CCC7

Part 1 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 Natalies 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 Natalies 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 2024 using the following information.

GENERAL LEDGERCOOKIE CREATIONS INC.

Cash

Date 2024	Explanation	Ref	Debit	Credit	Balance
June 1	Balance				2,657
1			750		3,407
3	Check #600			625	2,782
3	Check #601			95	2,687
8	Check #602			56	2,631
9			1,050		3,681
13	Check #603			425	3,256
20			155		3,411
28	Check #604			297	3,114
28			110		3,224

PREMIER BANK

Statement of AccountCookie Creations Inc.

June 30, 2024

Date	Explanation	Checks and Other Debits	Deposits	Balance
May 31	Balance			3,256
June 1	Deposit		750	4,006
6	Check #600	625		3,381
6	Check #601	95		3,286
8	Check #602	56		3,230
9	Deposit		1,050	4,280
10	NSF check	100		4,180
10	NSFfee	35		4,145
14	Check #603	452		3,693
20	Deposit		125	3,818
23	EFTTelus	85		3,733
28	Check #599	361		3,372
30	Bank charges	13		3,359

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 Natalies 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 Rons 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 2024.

(b) Prepare any necessary general journal entries.

(c) If a balance sheet is prepared for Cookie Creations Inc. at June 30, 2024, what balance will be reported as cash in the current assets section?