From the work Mark had you complete on his receivables accounts, Mark has now be

ID: 2333075 • Letter: F

Question

From the work Mark had you complete on his receivables accounts, Mark has now become very aware of how important it is to manage and protect his assets. Mark would like some more information on what can be done to protect his assets in general.

Required

1.Explain to Mark what an internal control system is and discuss the major principles that need to be applied for this type of system to be effective.

Mark has also come to realise that even though he now has better control over his accounts receivable this will no benefit him greatly if his management and control of the cash they bring in is poor. Mark has been doing a little reading and has found that one useful tool in controlling cash is the bank reconciliation statement. Mark’s cousin Randy, who is now helping him out by managing his Deafening Racket Studio, completed a bank reconciliation for Mark at the end of last month but Mark is a little uncertain about its accuracy and would like you to complete this months reconciliation for him.

Required

Using the information below complete a bank reconciliation for Mark for the month of September.

Bank Statement

Date

Particulars

Debits

Credits

Balance

Sep-01

$ 2630 Dr

$3470

840 Cr

935

$470

1860

2230 Cr

936

370

756

2616 Cr

937

1060

272

2300

1780 Cr

938

2336

1890

1334 Cr

2301

138

1196 Cr

939

568

658

1286 Cr

2303

774

1820

2332 Cr

460

2792 Cr

941

4620

560

1268 Dr

980

288 Dr

Ret Cheque

272

560 Dr

Direct Deposit

1 988

1428 Cr

Account Fees

1352 Cr

Interest

113

1239 Cr

TOTAL DEBITS

$11 845

TOTAL CREDITS $14 714

Cash Receipts Journal

Cash Payments Journal

Date

Cash at bank

Cheque no.

Cash at bank

The Music MANager

Sep 1

$1 860

936

$370

Bank Reconciliation Statement

756

937

1060

as at 31 August

272

938

2336

Balance as per bank statement

$2630 Dr

1 890

939

568

Less:

658

2300

Outstanding Deposit

3470

1 820

2301

138

Add:

460

2302

246

Unpresented

# 2299

884

560

2303

cheques:

935

470

1354

980

940

352

15 000

941

4620

Balance as per

TOTAL

$24 256

TOTAL

$9 812

Cash at Bank account

$514 Cr

Additional information reveals that Cheque 2303 is correct in the bank statement but was incorrectly recorded in the Cash Payments Journal.

Cash at Bank

The Music MANager

Bank Reconciliation Statement

as at 30 September

Mark is a little bit happier now and can see the benefit of regularly doing a bank reconciliation, but is still a little concerned about his cash controls. Cheque number 2300 was cashed to reimburse Mark’s petty cash fund. Mark had read about using a petty cash fund to pay for small purchases and has tried to keep his fund under $50 for this purpose. However, Mark had to write out cheque 2301 only a couple of days later as had no cash left. Mark remembers a little bit about good internal control procedures and keeps his petty cash in a locked container in the top drawer of his desk which is also locked. Both keys are hung on a key ring on the back of Marks office door at all times. When anyone needs petty cash they retrieve the keys and leave a note on a scrap of paper in the container stating how much they withdrew. If there is no money in the container when Mark checks next he will cash a cheque to overcome this.

Required

3. Comment on Mark’s use of the petty cash fund and any other issues that are of concern regarding the way Mark is controlling his cash. Suggest some better practices that Mark could employ.

____________________________________________________________________________

4. All this focus on protecting cash has jogged Mark’s memory and he recalls working on Cash Flow Statements and Cash Budgets while at University. Mark would like you to explain to him the role of these two items in the protection and management of cash.

____________________________________________________________________________

Despite all your efforts Mark is still concerned that he has very little money in the bank according to his bank statement. He has been speaking to his cousin Randy who has shown him some of the records of Deafening Racket which show the studio has a very healthy cash position at the end of September despite writing out a cheque of $15,000 to make sure Mark was liquid enough to pay some upcoming bills.

September Bank Statement

Date

Particulars

Debits

Credits

Balance

Sep-01

$ 5193 Cr

363

5992

10822 Cr

1560

12382 Cr

1568

$3645

8737 Cr

7756

16493 Cr

5272

21765 Cr

1570

2813

18952 Cr

1571

5497

13455 Cr

Direct Deposit

3 988

17443 Cr

Account Fees

276

17167 Cr

Interest

17254 Cr

TOTAL DEBITS

$12 594

TOTAL CREDITS $24 655

Cash Receipts Journal

Cash Payments Journal

Date

Cash at bank

Cheque no

Cash at bank

Deafening Racket

September

Bank Reconciliation Statement

$1560

1568

$3645

as at 30 September

7756

1569

2394

Balance as per bank statement

$17254 Cr

5272

1570

2813

Add:

1830

1571

5497

Outstanding Deposit

1830

TOTAL

$16 418

TOTAL

$14 349

Less:

October

Unpresented

# 1569

2394

1 820

1572

15000

cheques:

1460

1573

6850

2560

1574

3795

Balance as per

6980

1575

4227

Cash at Bank account

$16690 Dr

1000

1576

2138

TOTAL

$13 820

TOTAL

$32 010

Deafening Racket had a Debit Balance of $10822 in their Cash at Bank account at the end of August.

5. Examine the records above that Randy has shown Mark and review the bank reconciliation for Deafening Racket for September. Comment on any issues you can identify.

Bank Statement

Date

Particulars

Debits

Credits

Balance

Sep-01

$ 2630 Dr

$3470

840 Cr

935

$470

1860

2230 Cr

936

370

756

2616 Cr

937

1060

272

2300

1780 Cr

938

2336

1890

1334 Cr

2301

138

1196 Cr

939

568

658

1286 Cr

2303

774

1820

2332 Cr

460

2792 Cr

941

4620

560

1268 Dr

980

288 Dr

Ret Cheque

272

560 Dr

Direct Deposit

1 988

1428 Cr

Account Fees

1352 Cr

Interest

113

1239 Cr

TOTAL DEBITS

$11 845

TOTAL CREDITS $14 714

Explanation / Answer

Step-1: Internal Control System:

Step-2: Bank Reconciliation Statement Sep -17:

Particulars

Amount (in $)

Balance as per bank statement

1239

Less: Cheques issued but not presented for payment

2299

884

2302

246

Bank Balance As Per Cash Book

109

Step-3: Controls Required over petty cash management:

Step-4: Role of cash flow statement and Cash budjet in protection and management of cash:

Step-5: As Per Bank Reconciliation statement prepared for the month of Sep Cash Balance as per reconciliation is the cash balance is $16690.So Mark is no need to worry about his liquidity position at the end of September month.

Particulars

Amount (in $)

Balance as per bank statement

1239

Less: Cheques issued but not presented for payment

2299

884

2302

246

Bank Balance As Per Cash Book

109

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