CHAPTER 8

INTERNAL
CONTROL
AND CASH
Accounting Principles, Eighth Edition
Chapter
8-1

Cash
Cash Controls
Controls
E8-8 Lincolnville Company uses an imprest petty cash system. The
fund was established on March 1 with a balance of $100. During
March the following petty cash receipts were found in the petty cash
box.
March 5

Stamp inventory

March 7

Freight-out

March 9

Miscellaneous expense

March 11

Travel expense

March 14

Miscellaneous expense

$39
21
6
24
5

The fund was replenished on March 15 when the fund contained $3 in

cash. On March 20, the amount in the fund was increased to $150.
Instructions: Journalize the entries in March that pertain to the
operation of the petty cash fund.
Chapter
8-2

LO 5 Describe the operation of a petty cash fund.

Cash
Cash Controls
Controls
E8-8 The fund was established on March 1 with a
balance of $100.
March 1

Chapter
8-3

Petty cash
Cash

100
100

LO 5 Describe the operation of a petty cash fund.

Cash
Cash Controls
Controls
E8-8 The fund was replenished on March 15 when the
fund contained $3 in cash.
March 15

Chapter
8-4

Postage expense
Freight-out

39
21

Miscellaneous expense
Travel expense
Cash over and short
Cash

11
24
2
97

LO 5 Describe the operation of a petty cash fund.

Cash
Cash Controls
Controls
E8-8 On March 20, the amount in the fund was
increased to $150.
March 20

Petty cash
Cash

50

See another illustration page 351-352

Chapter
8-5

50

Use
Use of
of aa Bank
Bank
Contributes to good internal control over cash.
Minimizes the amount of currency on hand.
Creates a double record of bank transactions.
Bank reconciliation.

Chapter
8-6

LO 6 Indicate the control features of a bank account.

Use
Use of
of aa Bank
Bank
Making Bank Deposits
Authorized employee
should make deposit.

Front Side
Chapter
8-7

Illustration 8-10

Bank Code
Numbers

Reverse Side
LO 6 Indicate the control features of a bank account.

Use
Use of
of aa Bank
Bank
Writing Checks

Illustration 8-11

Written order signed by depositor directing bank to pay

a specified sum of money to a designated recipient.
Maker
Payee
Payer

Chapter
8-8

LO 6 Indicate the control features of a bank account.

Use
Use of
of aa Bank
Bank
Illustration 8-12

Bank Statements
Debit Memorandum
Bank service charge
NSF (not sufficient
funds)

Credit Memorandum
Collect notes
receivable.
Interest earned.
Chapter
8-9

See page 355

Use
Use of
of aa Bank
Bank

Review Question
The control features of a bank account do not
include:
a. having bank auditors verify the correctness of
the bank balance per books.
b. minimizing the amount of cash that must be kept
on hand.
c. providing a double record of all bank
transactions.

Chapter
8-10

d. safeguarding cash by using a bank as a

depository.
LO 6 Indicate the control features of a bank account.

Use
Use of
of aa Bank
Bank
Reconciling the Bank Account
Reconcile balance per books and balance per bank to
their adjusted (corrected) cash balances.
Reconciling Items:
1. Deposits in transit.
2. Outstanding checks.
3. Errors.
4. Bank memoranda.
Chapter
8-11

LO 7 Prepare a bank reconciliation.

Use
Use of
of aa Bank
Bank
Reconciliation Procedures
Illustration 8-13

+ Deposit in Transit

+ Notes collected by bank

NSF (bounced) checks

Check printing or other

service charges

Outstanding Checks

+- Bank Errors

+- Book Errors
CORRECT BALANCE
Chapter
8-12

CORRECT BALANCE
LO 7 Prepare a bank reconciliation.