Sample Undergraduate Accounting Model Answer

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Accounting Model Paper- Accounting Chapter 7

E7-1: Bank employees use a system known as the “maker-checker” system. An employee will record an entry in the appropriate journal, and then a supervisor will verify and approve the entry. These days, as all of a bank’s accounts are computerized, the employee first enters a batch of entries into the computer. The entries are then posted automatically to the general ledger account after the supervisor approves them on the system.

Access to the computer system is password-protected and task-specific, which means that the computer system will not allow the employee to approve a transaction or the supervisor to record a transaction.

Instructions

Identify the principles of internal control inherent in the “maker-checker” procedure used by banks.

Answer:

The principles of internal control inherent in the “maker-checker” procedure used by banks as described in the scenario are:

1. Segregation of duties

2. Physical controls

The maker-checker procedure applies segregation of duties as the responsibilities are divided in the bank, with the employee making the transaction. In contrast, the supervisors are the ones who post the transaction. Physical controls are also established as a principle. The access to the computer system is protected with a password. It is “task-specific,” only allowing the individual who has the duty of a specific task to execute that task.

E7-3: The following control procedures are used in Kelton Company for over-the-counter cash receipts.

1. Each store manager is responsible for interviewing applicants for cashier jobs. They are hired if they seem honest and trustworthy.

2. All over-the-counter receipts are registered by three clerks who share a cash register with a single cash drawer.

3. To minimize the risk of robbery, cash over $100 is stored in an unlocked attaché case in the stock room until deposited in the bank.

4. At the end of each day, the cashier’s total receipts are counted on duty and reconciled to the cash register total.

5. The company accountant makes the bank deposit and then records the day’s receipts.

Instructions

(a) For each procedure, explain the weakness in internal control and identify the control principle that is violated.

(b) For each weakness, suggest a change in the procedure that will result in good internal control.

Answer:

E7-5: At Nunez Company, checks are not pre-numbered because both the purchasing agent and the treasurer are authorized to issue checks. Each signer has access to unissued reviews kept in an unlocked file cabinet. The purchasing agent pays all bills about goods purchased for resale. Before payment, the purchasing agent determines that the goods have been received and verifies the vendor’s invoice’s mathematical accuracy.

After payment, the invoice is filed by vendor name, and the purchasing agent records the payment in the cash disbursements journal. The treasurer pays all other bills following approval by authorized employees. After payment, the treasurer stamps all bills “paid,” files them by the payment date, and records the checks in the cash disbursements journal. Nunez Company maintains one checking account that the treasurer reconciles.

Instructions:

(a) List the weaknesses in internal control over cash disbursements.

(b) Identify improvements for correcting these weaknesses.

Answer:

E7-10: The cash records of Downs Company show the following.

For July:

1. The June 30 bank reconciliation indicated that deposits in transit total $580. During July, the general ledger account Cash shows deposits of $16,900, but the bank statement indicates that only $15,600 in deposits were received during the month.

2. The June 30 bank reconciliation also reported outstanding checks of $940. Downs Company’s books show that $17,500 of checks were issued during July, yet the bank statement showed that $16,400 checks cleared the bank.

For September:

3. In September, deposits per bank statement totaled $25,900, deposits per book were $26,400, and deposits in transit on September 30 were $2,200.

4. In September, cash disbursements per book were $23,500, checks clearing the bank were $24,000, and outstanding checks on September 30 were $2,100. There were no bank debit or credit memoranda, and no errors were made by either the bank or Downs Company.

Instructions: