Introduction

On May 31, 20×1, Jake obtains a bank statement from Ninth-Bank. According to the bank statement, the business bank account of Jake’s Computer Sale and Repair has an ending balance of $33,895 on May 31, 20×1. The cash account in the books of Jake’s Computer Sale and Repair shows an ending balance of $44,640.

Jake notes the following items:

· Jake deposited $11,600 in Ninth-Bank on May 30. The bank has not yet credited this amount to the business bank account.

· The following checks written by Jake have not yet been presented to Ninth-Bank for payment:

o Check #125: $350

o Check #131: $1,100

o Check #138: $90

· Jake’s Computer Sale and Repair presently has $800 in prepaid advertising on its books. The advertising agency had overcharged Jake’s Computer Sale and Repair by $150. The advertising agency corrects the error and deposits the amount directly into the business bank account.

· Bank service charges per the bank statement are $35.

· Interest earned on the bank balance is $10.

· A check for $250, previously recorded as a payment by a customer on an account receivable, was returned marked “nonsufficient funds” (NSF).

· The bank incorrectly debited the bank account of Jake’s Computer Sale and Repair for $560. This amount in fact relates to a check drawn on the account of a different business, Jack’s Car Sales and Repairs.

Requirement 1

Prepare the bank reconciliation of Jake’s Computer Sale and Repair as of May 31, 20×1. Complete the following:

Requirement 2

Make the journal entries necessary to reconcile the cash account with the bank statement.

Requirement 1, continued

Requirement 3

Dave is presently a part-time employee at Jake’s Computer Sale and Repair. Dave’s responsibilities include receiving and handling inventory and serving as the cashier when Jake is unavailable. Jake presently makes all the entries into the accounting records for the business and prepares the financial statements.

Jake is impressed with Dave’s work ethic and apparent trustworthiness, and offered Dave a full-time position.

The volume of transactions is increasing significantly as the business grows, and Jake is having trouble keeping up with all the day to day accounting work. Jake considers expanding Dave’s responsibilities to include journalizing all sales and inventory-related transactions. Identify the internal control issues that could arise if Dave’s duties were to include making journal entries for transactions, in addition to his current duties. Provide one examples of an internal control problem that could arise and suggest a solution to that problem.