Chapter Solutions Tutorial Essay Example

Chapter Solutions Tutorial Paper Prom the chapter Scene Setter: Balance sheets and income statements are snapshots of your finances at a reticular moment. They dont capture your changing cash requirements through the yean Even the cash flow statement in your annual accounts is backward-looking, a summary of how your cash balance has changed over the last 12 months. While it can help you diagnose past problems, it cant help you anticipate future ones Many people think of cash as coins and notes. In accounting cash has a broader meaning. What type Of assets are defined as cash in accounting? In accounting the type of assets defined as cash include money, duplicates of credit card and Electronic Funds Transfer at Point Of Sale (EFFETE) sales, and any Other gettable instrument, such as a cheese or postal note, that a bank or financial institution will normally accept as a deposit to an account. After reading the concepts of a good system of internal control covered in this chapter, the owner of a small business was concerned that his internal control was not good. He counted the daily cash takings and prepared the deposit slip, and banked the takings intact each day. We will write a custom essay sample on Chapter Solutions Tutorial specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Chapter Solutions Tutorial specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Chapter Solutions Tutorial specifically for you FOR ONLY $16.38 $13.9/page Hire Writer He also approved payments and signed all cheeses. To overcome his problem, he decided he would have to hire more staff, so that he would be able to ensure adequate division of responsibility. Would this solve his problem? Explain. The basic purpose of any system of internal control is to safeguard the assets of the business and prevent fraud. In a small business where the management and owners are the same, there is virtually no risk of fraud the owners are unlikely to attempt to defraud themselves. Where owners have to delegate responsibility for control and management of business to employees, the need for a system to prevent or minimize fraud becomes more imperative. Another important aspect to keep in mind is that any system of internal control will involve costs. The more sophisticated the system becomes the more expensive it will be. It is essential to get the appropriate balance between the level of control and the costs to achieve that control. The system being used by the owner in the given circumstances is perfectly acceptable. To suggest the employment of more staff is merely to incur unnecessary costs with no real improvement in internal control. In fact, the employment to extra staff may in effect reduce the level of internal control already being achieved. Any system of internal control should be cost effective and be appropriate to the needs of the particular business. The principle that receipts should be banked daily and all payments made by cheese or electronic transfer provides a sound basis for internal control over cash. But it breaks down immediately when cash is given to a junior employee to spend through the petty cash fund. Discuss. An impress system Of petty cash should be used. Cash should not be available for employees to spend without verification or authentication. A voucher should always be prepared to validate 311 payments from the petty cash fund and receipts should be provided to the petty cashier to verify the amount spent where possible. Periodic checks should be made to verify tha t the cash on hand together with the vouchers issued is equal to the impress amount of the petty cash fund. Adequate petty cash records (e. G. Petty Cash Book) should be monitored. John Wiley Sons Australia, Ltd 2012 7. 3 Solutions Manual to accompany Accounting e by Hogget et al EXERCISE SOLUTIONS Exercise I C Composition of cash SOPHISTICATED COFFEE Required: What total dollar amount should be included in cash at 30 June? Explain how any items not included in cash should be reported in a balance sheet prepared on 30 June. 6. Currency and coin 5672 3. Cheeses dated 28-30 June 2164 Total included in cash 52 836 5. The 5300 OIL should be reported as a receivable from employees. 2. The $275 postdated cheese should be reported as an account receivable. . And 4. Would not be reported on a balance sheet. John Wiley sons Australia, Ltd 2012 Exercise 10. 3 Cash internal control procedures Explain briefly the significance of each of the following in a comprehensive system of control over cash transactions: With the segregation of cashiers duties from other functions, the cashier should not have access to the accounting records (other than cash journals). By segregating the duties of the cashier, any fraud will remain undetected only if the cashier colludes With Other members Of staff. This Will reduce the possibility of the cashier misappropriating funds and covering this up by altering the accounting records Without being found out. The daily banking principle means that all cash received must be banked daily intact. This will reduce the possibility of cash being misappropriated, as all the cash received is collected and banked in its entirety. Periodic checks are now possible, to ascertain that the cash banked (per bank deposit slip) agrees with he relevant source documents (receipts etc. ) and other records. The cash at bank account is balanced at various intervals (usually monthly). To ascertain that this balance actually represents the entitys cash balance at the bank or the amount owed to the bank, it has to agree with the amount shown on the bank statement at that date. The bank reconciliation links and confirms the cash records with a reliable outside authority the bank statement. If there are differences in the two records, the bank reconciliation will identify them, and records can be adjusted to take them into account. Under the impress system of petty cash, management allocates a certain float or retainer Of cash to be used for petty expenses. This float must be maintained from period to period until management revises it and allocates an increase in cash funds for petty expenses. The petty cashier uses the funds to meet petty expenses. When the fund is running low, the petty cashier is reimbursed the exact amount that was spent during the period bringing the float back to the original amount. This system allows management to control the maximum amount that can be pent on minor expenses. The impress system of petty cash supplements the control obtained by the general rule of banking all cash received intact and making all payments by cheese. Where it is impractical to write out cheeses for payments, the payments should be covered by a petty cash voucher (docket) and the control ensured by the use Of a fixed float. Cash budgets identify future cash inflows and outflows of the entity. By identifying the future expected cash flows management is better able to control and manage the entitys cash resources, e. G. Ewing able to meet ongoing ointments to creditors when they fall due, By identifying large expected cash outlays, management can plan for the payment of such expenditures through increasing cash inflows or by borrowing, Not being able to pay debts as they become due can have dire consequences for an entity even lead to its demise. A cash flow statement sets out the actual cash inflows and cash outflows of the entity over a period of time. The cash flows are clas sified in cash flows from operations, cash flows from investing activities, and cash flows related to financing.