Assignment: Continuing Cookie Chronicle
Part 'I Natalie is struggling to keep up with the recording of her accounting transactions. She is spending a lot of time marketing and selling mixers and giving her cookie classes. Her friend John is an accounting student who runs his own accounting service. He has asked Natalie if she would like to have him do her accounting.
John and Natalie meet and discuss her business. John suggests that he do the following for Natalie.
1. Hold onto cash until there is enough to be deposited. (He would keep the cash locked up in his vehicle). He would also take all of the deposits to the bank at least twice a month.
2. Write and sign all of the checks.
3. Record all of the deposits in the accounting records.
4. Record all of the checks in the accounting records.
5. Prepare the monthly bank reconciliation.
6. Transfer all of Natalie's manual accounting records to his computer accounting program. John maintains all of the accounting information that he keeps for his clients on his laptop computer.
7. Prepare monthly financial statements for Natalie to review.
8. Write himself a check every month for the work he has done for Natalie. Instructions
Identify the weaknesses in internal control that you see in the system that John is recommending. (Consider the principles of internal control identified in the chapter.) Can you suggest any improvements if John is hired to do Natalie's accounting?
Part 2 Natalie decides that she cannot afford to hire John to do her accounting. One way that she can ensure that her cash account does not have any errors and is accurate and up-to-date is to prepare a bank reconciliation at the end of each month.
Natalie would like you to help her. She asks you to prepare a bank reconciliation for June 2018 using the following information.
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GENERAL LEDGER-COOKIE CREATIONS INC.
Cash
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Date
|
Explanation
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Ref
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Debit
|
Credit
|
Balance
|
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2015
|
|
|
|
|
|
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June 1
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Balance
|
|
|
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2,657
|
|
1
|
|
|
750
|
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3,407
|
|
3
|
Check #600
|
|
|
625
|
2,782
|
|
3
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Check #601
|
|
|
95
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2,687
|
|
8
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Check #602
|
|
|
56
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2,631
|
|
9
|
|
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1,050
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3,681
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13
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Check #603
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|
|
425
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3,256
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|
20
|
|
|
155
|
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3,411
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28
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Check #604
|
|
|
297
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3,114
|
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28
|
|
|
110
|
|
3,224
|
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PREMIER BANK
Statement of Account-Cookie Creations Inc.
June 30, 2018
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Date
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Explanation
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Checks and Other
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Deposits
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Balance
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Debits
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|
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May 31
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Balance
|
|
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3,256
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June 1
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Deposit
|
|
750
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4,006
|
|
6
|
Check #600
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625
|
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3,381
|
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6
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Check #601
|
95
|
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3,286
|
|
8
|
Check #602
|
56
|
|
3,230
|
|
9
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Deposit
|
|
1,050
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4,280
|
|
10
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NSF check
|
100
|
|
4,180
|
|
10
|
NSF-fee
|
35
|
|
4,145
|
|
14
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Check #603
|
452
|
|
3,693
|
|
20
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Deposit
|
|
125
|
3,818
|
|
23
|
EFT-Telus
|
85
|
|
3,733
|
|
28
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Check #599
|
361
|
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3,372
|
|
30
|
Bank charges
|
13
|
|
3,359
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Additional information:
1. On May 31, there were two outstanding checks: #595 for $238 and #599 for $361.
2. Premier Bank made a posting error to the bank statement: check #603 was issued for $425, not $452.
3. The deposit made on June 20 was for $125 that Natalie received for teaching a class. Natalie made an error in recording this transaction.
4. The electronic funds transfer (EFT) was for Natalie's cell phone use. Remember that she uses this phone only for business.
5. The NSF check was from Ron Black. Natalie received this check for teaching a class to Ron's children. Natalie contacted Ron and he assured her that she will receive a check in the mail for the outstanding amount of the invoice and the NSF bank charge.
Instructions
(a) Prepare Cookie Creations' bank reconciliation for June 2018.
(b) Prepare any necessary general journal entries.
(c) If a balance sheet is prepared for Cookie Creations Inc. at June 30, 2018, what balance will be reported as cash in the current assets section?