Question

Chapter 4: Banking

Additionally, please refer to Chapter 8 in your Cengage Accounting eText, accessible from the eText link in the Course Navigation Panel to the left of your screen.

Requirement 1:

The balance of Cash is likely to differ from the bank statement balance. What two factors are likely to be responsible for the difference? What is the purpose of preparing a bank reconciliation?

Requirement 2:

Assume that Jane Smith, accounts payable clerk for ABC Inc., stole $48,350 by paying fictitious invoices for goods that were never received. The clerk set up accounts in the names of the fictitious companies and cashed the checks at a local bank. Describe a control procedure that would have prevented or detected the fraud.

Responses to Classmates:

Please let your classmates know how are cash equivalents reported in the financial statements and provide them with at least one example of a cash equivalent.

Response to Instructor:

Please check your thread for questions or comments from me and be sure to provide a comprehensive response, as requested.

Writing:

Please make sure that your initial post contains a properly cited reference. Please use APA style. You should cite your text as a minimum. Additionally, check your spelling and proofread your post before you hit the submit button.

Answer 1

REQUIREMENT 1: The balance of Cash is likely to differ from the bank statement balance. What two factors are likely to be responsible for the difference? What is the purpose of preparing a bank reconciliation?

Ans: Two factors that are likely to be responsible for the difference in cash book and bank balance.
a)   Cash deposited in the bank but no entry passed in bank account.
b)   Interest charged by bank but no entry passed in the cash book.
c)   Interest paid by bank on saving account but no entry is passed in cash book.
Purpose of preparing a bank reconciliation:
To match the bank balance as per passbook and as per cash book.
A bank reconciliation is used to compare your records to those of your bank, to see if there are any differences between these two sets of records for your cash transactions. The ending balance of your version of the cash records is known as the book balance, while the bank's version is called the bank balance. It is extremely common for there to be differences between the two balances, which you should track down and adjust in your own records. If you were to ignore these differences, there would eventually be substantial variances between the amount of cash that you think you have and the amount the bank says you actually have in an account. The result could be an overdrawn bank account, bounced checks, and overdraft fees.

REQUIREMENT 2: Assume that Jane Smith, accounts payable clerk for ABC Inc., stole $48,350 by paying fictitious invoices for goods that were never received. The clerk set up accounts in the names of the fictitious companies and cashed the checks at a local bank. Describe a control procedure that would have prevented or detected the fraud.
Ans:
To prevent the fraud of this kind there must be
a)   Provision of internal control system in which work performed by one person is automatically checked by another person.
b)   There must be provision of test checking by which higher authority can take direct confirmation from the supplier.
c)   There must be rotation of employees so that fraud done by one employee can be detect by another person.
Responses to Classmates:
Please let your classmates know how are cash equivalents reported in the financial statements and provide them with at least one example of a cash equivalent.

Ans:

Cash equivalents are shown in a assets side as a current assets in the name of cash and cash equivalents.
Example of cash equivalents: Bill receivables, bank balance, marketable security, commercial papers.