1. Upon reviewing the bank reconciliation, you realized that the general ledger
ID: 2534001 • Letter: 1
Question
1. Upon reviewing the bank reconciliation, you realized that the general ledger had not been adjusted for $200 worth of NSF checks received for cash sales. The amounts of the individual checks were too small to make it worthwhile to turn them over to an attorney for collection. Record the entry to correct cash, if necessary Page 2 2. While testing the inventory counts, the auditors noticed that several high dollar items had counts on the inventory listing which were materially higher than the actual counts. The difference between the actual and recorded inventory value was $45,000. Record the adjustment to correct inventory, if necessary. While comparing the current and prior year inventory schedules you noted that several products had approximately the same quantities. Upon further investigation you determined that the items had very little or no activity during the year. The inventory in question had a recorded value of $33,000 3. Upon discussions with sales and warehouse personnel, you learned that the items were prior versions of products, and were no longer offered for sale in the product catalog. You were also told that they will probably be thrown out rather than be sold through alternative distribution channels Record the adjustment to correct inventory, if necessary. While reviewing the inventory listing you noticed that certain items were counted by the unit, but priced per the case. The difference between the actual and recorded inventory value was $51,000. Record the adjustment to correct inventory, if necessary 4.Explanation / Answer
1) The first entry is regarding the NSF cheques of 200$. NSF Cheques are those cheques which cannot be honored because insufficient funds are available in the account of the customer.To correct the NSF cheques, Accounts receviavable would be increased by 200$ and bank would be reduced by 200$. Therefore the entry would be-
Accounts Receivable Debit 200$
Bank account credit 200$
2) The auditors noticed that the actual inventory is higher than the recorded inventory by 45,000$. The correct entry would involve debiting inventory in order to increase it to the correct amount. The credit would be given to the cost of goods sold since increase in closing stock would reduce cost of goods sold. Therefore the entry would be-
Inventory account debit 45000
Cost of goods sold account credit 45000
3) The inventory in this question has become obsolete and assuming that it will now be sold at 0$, the entry involves writing it off in the books. To write it off, inventory would be credited by 33000 and invetory write off expenses would be debited by 33000. There fore the entry would be-
Inventory write off debit 33000
Inventory Account credit 33000
4) This question involves recording the inventory at higher value than what is already recorded. Since the value of inventory is increasing by 51000$, it would be debited. The credit would be given to cost of goods sold.Therefore the entry would be-
Inventory account debit 51000$
Cost of goods sold account credit 51000$
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