Mastery Problem: Internal Cont
Mastery Problem: Internal Control and Cash
Murdstone, Inc.,
You’ve just been hired as an accountant at Murdstone, Inc., aretailer of supplies for arts and crafts. Since the previousaccountant left his position suddenly, the controller of Murdstone,Inc. has asked for your assistance in filling in some missing datafor the company’s January accounting records. You’ll also beresponsible for training the company’s new accounting intern.
Cash Short and Over
The controller has completed the T accounts for the cash andsales accounts as of January 30, but needs to attend an importantconference in another city. She has requested that you prepare theT account for the cash short and over account as of January 30also. You are told that the balance of the account is zero as ofthe beginning of January, and that all the company’s sales are incash. To simplify, this problem assumes that a company has only onebank account, which is identified in the Ledger as “Cash.”
Review the following T accounts, and then scroll down tocomplete the cash short and over T account and answer theassociated question that follows it.
| Cash | |||
| Balance 1/1 | 5,500 | 1/2 Establish Petty Cash | 500 |
| 1/5 | 2,775 | ||
| 1/12 | 6,355 | ||
| 1/23 | 3,270 | ||
| 1/30 | 4,450 | ||
| Balance | 21,850 | ||
| Sales | |||
| Balance 1/1 | 0 | ||
| 1/5 | 2,780 | ||
| 1/12 | 6,320 | ||
| 1/23 | 3,290 | ||
| 1/30 | 4,380 | ||
| Balance | 16,770 | ||
Review the preceding T accounts, and then complete the cashshort and over T account and associated question that followsit.
| Cash Short and Over | |||
| Balance 1/1 | 0 | 1/12 | |
| 1/5 | 1/30 | ||
| 1/23 | |||
| Balance | |||
What will happen to the ending balance in the cash short andover account at the end of the accounting period?The discrepancy must be reported on the company website.
Feedback
Petty Cash
Murdstone, Inc. issued a check on January 2 to establish a pettycash fund of $500. On January 31, the amount of cash in the pettycash fund is $443. The company would like to issue a check toreplenish the fund, based on the following summary of petty cashreceipts:
| Account | Amount onReceipt | ||
| Office Supplies | $28 | ||
| Miscellaneous Administrative Expense | 23 | ||
The company’s policy is to record any missing funds in the cashshort and over account.
The new intern has prepared a proposed journal entry to recordthe replenishing of the petty cash fund:
| Date | Description | Debit | Credit | |||||
| Jan. 31 | Petty Cash | 51 | ||||||
| Cash | 51 | |||||||
Prepare for your discussion with the intern by journalizing thecorrect entry for the replenishment of the petty cash fund. If anamount box does not require an entry, leave it blank.
| Jan. 31 | Inventory | ||
| Miscellaneous Administrative Expense | |||
| Cash | |||
| Cash |
Feedback
Bank Reconciliation
The company’s accounting intern has prepared the end-of-Januarybank reconciliation from the bank statement, and is worried becausethe adjusted balance amounts do not agree. After reviewing the bankreconciliation, scroll down for the next steps in helping theintern.
| Murdstone, Inc.Bank ReconciliationJanuary 31, 20Y5 | |||||
| Cash balance according to bank statement | $23,557.98 | ||||
| Adjustments: | |||||
| Add: Deposit in transit on January 31 | 12,125.25 | ||||
| Deduct: Outstanding Check No. 124 | $(62.00) | ||||
| OutstandingCheck No. 125 | (42.00) | ||||
| OutstandingCheck No. 129 | (1,250.00) | ||||
| Totaldeductions | (1,354.00) | ||||
| Adjusted balance | $34,329.23 | ||||
| Cash balance according to Murdstone, Inc. | $51,596.88 | ||||
| Adjustments: | |||||
| Add: Note and interest collected by bank | 15,250.75 | ||||
| Deduct: Check returned because of insufficient funds | $(23,475.40) | ||||
| Bankservice charge | (250.00) | ||||
| Errorin recording Check No. 123 | (9,000.00) | ||||
| Totaldeductions | (32,725.40) | ||||
| Adjusted balance | $34,122.23 | ||||
You assist the intern to check source documents, and find thatmost of the dollar amounts are correct; however, two dollar amountsare incorrect. After reviewing the following table, scroll down forthe next steps in helping the intern.
| Item | Correct inIntern’s Reconciliation? | If “No,”Corrected Amount | ||||
| Cash balance according to bank statement | Yes | |||||
| Deposit in transit on January 31 | Yes | |||||
| Outstanding Check No. 124 | Yes | |||||
| Outstanding Check No. 125 | No | $24.00 | ||||
| Outstanding Check No. 129 | Yes | |||||
| Cash balance according to Murdstone, Inc. | Yes | |||||
| Check returned because of insufficient funds | Yes | |||||
| Note and interest collected by bank | Yes | |||||
| Bank service charge | No | $25.00 | ||||
| Murdstone error in recording Check No. 123 as $12,435.00 ratherthan the correct amount of $21,435.00 | Yes | |||||
After asking the intern to search for other errors by comparingher reconciliation to prior bank reconciliations prepared by theformer accountant, you work together to compute the correctedadjusted balance. Round your answer to two decimal places.
Corrected adjusted balance amount: $
Answer:
| Dr | Cr | |||||||
| Cash Short and Overaccount | ||||||||
| Date | Particulars | Amount | Date | Particulars | Amount | |||
| 43,831.00 | Opening Balance | – | 43,842.00 | Sales | 35.00 | |||
| 43,835.00 | Sales | 5.00 | 43,860.00 | Sales | 70.00 | |||
| 43,853.00 | Sales | 20.00 | ||||||
| 43,861.00 | Cash | 80.00 | ||||||
| (Balance) | ||||||||
| Closing Balance | – | |||||||
| I | Balance Amount will be transferrred tocash | |||||||
| Cash Short and Overaccount | Dr | 80.00 | ||||||
| Cash | Cr | 80.00 | ||||||
| II | There is an excess sales recorded incompanys books | |||||||
| This should be reported on company’swebsites | ||||||||
| III | Petty Cash replenishment Journalentry | |||||||
| Office Supplies | Dr | 28.00 | ||||||
| Misellaneous AdministrativeExpenses | Dr | 23.00 | ||||||
| Cash Short and Overaccount | Dr | 6.00 | ||||||
| Cash | Cr | 57.00 | ||||||
| Murdstone, Inc. | ||||||||
| Bank Reconciliation | ||||||||
| January 31, 20Y5 | ||||||||
| Cash balance according to bankstatement | 23,557.98 | |||||||
| Adjustments: | ||||||||
| Add: Deposit in transit on January31 | 12,125.25 | |||||||
| Deduct: Outstanding Check No.124 | (62.00) | |||||||
| Outstanding Check No. 125 | (24.00) | |||||||
| Outstanding Check No. 129 | (1,250.00) | |||||||
| Total deductions | (1,336.00) | |||||||
| Adjusted balance | 34,347.23 | |||||||
| Cash balance according to Murdstone,Inc. | 51,596.88 | |||||||
| Adjustments: | ||||||||
| Add: Note and interest collected bybank |
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