Accounting Assignment 8.1 Handout

Accounting Assignment 8.1 Handout
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1. Internal controls are designed to safeguard assets, encourage employees to follow company
policies, promote operational efficiency, and ensure accurate accounting records.
Requirements:
R1. Which objective is most important?
Safeguarding assets
R2. Which must the internal controls accomplish for the business to survive? Give your reason.
There is a need to protect assets, since failure to do this would be throwing away resources necessary for survival.
2. The Sarbanes-Oxley Act affects public companies.
Requirement
R1. How does the Sarbanes-Oxley Act relate to internal controls? Be specific.
Public Companies need to provide an internal control report, while outside auditors assess a client’s internal controls. There is also separation of service provision between auditing and consulting services.
3. Separation of duties is a key internal control.
Requirement
R1. Explain in your own words why separation of duties is often described as the cornerstone of
internal control for safeguarding assets. Describe what can happen if the same person has
custody of an asset and also accounts for the asset.
Separation of assets promotes accounting record accuracy and limits fraud. This is achieved through separation of accounting from custody of assets. There is a need to separate accounting separations from custody of assets to avoid fraudulent activities.
4. There are 5 characteristics identified in the chapter as pitfalls of e-commerce.
Requirement
R1. List the 5 characteristics identified in the chapter as pitfalls of e-commerce.
Inadequate security measures including lack of encryption or effective firewalls
Phishing expeditions
Breach of passwords and credit card numbers
Likelihood of breach in confidentiality because of Computer viruses and Trojans
Potential for breach in data and information integrity
5. Answer the following questions about the controls in bank accounts:
Requirements
R1. Which bank control protects against forgery?
Signature card
R2. Which bank control reports what the bank did with the customer’s cash each period?
Bank statement
R3. Which bank control confirms the amount of money put into the bank?
Deposit ticket/ receipt
6. The Cash account of Safe and Secure Security Systems reported a balance of $2,490 at May
31, 2011. There were outstanding checks totaling $500 and a May 31 deposit in transit of $300.
The bank statement, which came from Tri Cities Bank, listed the May 31 balance of $3,360.
Included in the bank balance was a collection of $680 on account from Ryan Saar, a Safe and
Secure customer who pays the bank directly. The bank statement also shows a $20 service
charge and $10 of interest revenue that Safe and Secure earned on its bank balance.
Requirement
R1. Prepare Safe and Secure’s bank reconciliation at May 31.
Balance per bank statement, May 31$3,360 Deposit transit (+)$300 Outstanding checks (-)($500)Adjusted balance$3,160 Balance per books$2,490 Payment into bank (+)$680 Interest revenue(+)$10 Service charges (-)($20)Adjusted balance$3,160 
7. Review your results from preparing Safe and Secure Security Systems’ bank reconciliation in
problem #6.
Requirement
R1. Journalize the company’s transactions that arise from the bank reconciliation. Include an
explanation with each entry.
Journal EntriesDate Account Titles and explanationsDebitCredit31st May 2011Bank$680  Ryan Saar$680 Bank Rec: record of bank payment from Ryan Saar31st May 2011Cash$10  Interest revenue$10 Bank Rec: record of interest income31st May 2011Bank service charge$20  Cash$20 Bank Rec: Service charge deducted
8. DiedreChevis sells furniture for DuBois Furniture Company. Chevis is having financial
problems and takes $500 that she received from a customer. She rang up the sale through the
cash register.
Requirement
R1. What will alert Betsy DuBois, the controller, that something is wrong?
Focusing on the role of receiving cash from customers and applying payments make it easier to know whether there is separation of duties. Equally, verifying the cash at hand and bank with recorded cash balances will show whether there is any missing money.
9. Review the internal controls over cash receipts by mail presented in the chapter.
Requirement
R1. Exactly what is accomplished by the final step in the process, performed by the controller?
The controller need to compare the amount of bank deposit as well as postings by the accounting department, his ensures that the figures tally. In any case, the company maintains up to date financial records while cash receipts are safe.
10. A purchasing agent for Westgate Wireless receives the goods that he purchases and also
approves payment for the goods.
Requirements
R1. How could this purchasing agent cheat his company?
The agent can falsify the amount he/ she uses to make payments, by using a higher figure than the actual amount and then split the extra cash with the supplier. The agent can also purchase goods which are delivered to home or other premises.
R2. How could Westgate avoid this internal control weakness?
There should be separation of duties on receiving goods, purchasing goods and approving payments for goods
11. The following petty cash transactions of Lexite Laminated Surfaces occurred in August:


Requirement
R1. Prepare journal entries without explanations...