Marcia Tague asks your help concerning an NSF check. Explain to Marcia whether it will require an adjusting entry on the company’s books.

Chris Hite is confused about the lack of agreement between the cash balance per books and the balance per bank. Explain the causes for the lack of agreement to Chris and give an example of each cause.

“The use of a bank contributes significantly to good internal control over cash.” Is this true? Why?

What is the essential feature of an electronic funds transfer (EFT) procedure?

How do these principles apply to cash disbursements?

(b) Human resource controls.

How do these principles apply to cash disbursements?

(a) Physical controls.

Beth Pitchford is the new owner of Brigham Co. She has heard about internal control but is not clear about its importance for her business. Explain to Beth the four purposes of internal control, and give her one application of each purpose for Brigham Co.

Fraud experts often say that there are three primary factors that contribute to employee fraud. Identify the three factors and explain what is meant by each.

Rosa’s Pizza operates strictly on a carryout basis. Customers pick up their orders at a counter where a clerk exchanges the pizza for cash. While at the counter, the customer can see other employees making the pizzas and the large ovens in which the pizzas are baked.

Instructions

Identify the six principles of internal control and give an example of each principle that you might observe when picking up your pizza. (Note: It may not be possible to observe all the principles.)

Jack Woodling is concerned with control over mail receipts at Yount Sporting Goods. All mail receipts are opened by Bill Morten. Bill sends the checks to the accounting department, where they are stamped “For Deposit Only.” The accounting department records and deposits the mail receipts weekly. Jack asks your help in installing a good system of internal control over mail receipts.

Flint Hills Middle School wants to raise money for a new sound system for its auditorium. The primary fund-raising event is a dance at which the famous disc jockey Jay Dee will play classic and not-so-classic dance tunes. Trent Greeley, the music and theater instructor, has been given the responsibility for coordinating the fund-raising efforts. This is Trent’s first experience with fund-raising. He decides to put the eighth-grade choir in charge of the event; he will be a relatively passive observer.

Trent had 500 unnumbered tickets printed for the dance. He left the tickets in a box on his desk and told the choir students to take as many tickets as they thought they could sell for $5 each. In order to ensure that no extra tickets would be floating around, he told them to dispose of any unsold tickets. When the students received payment for the tickets, they were to bring the cash back to Trent, and he would put it in a locked box in his desk drawer.

Some of the students were responsible for decorating the gymnasium for the dance. Trent gave each of them a key to the money box and told them that if they took money out to purchase materials, they should put a note in the box saying how much they took and what it was used for. After two weeks, the money box appeared to be getting full, so Trent asked Sandy Overbay to count the money, prepare a deposit slip, and deposit the money in a bank account Trent had opened.

The day of the dance, Trent wrote a check from the account to pay Jay Dee. The DJ said, however, that he accepted only cash and did not give receipts. So Trent took$200 out of the cash box and gave it to Jay. At the dance, Trent had Deb Younger working at the entrance to the gymnasium, collecting tickets from students and selling tickets to those who had not pre-purchased them. Trent estimated that 400 students attended the dance.

The following day, Trent closed out the bank account, which had $250 in it, and gave that amount plus the$180 in the cash box to Principal Ramirez. Principal Ramirez seemed surprised that, after generating roughly $2,000 in sales, the dance netted only$430 in cash. Trent did not know how to respond.

Instructions

Identify as many internal control weaknesses as you can in this scenario, and suggest how each could be addressed.

Tom Hall has worked for Dr. Johnson for several years. Tom demonstrates a loyalty that is rare among employees. He is always willing to “cover” for other employees and hasn’t taken a vacation in three years.

One of Tom’s primary duties at the dental office is to open the mail, list checks received, and prepare the bank deposit form.

He also collects cash from patients at the cashier window as patients leave. At times, it is so hectic that Tom doesn’t bother to give patients a receipt for the cash paid on their accounts. He assures them he will see to it that they receive the proper credit. He is so well known by most patients that no one has ever complained.

When traffic is slow in the office, Tom offers to help another employee, Sue, post the payments to patients’ accounts receivable. Dr. Johnson installed a computerized accounting program that requires a user ID and password to log in, but Tom and Sue have found that it is more efficient to just leave the computer on and the receivables file open all the time, and minimize the file when it is not in use.

Instructions

Identify the principles of internal control that may be violated in this situation.

The financial statements of Tootsie Roll are presented in Appendix A of this book, together with an auditor’s report—Report of Independent Auditors.

Instructions

Using the financial statements and reports, answer these questions about Tootsie Roll’s internal controls and cash.

(e) Read the section of the report titled “Management’s Report on Internal Control Over Financial Reporting.” Summarize the statements made in that section of the report.

The financial statements of Tootsie Roll are presented in Appendix A of this book, together with an auditor’s report—Report of Independent Auditors.

Instructions

Using the financial statements and reports, answer these questions about Tootsie Roll’s internal controls and cash.

(d) How are cash equivalents defined in the Notes to Consolidated Financial Statements?