| Discussion
Questions and Brief Exercises, continued |
| 3. | (1)
Maker, also called the drawer or payor, the party writing the check. (2) Payee,
the party
receiving payment. (3) The bank.
| | 4. | A
check endorsement is a legal transfer by the payee of ownership of the check to
another party.
This gives the other party the
right to receive payment from the maker. A blank endorsement
makes the check
payable to anyone who physically possesses it. A restrictive endorsement
transfers
the check only to a designated party. | | 5. | Debits
and credits on a bank statement refer to increases and decreases in a bank’s
liability to
an account owner. The debits and
credits refer to changes in liability, not to changes in an
asset. Therefore,
a debit reduces the bank’s liability and signifies a reduction in a cash
account
balance. A credit increases the bank’s liability and therefore
signifies an increase in a cash
account balance. This is different from the
debits and credits that affect the asset cash in the
accounting records of
the account owner. | | 6. | $15,200
– $750 outstanding checks + $200 deposits in transit = $14,650 adjusted bank
balance.
(The service charges and the NSF check
have already been recorded on the bank statement and
are part of the $15,200
balance.) | | 7. |
The purpose of a voucher
system is to provide internal control for cash payments. The five basic
functions
of a voucher system are validation, verification, authorization, recording, and
payment. | | |
 Validation
is the procedure for demonstrating that a request is authentic and has a genuine
purpose.
Verification
is the procedure for demonstrating that the correct item has been received.
Authorization
is the approval procedure required to complete a voucher.
Recording
means entering the voucher information in the accounting records and filing
information.
Payment
means writing a check or transfering funds electronically. |
| 8. | The
eight basic internal control systems are: | | |
(1) Separation of critical duties:
(a) The accounting function is always separated from access
to
assets. (b) Other departmental authority is always separated from accounting functions.
(c)
Related duties are always separated.
(2) Assignment
of responsibilities: Each employee’s responsibilities must be specific, clear,
and limited.
(3) Asset control:
Assets are separated and access is limited and controlled physically and/or
electronically.
(4) Independent
verification: Assets and liabilities are verified at regular and frequent intervals
by
an individual who is not involved in a record-keeping task, and/or outside auditors.
(5) Authorization: Designated
transaction types (such as cash payments) require approval by
designated
individuals.
(6) Documentation:
All transactions must be supported by timely documentation. Document
standards
are established. Document controls are established.
(7) Recording: All transactions
must be recorded—no exceptions.
(8) Personnel
policy: Only competent and ethical employees are hired, and they are properly
compensated. |
| 9. | (1) Using
a cash register: (a) Safeguarding assets (b) Recording (c) Documentation (cash
register
tape)
(2) Cash count at end of a
shift: (a) Independent verification | |
Learning
Goal 25, continued
| | | |
Learning
Goal 25: Report and Control Cash |
S3 | |