Sample Undergraduate Accounting Model Answer
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Accounting Model Paper- Accounting Chapter 7
E7-1: Bank employees use a system known as the “maker-checker” system. An employee will record an entry in the appropriate journal, and then a supervisor will verify and approve the entry. These days, as all of a bank’s accounts are computerized, the employee first enters a batch of entries into the computer. The entries are then posted automatically to the general ledger account after the supervisor approves them on the system.
Access to the computer system is password-protected and task-specific, which means that the computer system will not allow the employee to approve a transaction or the supervisor to record a transaction.
Identify the principles of internal control inherent in the “maker-checker” procedure used by banks.
The principles of internal control inherent in the “maker-checker” procedure used by banks as described in the scenario are:
1. Segregation of duties
2. Physical controls
The maker-checker procedure applies segregation of duties as the responsibilities are divided in the bank with the employee making the transaction. In contrast, the supervisors are the ones who post the transaction. Physical controls are also established as a principle as the access to the computer system is protected with a password and is “task-specific,” only allowing the individual who has the duty of a specific task to execute that task.
E7-3: The following control procedures are used in Kelton Company for over-the-counter cash receipts.
1. Each store manager is responsible for interviewing applicants for cashier jobs. They are hired if they seem honest and trustworthy.
2. All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer.
3. To minimize the risk of robbery, cash over $100 is stored in an unlocked attaché case in the stock room until deposited in the bank.
4. At the end of each day, the cashier’s total receipts are counted on duty and reconciled to the cash register total.
5. The company accountant makes the bank deposit and then records the day’s receipts.
(a) For each procedure, explain the weakness in internal control and identify the control principle that is violated.
(b) For each weakness, suggest a change in the procedure that will result in good internal control.
|Question 1||Cashiers are not bonded.||Other controls||It is essential to have all cashiers bonded.|
|Question 2||Inability to establish responsibility for cash on a specific clerk.||Establishment of Responsibility||It is really needed to have separate cash drawers and register codes for each clerk.|
|Question 3||Cash available is not properly protected from robbery/theft.||Physical Controls||The cash needs to be stored in a safe until it is deposited in the bank.|
|Question 4||The cash is not counted individually or independently.||Independent internal verification||The cashier office supervisor should be the one counting the cash.|
|Question 5||The accountant of the company should not be the one handling cash.||Segregation of duties.||It is the responsibility of the cashier’s department to make the deposits of cash.|
E7-5: At Nunez Company, checks are not pre-numbered because both the purchasing agent and the treasurer are authorized to issue checks. Each signer has access to unissued checks kept in an unlocked file cabinet. The purchasing agent pays all bills about goods purchased for resale. Before payment, the purchasing agent determines that the goods have been received and verifies the vendor’s invoice’s mathematical accuracy.
After payment, the invoice is filed by vendor name, and the purchasing agent records the payment in the cash disbursements journal. The treasurer pays all other bills following approval by authorized employees. After payment, the treasurer stamps all bills “paid,” file them by the payment date, and records the checks in the cash disbursements journal. Nunez Company maintains one checking account that the treasurer reconciles.
(a) List the weaknesses in internal control over cash disbursements.
(b) Identify improvements for correcting these weaknesses.
|Checks not pre-numbered||Implement the use of pre-numbered checks|
|Purchasing agent does sign the checks||Only the treasurer department’s employees
should sign checks
|Unissued checks are stored in an unlocked file||Unissued checks should be stored in a locked
file cabinet with restricted access given to authorized personnel only
|Purchasing agent approves and pays for goods
|The purchasing of items should have approved bills for payment by the treasurer|
|Payment is made after an invoice is filed||Only once the payment of the invoice is made
should it be stamped “paid’ before being filed
|The purchasing agent records the payments in
cash disbursements journal
|Responsibility is given to the accounting department
personnel to record cash disbursements
|The treasurer records the checks in cash
|The responsibility is given to the accounting department
personnel to record cash disbursements.
|The Treasurer reconciles the bank statement||It is better if an internal auditor is the one to
reconcile the bank statement
E7-10: The cash records of Downs Company show the following.
1. The June 30 bank reconciliation indicated that deposits in transit total $580. During July, the general ledger account Cash shows deposits of $16,900, but the bank statement indicates that only $15,600 in deposits were received during the month.
2. The June 30 bank reconciliation also reported outstanding checks of $940. During July, Downs Company books show that $17,500 of checks were issued, yet the bank statement showed that $16,400 of checks cleared the bank in July.
3. In September, deposits per bank statement totaled $25,900, deposits per book were $26,400, and deposits in transit on September 30 were $2,200.
4. In September, cash disbursements per book were $23,500, checks clearing the bank were $24,000, and outstanding checks on September 30 were $2,100. There were no bank debit or credit memoranda, and no errors were made by either the bank or Downs Company.
|(a) Deposits in Transit: July 31|
|Deposits per books in July||$16,900|
|Less: Deposits per bank in July||$15,600|
|Deposits in transit, June 30||(580)|
|July receipts deposited in July||15,020|
|Deposits in transit, July 31||$1,880|
|(b) Outstanding checks: July 31|
|Checks per books in July||$17,500|
|Less: Checks clearing bank in July||$16,400|
|Outstanding checks, June 30||(940)|
|July checks cleared in July||15,460|
|Outstanding checks, July 31||$2040|
|(c) Deposits in transit: August 31|
|Deposits per books in September||$25,900|
|Add: Deposits per bank on September 30||2,200|
|Total deposits to be accounted for||28,100|
|Less: Deposits per books||26,400|
|Deposits in transit, August 31||$1,700|
|Outstanding Checks: August 31|
|Checks clearing bank in September||$24,000|
|Add: Outstanding checks, September 30||2,100|
|Total checks to be accounted for||26,100|
|Less: Cash disbursements per books||23,500|
|Outstanding checks, August 31||$2,600|