICE SUPPLY COMPANY Bank Reconciliation Statement

March 31, 2007

Balance on bank statement . . . 67,905 Additions:

Deposit in transit . . . 3,720

Check incorrectly charged . . . 267 3,987 71,892 Deduction for outstanding checks:

Check 3782 . . . 2,130 Check 3840 . . . 171

Total outstanding checks . . . 2,301 Adjusted bank balance . . . 69,591 Balance in books . . . 69,387 Additions:

Noninterest-bearing note collected by bank . . 6,000 75,387 Deductions:

Bank collection fee for note . . . 21

NSF check . . . 5,775 5,796 Adjusted book balance . . . 69,591

GENERAL JOURNAL PAGE 8

Post.

Date Description Ref. Debit Credit

2007

April 3 Cash . . . 6,000

Notes Receivable . . . 6,000 To record receipt of note collected by bank

3 Misc. Expense . . . 21

Cash . . . 21 To record bank collection fee

3 Accounts Receivable/Wilson Construction Company . . 5,775

Cash . . . 5,775 To record NSF check returned by bank

(7)

Pr

oblems

Pr

oblem 9.1A

CASH RECEIPTS JOURNAL

P AGE 4 Accounts Sales T a x Other Accounts Credit Post. Receivable Payable Sales Post. Cash Date Description Ref Credit Credit Credit Account Name Ref. Amount Debit 2007 Feb. 3 Danielle Pelzel 500 500 5

Refund for damaged

goods Supplies 129 120 120 7 Cash Sales 384 4,800

Cash Short or Over

620

(60)

5,124

9

Additional Investment

Jason Wilson, Capital

301 15,000 15,000 12 Kyela Jones 380 380 14 Cash Sales 324 4,050

Cash Short or Over

620 28 4,402 16 Sadie Nelson 450 450 19 Collected promissory Notes Receivable 109 800

note and interest

Interest Income 491 32 832 21 Cash Sales 364 4,550 4,914 25 Alfred Herron 580 580 28 Cash Sales 328 4,100

Cash Short or Over

620 (36) 4,392 28 T otals 1,910 1,400 17,500 15,884 36,694 (1 1 1 ) (231) (401) (X) (101)

(8)

GENERAL LEDGER

ACCOUNT Cash ACCOUNT NO. 101

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Feb. 1 Balance ✓ 4,960

28 CR4 36,694 41,654

ACCOUNT Notes Receivable ACCOUNT NO. 109

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Feb. 1 Balance ✓ 800

19 CR4 800

-0-ACCOUNT Accounts Receivable ACCOUNT NO. 111

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Feb. 1 Balance ✓ 4,075

28 CR4 1,910 2,165

ACCOUNT Supplies ACCOUNT NO. 129

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Feb. 1 Balance ✓ 610

5 CR4 120 490

ACCOUNT Sales Tax Payable ACCOUNT NO. 231

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Feb. 1 Balance ✓ 295

28 CR4 1,400 1,695

ACCOUNT Jason Wilson, Capital ACCOUNT NO. 301

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Feb. 1 Balance ✓ 34,000

(9)

GENERAL LEDGER

ACCOUNT Sales ACCOUNT NO. 401

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Feb. 28 CR4 17,500 17,500

ACCOUNT Interest Income ACCOUNT NO. 491

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Feb. 19 CR4 32 32

ACCOUNT Cash Short or Over ACCOUNT NO. 620

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Feb. 7 CR4 60 60

14 CR4 28 32

28 CR4 36 68

(10)

Pr oblem 9.2A CASH P A YMENTS JOURNAL P AGE 8 Accounts Other Accounts Debit Purchases Ck. Post Payable Post Discounts Cash Date No. Description Ref. Debit Account Name Ref. Amount Credit Credit 2007 June 1 4121 Monthly rent Rent Expense 620 2,500 2,500 2 4122 T ax remittance Sales T ax Payable 231 4,200 4,200 3 4123 Perfect T iming W atch Co. 2,780 2,780 4 4124

Established petty cash fund

Petty Cash Fund

105

200

200

7

4125

Paid promissory note &

Notes Payable

201

3,200

interest to Perry Corp.

Interest Expense 634 128 3,328 10 4126 Cash refund

Sales Returns &

Allowances 451 594 594 12 4127

Monthly telephone bill

T elephone Expense 626 276 276 14 4128

International Jewelry Co.

6,000 120 5,880 17 4129 Store supplies Supplies 129 860 860 20 4130 Nelson’ s Jewelry & Accessories 3,500 70 3,430 27 4131 Classy Creations 3,650 3,650 30 4132 Monthly salaries Salaries Expense 623 7,675 7,675 30 4133 Withdrawal by owner

Larry Jennings, Drawing

302

5,000

5,000

30

4134

Replenish petty cash fund

Supplies 129 30 Delivery Expense 61 1 4 2 Misc Expense 635 50

Larry Jennings, Drawing

302 24 146 30 T otals 15,930 24,779 190 40,519 (205) (X)

(11)

PETTY CASH ANAL YSIS SHEET P AGE 8 Distribution of Payments Delivery Miscellaneous V ou. Supplies Expense Expense Date No. Description Receipts Payments Debit Debit Debit Account Name Amount 2007 June 4 — Establish fund 200 5 1 Of fice Supplies 30 30 8 2 Postage stamps 20 20 15 3 Delivery service 18 18 22 4 Personal withdrawal 24

Larry Jennings, Drawing

24

25

5

Store windows washed

30 30 30 6 Delivery service 24 24 30 — T otals 200 146 30 42 50 24 30 — Balance on hand 54 200 200 30 — Balance on hand 54 30 — Replenish fund 146 30 — Carried forward 200 Other Accounts Debit

(12)

GENERAL LEDGER

ACCOUNT Cash ACCOUNT NO. 101

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 42,840

30 CP8 40,519 2,321

ACCOUNT Petty Cash Fund ACCOUNT NO. 105

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 4 CP8 200 200

ACCOUNT Supplies ACCOUNT NO. 129

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 1,060

17 CP8 860 1,920

30 CP8 30 1,950

ACCOUNT Notes Payable ACCOUNT NO. 201

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 3,200

7 CP8 3,200

-0-ACCOUNT Accounts Payable ACCOUNT NO. 205

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 18,880

30 CP8 15,930 2,950

ACCOUNT Sales Tax Payable ACCOUNT NO. 231

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 4,200

(13)

-0-GENERAL LEDGER

ACCOUNT Larry Jennings, Drawing ACCOUNT NO. 302

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 30 CP8 5,000 5,000

30 CP8 24 5,024

ACCOUNT Sales Returns & Allowances ACCOUNT NO. 451

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 10 CP8 594 594

ACCOUNT Purchases Discounts ACCOUNT NO. 504

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 30 CP8 190 190

ACCOUNT Delivery Expense ACCOUNT NO. 611

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June CP8 42 42

ACCOUNT Rent Expense ACCOUNT NO. 620

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 CP8 2,500 2,500

ACCOUNT Salaries Expense ACCOUNT NO. 623

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

(14)

GENERAL LEDGER

ACCOUNT Telephone Expense ACCOUNT NO. 626

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 12 CP8 276 276

ACCOUNT Interest Expense ACCOUNT NO. 634

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 7 CP8 128 128

ACCOUNT Misc. Expense ACCOUNT NO. 635

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 30 CP8 50 50

Analyze:Total payments from the Petty Cash Fund for the month were $146.

Problem 9.3A

SALES JOURNAL PAGE 7

Invoice Post. Accounts Receivable Dr./

Date No. Customer’s Name Ref. Sales Cr.

2007

April 1 9312 Soprano Music Center . . . 3,900 8 9313 Music Warehouse . . . 4,500 19 9314 Eagleton Music Center . . . 10,500

30 9315 Contemporary Sounds, Inc. . . . 9,800

30 Total . . . 28,700 (111/401)

(15)

CASH RECEIPTS JOURNAL P AGE 7 Accounts Other Accouns Credit Sales Post Receivable Sales Post Discounts Cash Date Description Ref. Credit Credit Account Name Ref. Amount Debit Debit 2007 April 3

Music Supply Store

1,500 30 1,470 5 Cash Sales 1,575 1,575 10

Soprano Music Center

3,900 78 3,822 23 Sounds From Y esterday 2,975 2,975 28

Eagleton Music Center

10,500 210 10,290 31 T otals 18,875 1,575 318 20,132 (1 1 1 ) (401) (452) (101)

(16)

GENERAL JOURNAL PAGE 17 Post.

Date Description Ref. Debit Credit

2007

April 15 Sales Returns & Allowances . . . 451 800

Accounts Receivable/Music Warehouse . . . 111/ 800 Accepted a return of damaged merchandise,

Credit Memo 105, sale originally made on Inv. 9313, April 8

26 Notes Receivable . . . 109 5,500

Accounts Receivable/Country Music Store . . . 111/ 5,500 Received a 2-month, 12% note from

Country Music Store to replace open account

GENERAL LEDGER

ACCOUNT Cash ACCOUNT NO. 101

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

April 1 Balance ✓ 16,400

30 CR7 20,132 36,532

ACCOUNT Notes Receivable ACCOUNT NO. 109

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

April 26 J17 5,500 5,500

ACCOUNT Accounts Receivable ACCOUNT NO. 111

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007 April 1 Balance ✓ 21,000 15 J17 800 20,200 26 J17 5,500 14,700 30 S7 28,700 43,400 30 CR7 18,875 24,525

ACCOUNT Sales ACCOUNT NO. 401

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

April 30 S7 28,700 28,700

(17)

GENERAL LEDGER

ACCOUNT Sales Returns and Allowances ACCOUNT NO. 451

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

April 15 J17 800 800

ACCOUNT Sales Discounts ACCOUNT NO. 452

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

April 30 CR7 318 318

UNLIMITED SOUNDS Partial Income Statement Month Ended April 30, 2007 Revenue

Sales . . . 30,275 Less: Sales Returns and Allowances . . . 800

Sales Discount . . . 318 1,118 Net Sales . . . 29,157

(18)

Problem 9.4A

PURCHASES JOURNAL PAGE 8

Invoice Inv. Post Purchases Dr./

Date Purchased From Number Date Terms Ref. Accounts Payable Credit 2007

June 3 Perfect Fit Shoe Shop 746 5/30 2/10, n/30 2,600

12 Juanda’s Coat Shop 9922 6/9 n/30 2,050

23 Motor Speedway 1927 6/20 2/10, n/30 5,400

30 Jogging Shoes Store 4713 6/26 1/10, n/30 1,980

30 Total 12,030

(501/205)

GENERAL JOURNAL PAGE 20

Post.

Date Description Ref. Debit Credit

2007

June 5 Equipment . . . 131 4,500

Accounts Payable/Middleton Company . . . 205/ 4,500 Purchased new store equipment, Inv. 9067

dated June 4, payable in 30 days

18 Accounts Payable/Juanda’s Coat Shop . . . 205/ 550

Purchases Returns & Allowances . . . 503 550 Returned defective goods, receiving CM 203,

original purchase made on Inv. 9922, June 9

21 Equipment . . . 131 9,500

Notes Payable . . . 201 9,500 Issued 3-month, 12% note to Warren Company to .

(19)

CASH P A YMENTS JOURNAL P AGE 8 Accounts Other Accounts Debit Purchases Ck. Post Payable Post Discounts Cash Date No. Description Ref. Debit Account Name Ref. Amount Credit Credit 2007 June 1 1 101 Monthly rent Rent Expense 61 1 2 ,400 2,400 7 1 102 Leisure W

ear Clothing Co.

1,470

1,470

8

1

103

Perfect Fit Shoe Shop

2,600 52 2,548 15 1 104

Monthly telephone bill

T elephone Expense 617 228 228 25 1 105 Juanda’ s Coat Shop 1,250 1,250 28 1 106 Motor Speedway 5,400 108 5,292 30 1 107 Monthly salaries Salaries Expense 614 4,800 4,800 30 T otals 10,720 7,428 160 17,988 (205) (X) (504) (101)

(20)

GENERAL LEDGER

ACCOUNT Cash ACCOUNT NO. 101

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 18,500

30 CP8 17,988 512

ACCOUNT Equipment ACCOUNT NO. 131

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 56,000

5 J20 4,500 60,500

21 J20 9,500 70,000

ACCOUNT Notes Payable ACCOUNT NO. 201

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 21 J20 9,500 9,500

ACCOUNT Accounts Payable ACCOUNT NO. 205

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007 June 1 Balance ✓ 4,880 5 J20 4,500 9,380 18 J20 550 8,830 30 P8 12,030 20,860 30 CP8 10,720 10,140

ACCOUNT Purchases ACCOUNT NO. 501

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 30 P8 12,030 12,030

ACCOUNT Purchases Returns & Allowances ACCOUNT NO. 503

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

(21)

GENERAL LEDGER

ACCOUNT Purchases Discounts ACCOUNT NO. 504

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 30 CP8 160 160

ACCOUNT Rent Expense ACCOUNT NO. 611

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 CP8 2,400 2,400

ACCOUNT Salaries Expense ACCOUNT NO. 614

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 30 CP8 4,800 4,800

ACCOUNT Telephone Expense ACCOUNT NO. 617

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 15 CP8 228 228

HIKER AND BIKER OUTLET CENTER Partial Income Statement Month Ended June 30, 2007

Purchases . . . 12,030 Less: Purchases Returns & Allowances . 550

Purchases Discount . . . 160 710 Net Purchases . . . 11,320

(22)

Problem 9.5A

VACATION PARADISE Bank Reconciliation Statement

April 30, 2007

Balance on bank statement . . . 3,639 Additions:

Deposit of April 30 in transit . . . 200 3,839 Deductions for outstanding checks:

Check 1214 of April 28 . . . 18 Check 1215 of April 30 . . . 15

Total outstanding checks . . . 33 Adjusted bank balance . . . 3,806 Balance in books . . . 3,972 Deductions:

NSF check . . . 160

Bank service charge . . . 6 166 Adjusted book balance . . . 3,806

GENERAL JOURNAL PAGE 1

Post.

Date Description Ref. Debit Credit

2007

May 2 Accounts Receivable/Doris Fisher . . . 160

Cash . . . 160 To record NSF check returned by bank

2 Miscellaneous Expense . . . 6

Cash . . . 6 To record bank service charge for April

(23)

Problem 9.6A

HAMPTON INN Bank Reconciliation Statement

August 31, 2007

Balance on bank statement . . . 13,097 Additions:

Deposit of August 30 in transit . . . 880

Deposit of August 31 in transit . . . 477 1,357 14,454 Deductions for outstanding checks:

Check 712 . . . 110 Check 713 . . . 25 Check 716 . . . 238 Check 736 . . . 577 Check 739 . . . 78 Check 741 . . . 145

Total outstanding checks . . . 1,173 Adjusted bank balance . . . 13,281 Balance in books . . . 11,549 Additions:

Note receivable collected by bank . . . 2,000

Interest on note receivable . . . 60 2,060 . . . 13,609 Deductions:

NSF check . . . 320

Bank service charge . . . 8 328 Adjusted bank balance . . . 13,281

GENERAL JOURNAL PAGE 10

Post.

Date Description Ref. Debit Credit

2007

Sept. 4 Cash . . . 2,060

Notes Receivable . . . 2,000 Interest Income . . . 60

To record receipt of amount due on note plus interest collected by bank in August

4 Accounts Receivable/Neal Woodson . . . 320

Cash . . . 320 To record NSF check returned by bank

4 Misc. Expense . . . 8

Cash . . . 8 To record bank service charge for August

Analyze:Net effect on the accounting equation of the journal entries recorded as a result of the bank

(24)

Problem 9.7A

BAXTER COMPANY Bank Reconciliation Statement

April 30, 2007

Balance in books . . . 20,275 Additions:

Check 2104 dated April 15 was recorded

as $800; check was actually written for $80 . . . 720 20,995 Deductions:

Check 2147 dated April 20 was recorded

as $308; check was actually written for $388 . . . 80 Adjusted bank balance . . . 20,915

GENERAL JOURNAL PAGE 11

Post.

Date Description Ref. Debit Credit

2007

May 2 Cash . . . 720

Supplies Expense . . . 720 To correct error in entry for check 2104 of

April 15

2 Utilities Expense . . . 80

Cash . . . 80 To correct error in entry for check 2147 of

April 20

(25)

Pr

oblem 9.1B

CASH RECEIPTS JOURNAL

P AGE 14 Accounts Sales T a x Other Accounts Credit Post. Receivable Payable Sales Post. Cash Date Description Ref Credit Credit Credit Account Name Ref. Amount Debit 2007 June 3

Clear Images Copy Center

400

400

4

Collected note and

Notes Receivable 1 1 5 1,600 interest Interest Income 791 102 1,702 5

Refund for damaged supplies

Of fice Supplies 129 360 360 7 Cash sales 136 1,700 1,836 10 Linda James 1,400 1,400 13 Additional investment

Sergio Guzman, Capital

302 10,000 10,000 14 Cash sales 128 1,600 1,728 18 Karen Carter 1,060 1,060 19 Nelsy Marroquin 1,200 1,200 21 Cash sales 144 1,800 1,944 27 Alexander Neal 800 800 30 T otals 4,860 408 5,100 12,062 22,430 (1 1 1 ) (231) (401) (X) (102)

(26)

GENERAL LEDGER

ACCOUNT Cash ACCOUNT NO. 102

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 1,200

30 CR14 22,430 23,630

ACCOUNT Accounts Receivable ACCOUNT NO. 111

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 8,400

30 CR14 4,860 3,540

ACCOUNT Notes Receivable ACCOUNT NO. 115

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 1,600

4 CR14 1,600

-0-ACCOUNT Office Supplies ACCOUNT NO. 129

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 1,000

5 CR14 360 640

ACCOUNT Sales Tax Payable ACCOUNT NO. 231

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 400

(27)

GENERAL LEDGER

ACCOUNT Sergio Guzman, Capital ACCOUNT NO. 302

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 1 Balance ✓ 7,600

13 CR14 10,000 17,600

ACCOUNT Sales ACCOUNT NO. 401

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 30 CR14 5,100 5,100

ACCOUNT Interest Income ACCOUNT NO. 791

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

June 4 CR14 102 102

(28)

Pr oblem 9.2B CASH P A YMENTS JOURNAL P AGE 12 Accounts Other Accounts Debit Purchases Ck. Post Payable Post Discounts Cash Date No. Description Ref. Debit Account Name Ref. Amount Credit Credit 2007 Sept 1 401 T ax remittance Sales T ax Payable 231 1,344 1,344 2 402 Monthly rent Rent Expense 620 1,700 1,700 4 403

Established petty cash

Petty Cash Fund

105 100 100 5 404 Elegant Glassware 1,500 30 1,470 9 405 Store equipment Equipment 141 1,000 1,000 13 406 T aylor Company 970

Sales Returns &

Allowances 970 14 407 Cash refund 451 425 425 18 408

Monthly telephone bill

T elephone Expense 626 187 187 21 409 African Imports 850 17 833 24 410

Paid promissory note

Notes Payable 201 1,000 and interest Interest Expense 61 1 4 0 1,040 26 41 1 Atlantic Ceramics 1,240 1,240 28 412 Personal withdrawal

Fred Lin, Drawing

302 1,500 1,500 30 413 Monthly salaries Salaries Expense 623 2,500 2,500 30 414

Replenish petty cash

Delivery Expense 51 1 2 2 Miscellaneous Expense 614 29

Fred Lin, Drawing

302 10 61 30 4,560 9,857 47 14,370 (205) (X) (504) (101)

(29)

PETTY CASH ANAL YSIS SHEET P AGE 12 Distribution of Payments Delivery Miscellaneous V ou. Supplies Expense Expense Date No. Description Receipts Payments Debit Debit Debit Account Name Amount 2007 Sept 4 — Establish fund 100 6 1 Delivery service 12 12 1 1 2 Bought of fice supplies 16 16 16 3 Personal withdrawal 10

Fred Lin, Drawing

10 23 4 Bought stamps 13 13 27 5 Delivery service 10 10 30 — T otals 100 61 22 29 10 30 — Balance on hand 39 100 100 30 — Balance on hand 39 30 — Replenish fund 61 30 — Carried forward 100 Other Accounts Debit

(30)

GENERAL LEDGER

ACCOUNT Cash ACCOUNT NO. 101

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 1 Balance ✓ 21,530

30 CP12 14,370 7,160

ACCOUNT Petty Cash Fund ACCOUNT NO. 105

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 4 CP12 100 100

ACCOUNT Equipment ACCOUNT NO. 141

Post. Balance

Date Description Ref. Debit Credit Debit Credit

Sept. 1 Balance ✓ 43,000

9 CP12 1,000 44,000

ACCOUNT Notes Payable ACCOUNT NO. 201

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 1 Balance ✓ 1,000

24 CP12 1,000

-0-ACCOUNT Accounts Payable ACCOUNT NO. 205

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 1 Balance ✓ 9,800

30 CP12 4,560 5,240

ACCOUNT Sales Tax Payable ACCOUNT NO. 231

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 1 Balance ✓ 1,344

(31)

-0-GENERAL LEDGER

ACCOUNT Fred Lin, Drawing ACCOUNT NO. 302

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 28 CP12 1,500 1,500

30 CP12 10 1,510

ACCOUNT Sales Returns and Allowances ACCOUNT NO. 451

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 14 CP12 425 425

ACCOUNT Purchases Discounts ACCOUNT NO. 504

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 30 CP12 47 47

ACCOUNT Delivery Expense ACCOUNT NO. 511

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 30 CP12 22 22

ACCOUNT Interest Expense ACCOUNT NO. 611

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

(32)

GENERAL LEDGER

ACCOUNT Miscellaneous Expense ACCOUNT NO. 614

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 30 CP12 29 29

ACCOUNT Rent Expense ACCOUNT NO. 620

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 2 CP12 1,700 1,700

ACCOUNT Salaries Expense ACCOUNT NO. 623

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 30 CP12 2,500 2,500

ACCOUNT Telephone Expense ACCOUNT NO. 626

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 18 CP12 187 187

Analyze:Total debits made to general ledger liability accounts during the month of September were $6,904.

Problem 9.3B

SALES JOURNAL PAGE 10

Invoice Post. Accounts Receivable Dr./

Date No. Customer’s Name Ref. Sales Cr.

2007

Aug. 2 2978 Jamison Builders . . . 19,450

7 2979 Branch Construction Company . 18,550

22 2980 Contemporary Homes . . . 6,850

31 2981 Denton County Builders . . . 17,440

31 Total . . . 62,290 (111/401)

(33)

CASH RECEIPTS JOURNAL P AGE 10 Accounts Other Accouns Credit Sales Post Receivable Sales Post Discounts Cash Date Description Ref. Credit Credit Account Name Ref. Amount Debit Debit 2007 Aug. 1 Construction Supply Company 6,600 132 6,468 1 1 Jamison Builders 19,450 389 19,061 14 Cash sales 7,050 7,050 16

Branch Construction Company

18,550

371

18,179

24

Garcia Homes Center

6,000 6,000 31 T otals 50,600 7,050 892 56,758 (1 1 1 ) (401) (452) (101)

(34)

GENERAL JOURNAL PAGE 24 Post.

Date Description Ref. Debit Credit

2007

Aug. 4 Notes Receivable . . . 109 12,000

Accounts Receivable/Davis Custom Homes . . . 111/ 12,000 Received a 3-month, 12% note from Davis Custom

Homes to replace open account

26 Sales Returns and Allowances . . . 451 550

Accounts Receivable/Contemporary Homes . . . 111/ 550 Accepted a return of damaged merchandise,

Credit Memo 101; sale originally made on Inv. 2980, August 22

GENERAL LEDGER

ACCOUNT Cash ACCOUNT NO. 101

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Aug. 1 Balance ✓ 15,070

31 CR10 56,758 71,828

ACCOUNT Notes Receivable ACCOUNT NO. 109

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Aug. 4 J24 12,000 12,000

ACCOUNT Accounts Receivable ACCOUNT NO. 111

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007 Aug. 1 Balance ✓ 22,507 4 J24 12,000 10,507 26 J24 550 9,957 31 S10 62,290 72,247 31 CR10 50,600 21,647

ACCOUNT Sales ACCOUNT NO. 401

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Aug. 31 S10 62,290 62,290

(35)

GENERAL LEDGER

ACCOUNT Sales Returns and Allowances ACCOUNT NO. 451

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Aug. 26 J24 550 550

ACCOUNT Sales Discounts ACCOUNT NO. 452

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Aug. 31 CR10 892 892

ROYAL CONSTRUCTION COMPANY Partial Income Statement Month Ended August 31, 2007 Revenue

Sales . . . 69,340 Less Sales Returns and Allowances . . . . 550

Sales Discounts . . . 892 1,442 Net Sales . . . 67,898

(36)

Problem 9.4B

PURCHASES JOURNAL PAGE 12

Invoice Inv. Post Purchases Dr./

Date Purchased From Number Date Terms Ref. Accounts Payable Credit

2007

Dec. 1 Alexis Products for Homes 6559 11/28 2/10, n/30 6,600

10 Baxter Corporation 5119 12/7 2/10, n/30 9,200

18 Household Appliance Center 7238 12/16 3/10, n/30 12,400

22 Zale Corporation 3161 12/19 n/30 5,800

31 Total 34,000

(501/205)

GENERAL JOURNAL PAGE 30

Post.

Date Description Ref. Debit Credit

2007

Dec. 4 Equipment . . . 131 14,000

Notes Payable . . . 201 14,000 Issued 2-month, 10% note to Kesterson Company

to purchase new store equipment

20 Equipment . . . 131 6,000

Accounts Payable/Safety Security Systems, Inc. . . 205/ 6,000 Purchased new store equipment, Inv. 536,

dated December 17, payable in 45 days

28 Accounts Payable/Safety Security Systems . . . 205/ 1,050

Purchases Returns and Allowances . . . 503 1,050 Returned damaged goods, receiving Credit Memo

201; original purchase made on Inv. 536, December 17

(37)

CASH P A YMENTS JOURNAL P AGE 12 Accounts Other Accounts Debit Purchases Ck. Post Payable Post Discounts Cash Date N o. Description Ref. Debit Account Name Ref. Amount Credit Credit 2007 Dec. 2 1801 Monthly rent Rent Expense 61 1 3 ,000 3,000 6 1802

Axis Products for Homes

6,600

132

6,468

13

1803

Monthly telephone bill

T elephone Expense 617 265 265 15 1804 Baxter Corporation 9,200 184 9,016 21 1805

Chain Lighting and

Appliances 4,200 4,200 24 1806 Household Appliance 12,400 372 12,028 31 1807 Monthly salaries Salaries Expense 614 6,500 6,500 31 T otals 32,400 9,765 688 41,477 (205) (X) (504) (101)

(38)

GENERAL LEDGER

ACCOUNT Cash ACCOUNT NO. 101

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Dec. 1 Balance ✓ 60,700

31 CP12 41,477 19,223

ACCOUNT Equipment ACCOUNT NO. 131

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Dec. 1 Balance ✓ 68,000

4 J30 14,000 82,000

20 J30 6,000 88,000

ACCOUNT Notes Payable ACCOUNT NO. 201

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Dec. 4 J30 14,000 14,000

ACCOUNT Accounts Payable ACCOUNT NO. 205

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007 Dec. 1 Balance ✓ 7,600 20 J30 6,000 13,600 28 J30 1,050 12,550 31 P12 34,000 46,550 31 CP12 32,400 14,150

ACCOUNT Purchases ACCOUNT NO. 501

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Dec. 31 P12 34,000 34,000

ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

(39)

GENERAL LEDGER

ACCOUNT Purchases Discounts ACCOUNT NO. 504

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Dec. 31 CP12 688 688

ACCOUNT Rent Expense ACCOUNT NO. 611

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Dec. 2 CP12 3,000 3,000

ACCOUNT Salaries Expense ACCOUNT NO. 614

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Dec. 31 CP12 6,500 6,500

ACCOUNT Telephone Expense ACCOUNT NO. 617

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Dec. 13 CP12 265 265

CONTEMPORARY APPLIANCE CENTER Partial Income Statement

Month Ended December 31, 2007

Purchases . . . 34,000 Less Purchases Returns and Allowances 1,050

Purchases Discount . . . 688 1,738 Net Purchases . . . 32,262

(40)

Problem 9.5B

PETER CHEN, ATTORNEY AT LAW Bank Reconciliation Statement

September 30, 2007

Balance on bank statement . . . 7,323.50 Additions:

Deposit of September 28 in transit . . . 900.00 8,223.50 Deductions for outstanding checks:

Check 108 of September 15 . . . 75.00 Check 112 of September 27 . . . 140.00

Total outstanding checks . . . 215.00 Adjusted bank balance . . . 8,008.50 Balance in books . . . 8,134.00 Deductions:

NSF check . . . 118.00

Bank service charge . . . 7.50 125.50 Adjusted book balance . . . 8,008.50

GENERAL JOURNAL PAGE 1

Post.

Date Description Ref. Debit Credit

2007

Oct. 5 Accounts Receivable/Annette Cole . . . 118.00

Cash . . . 118.00 To record NSF check returned by bank

5 Miscellaneous Expense . . . 7.50

Cash . . . 7.50 To record bank service charge for September

(41)

Problem 9.6B

WELLS BUILDERS Bank Reconciliation Statement

June 30, 2007

Balance on bank statement . . . 7,542.03 Additions:

Deposit of June 30 in transit . . . 944.07 8,486.10 Deductions for outstanding checks:

Check 533 . . . 148.95 Check 535 . . . 97.50 Check 537 . . . 425.40

Total outstanding checks . . . 671.85 Adjusted bank balance . . . 7,814.25 Balance in books . . . 6,418.59 Additions:

Note receivable collected by bank . . . 1,500.00

Interest on note receivable . . . 30.00 1,530.00 7,948.59 Deductions:

NSF check . . . 120.00

Bank service charge . . . 14.34 134.34 Adjusted book balance . . . 7,814.25

GENERAL JOURNAL PAGE 1

Post.

Date Description Ref. Debit Credit

2007

July 3 Cash . . . 1,530.00

Notes Receivable . . . 1,500.00 Interest Income . . . 30.00

To record receipt of amount due on note plus interest collected

3 Accounts Receivable/Robert Boley . . . 120.00

Cash . . . 120.00 To record NSF check returned by bank

3 Miscellaneous Expense . . . 14.34

Cash . . . 14.34 To record bank service charge for June

(42)

Problem 9.7B

LITTLE GUY MOVERS Bank Reconciliation Statement

February 28, 2007

Balance in books . . . 19,451 Additions:

Check 1201 dated February 8 was recorded as $316;

check was actually written for $308 . . . 8 . . . 19,459 Deductions:

Check 1222 dated February 24 was recorded as $404;

check was actually written for $440 . . . 36 Adjusted book balance . . . 19,423

GENERAL JOURNAL PAGE 1

Post.

Date Description Ref. Debit Credit

2007

March 3 Cash . . . 8

Hauling Expense . . . 8 To correct error in entry for Check 1201 of February 8

3 Telephone Expense . . . 36

Cash . . . 36 To correct error in entry for Check 1222 of February 24

Analyze:The net change to the Cash account was a decrease of $28.

Challenge Problem

SALES JOURNAL PAGE 12

Accounts Sales Tax

Sales Slip Post. Receivable Payable Sales

Date No. Customer’s Name Ref. Debit Credit Credit

2007

Sept. 3 1850 Pam Lawrence . . . ✓ 702 52 650

8 1851 Henry Tolliver . . . ✓ 1,026 76 950

19 1852 Rachel Carter . . . ✓ 270 20 250

29 1853 Mesia Davis . . . ✓ 1,296 96 1,200

30 3,294 244 3,050

(43)

PURCHASES JOURNAL PAGE 12

Accounts Freight

Invoice Inv. Post. Payable Purchases in

Date Purchased From Number Date Terms Ref. Credit Debit Debit

2007

Sept. 6 Reed Millings Company 827 9/3 2/10, n/30 ✓ 4,450 4,450

14 Wells Products 9453 9/11 n/30 ✓ 3,784 3,700 84

21 Nelson Craft Products 677 9/18 2/10, n/30 ✓ 2,800 2,800

27 Booker, Inc. 1368 9/23 n/45 ✓ 4,328 4,200 128

31 Totals 15,362 15,150 212

(205) (501) (502)

GENERAL JOURNAL PAGE 32

Post.

Date Description Ref. Debit Credit

2007

Sept. 8 Supplies . . . 121 370

Accounts Payable/Rocker Company . . . 205/✓ 370 Bought store supplies, Inv. 4204 dated Sept. 6,

net amount due in 30 days

11 Notes Receivable . . . 109 2,100

Accounts Receivable/Jason Williams . . . 111/✓ 2,100 Received a 2-month, 10% note from

Jason Williams to replace open account

17 Accounts Payable/McNight Corporation . . . 205/✓ 5,500

Notes Payable . . . 201 5,500 Issued a 2-month, 12% note to McNight Corp.

to replace open account

23 Sales Returns & Allowances . . . 451 50 Sales Tax Payable . . . 231 4

Accounts Receivable/Rachel Carter . . . 111/✓ 54 Granted allowance for damaged lamps, CM 151,

original sale made on Sales Slip 1852, Sept. 19 . .

24 Accounts Payable/Nelson Craft Products . . . 205/✓ 300

Purchases Returns & Allowances . . . 503 300 Returned a damaged rug, receiving CM 110

(44)

CASH RECEIPTS JOURNAL P AGE 12 Accounts Sales T a x Other Accounts Credit Post. Receivable Payable Sales Post. Cash Date Description Ref Credit Credit Credit Account Name Ref. Amount Debit 2007 Sept 1 David Prater ✓ 1,050 1,050 5 Additional investment

Sergio Cortez, Capital

301 15,000 15,000 6 Cash sales 312 3,900

Cash Short or Over

61 1 (20) 4,192 13 Cash sales 308 3,850 4,158 15 Mesia Davis ✓ 1,260 1,260 20 Cash sales 328 4,100

Cash Short or Over

61 1 (9) 4,419 24 Robert Kent ✓ 1,730 1,730 27 Cash sales 384 4,800 5,184 30 Cash sales 120 1,500

Cash Short or Over

61 1 1 0 1,630 30 T otals 4,040 1,452 18,150 14,981 38,623 (1 1 1 ) (231) (401) (X) (101) CASH P A YMENTS JOURNAL P AGE 12 Accounts Other Accounts Debit Purchases Ck. Post Payable Post Discounts Cash Date No. Description Ref. Debit Account Name Ref. Amount Credit Credit 2007 Sept. 1 1401

Sadlers Floor Coverings

✓ 1,940 1,940 2 1402 Monthly rent Rent Expense 614 2,500 2,500 6 1403 Freight charge Freight In 502 158 158 1 1 1404 Reed Millings ✓ 4,450 89 4,361 22 1405 Utility bill Utilities Expense 619 306 306 25 1406 Cash purchase Purchases 501 3,600 3,600 26 1407

Nelson Craft Products

✓ 2,500 50 2,450 28 1408 W ells Products ✓ 2,120 2,120 30 1409 Monthly salaries Salaries Expense 617 6,800 6,800 30 T otals 1 1 ,010 13,364 139 24,235 (205) (X) (504) (101)

(45)

GENERAL LEDGER

ACCOUNT Cash ACCOUNT NO. 101

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 1 Balance ✓ 18,945

30 CR12 38,623 57,568

30 CP12 24,235 33,333

ACCOUNT Notes Receivable ACCOUNT NO. 109

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 11 J32 2,100 2,100

ACCOUNT Accounts Receivable ACCOUNT NO. 111

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007 Sept. 1 Balance ✓ 6,140 11 J32 2,100 4,040 23 J32 54 3,986 30 S12 3,294 7,280 30 CR12 4,040 3,240

ACCOUNT Supplies ACCOUNT NO. 121

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 1 Balance ✓ 710

8 J32 370 1,080

ACCOUNT Inventory ACCOUNT NO. 131

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 1 Balance ✓ 29,365

ACCOUNT Notes Payable ACCOUNT NO. 201

Post. Balance

(46)

GENERAL LEDGER

ACCOUNT Accounts Payable ACCOUNT NO. 205

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007 Sept. 1 Balance ✓ 9,560 8 J32 370 9,930 17 J32 5,500 4,430 24 J32 300 4,130 31 P12 15,362 19,492 31 CP12 11,010 8,482

ACCOUNT Sales Tax Payable ACCOUNT NO. 231

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 23 J32 4 4

30 S12 244 240

30 CR12 1,452 1,692

ACCOUNT Sergio Cortez, Capital ACCOUNT NO. 301

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 1 Balance ✓ 45,600

5 CR12 15,000 60,600

ACCOUNT Sales ACCOUNT NO. 401

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 30 S12 3,050 3,050

30 CR12 18,150 21,200

ACCOUNT Sales Returns & Allowances ACCOUNT NO. 451

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

(47)

GENERAL LEDGER

ACCOUNT Purchases ACCOUNT NO. 501

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 25 CP12 3,600 3,600

30 P12 15,150 18,750

ACCOUNT Freight In ACCOUNT NO. 502

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 6 CP12 158 158

31 P12 212 370

ACCOUNT Purchases Returns & Allowances ACCOUNT NO. 503

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 24 J32 300 300

ACCOUNT Purchases Discounts ACCOUNT NO. 504

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 30 CP12 139 139

ACCOUNT Cash Short or Over ACCOUNT NO. 611

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 6 CR12 20 20

20 CR12 9 29

30 CR12 10 19

ACCOUNT Rent Expense ACCOUNT NO. 614

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

(48)

GENERAL LEDGER

ACCOUNT Salaries Expense ACCOUNT NO. 617

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept 30 CP12 6,800 6,800

ACCOUNT Utilities Expense ACCOUNT NO. 619

Post. Balance

Date Description Ref. Debit Credit Debit Credit

2007

Sept. 22 CP12 306 306

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

NAME Rachel Carter TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 19 Sales Slip 1852 S12 270 270

23 CM 151 J32 54 216

NAME Mesia Davis TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 1 Balance ✓ 1,260

15 CR12 1,260

-0-29 Sales Slip 1853 S12 1,296 1,296

NAME Robert Kent TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 1 Balance ✓ 1,730

24 CR12 1,730

-0-NAME Pam Lawrence TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

(49)

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

NAME David Prater TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 1 Balance ✓ 1,050

1 CR12 1,050

-0-NAME Henry Tolliver TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 8 Sales Slip 1851 S12 1,026 1,026

NAME Jason Williams TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 1 Balance ✓ 2,100

11 Transferred to Notes Receivable J32 2,100

-0-INTERIOR DESIGNS SPECIALTY SHOP Schedule of Accounts Receivable

September 30, 2007 Rachel Carter . . . 216 Mesia Davis . . . 1,296 Pam Lawrence . . . 702 Henry Tolliver . . . 1,026 Total . . . 3,240

(50)

ACCOUNTS PAYABLE SUBSIDIARY LEDGER

NAME Booker, Inc. TERMS n/45

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 27 Invoice 1368, 9/23/07 P12 4,328 4,328

NAME McKnight Corporation TERMS 1/10, n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 1 Balance ✓ 5,500

17 J32 5,500

-0-NAME Nelson Craft Products TERMS 2/10, n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 21 Invoice 677, 9/18/07 P12 2,800 2,800

24 CM 110 J32 300 2,500

26 CP12 2,500

-0-NAME Rocker Company TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 8 Invoice 4204, 9/6/07 J32 370 370

NAME Reed Millings Company TERMS 2/10, n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 6 Invoice 827, 9/3/07 P12 4,450 4,450

11 CP12 4,450

-0-NAME Sadler Floor Coverings TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 1 Balance ✓ 1,940

(51)

-0-ACCOUNTS PAYABLE SUBSIDIARY LEDGER

NAME Wells Products TERMS n/30

Post.

Date Description Ref. Debit Credit Balance

2007

Sept. 1 Balance ✓ 2,120

14 Invoice 9453,9/11/07 P12 3,784 5,904

28 CP12 2,120 3,784

INTERIOR DESIGNS SPECIALTY SHOP Schedule of Accounts Payable

September 30, 2007

Booker, Inc. . . 4,328 Rocker Company . . . 370 Wells Products . . . 3,784 Total . . . 8,482

Analyze:Total cash disbursements for the month of September were $24,235.

Critical Thinking Problem

JULIUS WELLS Bank Reconciliation Statement

August 31, 2007

Balance on bank statement . . . 16,589 Addition: Deposit in transit, August 28 . . . . 4,882 21,471 Deductions for outstanding checks

Check 1590 . . . 263 Check 1680 . . . 1,218 Check 1724 . . . 486 Check 1780 . . . 792 Check 1784 . . . 1,819 Check 1806 . . . 384

Total outstanding checks . . . 4,962 Adjusted bank balance . . . 16,509 Balance in books . . . 18,786 Deduction: Bank service charge . . . 10 Adjusted book balance . . . 18,776 Less: Cash shortage . . . 2,267 Corrected adjusted book balance . . . 16,509

(52)

Since Gloria Harris handled all cash records, it was relatively easy for her to conceal her theft. Julius should separate the jobs of receiving cash, making disbursements, maintaining accounting records, and preparing bank reconciliations. If the company is not large enough to permit different people to handle these jobs, then Julius should oversee the cash/accounting functions more closely, including reconciliation of the bank account. If Julius does not have the time to do this, he could hire an independent accountant to review the cash/accounting records on a monthly basis and then report any discrepancies to him.

Business Connections

Managerial Focus

1. a. No assurance money taken actually accounted for.

b. A gap in the control of cash exists, and unauthorized expenditures can be made. c. Increases the opportunity for theft; no current cash position is known.

d. Increases risk of theft.

e. Weakens internal control over cash receipts.

2. Payment of bills in timely fashion, anticipation of fund shortages or overages, take advantage of investment opportunities.

3. Loss of control and check-and-balance system. 4. a. Yes. Blank endorsements are not secure.

b. Yes. Checkbook should be kept in a locked drawer and should be available only to specified employees.

c. Yes. To deter fraud, different tasks should be assigned to different employees. d. Yes. Reconciliation should be done soon after receiving bank statement.

e. Yes. Financial records should be maintained for a reasonable number of years in case of a tax audit or if records are destroyed.

f. No. The task would be impractical for a large firm.

5. Essential assets should be safeguarded against loss and theft.

6. Up-to-date cash position; information for day-to-day business decisions. 7. Insures against losses.

8. Control of cash; audit trail.

Ethical Dilemma

Daniel should be sure to pay this $30 to petty cash immediately. He can then record cash short/over the next month. Daniel should be sure to never borrow money from petty cash as it is not his money.

Streetwise

1. January 30, 2005 $506 million; February 1, 2004 $1,103 million; decreased by 54.1%. 2. 1,295,185,000 transactions. The average sale was $54.89. $28,437,081,860.

Financial Statement Analysis

1. 28.1%

2. Increased by $430 million.

3. The balance reported for “Cash and cash equivalents” would be understated by $125,000.

Analyze Online:Answers will vary depending on the year.

Extending the Thought

Answers will vary. Students may suggest the following checks and balances for stronger internal control over online cash receipts.

1. Verify agreement of daily sales totals and e-cash deposit records.

2. Perform a spot check on the sales report generated from the Web site to ensure the report is capturing all online sales.

(53)

Business Communication

Students’ lists of questions will vary, but class members should demonstrate an understanding of the controls necessary to prevent fraud and errors. Topics should include processes on cash payments, cash receipts, and petty cash.

Team Work

A Sales Invoice for each job should be given to each customer with a place to incorporate any additions or subtractions for service. Any changes must be communicated to the home office and an approval number will be given. The Sales Invoice, as well as each change, should be signed by the customer. Only cash and money orders should be allowed since the families have just moved and do not currently have a local bank.

Internet Connection

Each bank should list the possible interest rates, both variable and fixed. Most banks will be within a few tenths of points of each other.

Practice Test Answer Key

Part A True–False 1. F 2. T 3. T 4. T 5. F 6. T 7. F 8. T 9. F 10. T 11. F 12. F 13. T 14. F 15. T 16. T 17. F 18. T 19. F 20. T 21. T Part B Matching 1. k 2. j 3. l 4. e 5. b 6. i 7. c 8. a 9. h

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