Part 1 Mei-ling is struggling to keep up with the recording of her accounting tr
ID: 2489208 • Letter: P
Question
Part 1
Mei-ling 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 classes. Her friend John is an accounting student who runs his own accounting service. He has asked Mei-ling if she would like to have him do her accounting.
John and Mei-ling meet and discuss her business. John suggests that he do the following for Mei-ling.
1. Hold 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 Mei-ling’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 Mei-ling to review.
8. Write himself a check every month for the work he has done for Mei-ling.
Instructions
Identify the weaknesses in internal control that you see in the system John is recommending. Can you suggest any improvements if Mei-ling hires John to do the accounting?
Part 2
Mei-ling 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.
Mei-ling would like you to help her. She asks you to prepare a bank reconciliation for June 2018 using the following informMC7 (Continued)
GENERAL LEDGER—MATCHA CREATIONS
Cash
Date
Explanation
Ref.
Debit
Credit
Balance
2018
June 1
1
3
3
8
9
13
20
28
28
Balance
Check #600
Check #601
Check #602
Check #603
Check #604
750
1,050
155
110
625
95
56
425
297
2,657
3,407
2,782
2,687
2,631
3,681
3,256
3,411
3,114
3,224
PREMIER BANK
Statement of Account—Matcha Creations
June 30, 2018
Date
Explanation
Checks and
Other Debits
Deposits
Balance
May 31
June 1
6
6
8
9
10
10
14
20
23
28
30
Balance
Deposit
Check #600
Check #601
Check #602
Deposit
NSF Check
NSF Fee
Check #603
Deposit
EFT – Telus
Check #599
Bank charges
625
95
56
100
35
452
85
361
13
750
1,050
125
3,256
4,006
3,381
3,286
3,230
4,280
4,180
4,145
3,693
3,818
3,733
3,372
3,359
MC7 (Continued)
Additional information:
1. On May 31, there were two outstanding checks: #595 for NT$238 and #599 for NT$361.
2. Premier Bank made a posting error to the bank statement: check #603 was issued for NT$425, not NT$452.
3. The deposit made on June 20 was for NT$125 that Mei-ling received for teaching a class. Mei-ling made an error in recording this transaction.
4. The electronic funds transfer (EFT) was for Mei-ling’s utilities expense.
5. The NSF check was from Ron Black. Mei-ling received this check for teaching a class to Ron’s children. Mei-ling 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 Matcha Creations’ bank reconciliation for June 30.
(b) Prepare any necessary adjusting entries at June 30.
(c) If a statement of financial position is prepared for Matcha Creations at June 30, what balance will be reported as cash in the current assets section?
Cash
Date
Explanation
Ref.
Debit
Credit
Balance
2018
June 1
1
3
3
8
9
13
20
28
28
Balance
Check #600
Check #601
Check #602
Check #603
Check #604
750
1,050
155
110
625
95
56
425
297
2,657
3,407
2,782
2,687
2,631
3,681
3,256
3,411
3,114
3,224
Explanation / Answer
Locking up the cash in the vehicle could be risky. Instead, if John could keep the cash at a safer place, it would be helpful. Also, he could go to the bank weekly, to deposit the excess cash. The power of signing all the checks should also not be given to John. An excess limit should be defined, beyond which only Mei-Ling could sign the checks and make payments. Confidentiality should be maintained by John for all the records of Mei-Ling. The check for John should be written by Mei-ling or any other responsible person. All the powers should not be given to John, or else he will have a chance to misauthorise them. There should be various checks on the job of John. Mei-ling should review it properly.