EXERCISE 7-5

(a) Weaknesses | | (b) Suggested Improvement | 1. Checks are not prenumbered. | | Use prenumbered checks. | (Documentation procedures) | | | 2. The purchasing agent signs checks. (Establishment of responsibility) | | Only the treasurer’s department personnel should sign checks. | | | | 3. Unissued checks are stored in unlocked file cabinet.
(Physical controls) | | Unissued checks should be stored in a locked file cabinet with access restricted to authorized personnel. | 4. Purchasing agent approves and pays for goods purchased. | | Purchasing should approve bills for payment by the treasurer. | (Segregation of duties) | | | 5. After payment, the invoice is filed. | | The invoice should be stamped PAID. | (Documentation procedures) | | | 6. The purchasing agent records payments in cash disbursements journal. (Segregation of duties) | | Only accounting department personnel should record cash disbursements. | | | | 7. The treasurer records the checks in cash disbursements journal. | | Same as answer to No. 6 above. | (Segregation of duties) | | | 8. The treasurer reconciles the bank statement. (Independent internal verification) | | An internal auditor should reconcile the bank statement. | | | |

EXERCISE 7-6

(a) Cash balance per bank statement $3,677.20 Add: Deposits in transit 590.00 4,267.20 Less: Outstanding checks 770.00 Adjusted cash balance per bank $3,497.20 (b) Cash balance per books $3,975.20 Less: NSF check $450.00 Bank service charge 28.00 478.00 Adjusted cash balance per books $3,497.20 (c) Accounts Receivable 450.00 Cash 450.00 Miscellaneous Expense 28.00 Cash 28.00

EXERCISE 7-9

(a) HAWKINS COMPANY Bank Reconciliation September 30, 2012

Cash balance per bank statement $16,500 Add: Deposits in transit 4,738 21,238 Less: Outstanding checks 2,383 Adjusted cash balance per bank $18,855 Cash balance per books $17,600 Add: Collection of note receivable ($1,800 + $30) $1,830 Interest earned 45 1,875 19,475 Less: NSF check 560 Safety deposit box rent 60 620 Adjusted cash balance per books $18,855

(b) Sept. 30 Cash 1,830 Notes Receivable 1,800 Interest Revenue 30 30 Cash 45 Interest Revenue 45 30 Accounts Receivable—H. Juno 560 Cash 560 30 Miscellaneous Expense 60 Cash 60