Bank Reconciliation: Use The Following Information To Prepar

bank Reconciliationuse The Following Information To Prepare A Bank R

Bank reconciliation: use the following information to prepare a bank reconciliation for Dillion Company at April 30: 1. balance per cash account, April 30, $6042.10 2. balance per bank statement, April 30, $6300.28 3. deposit is not reflected on bank statement, $650 4. outstanding checks, April 30, $1140.18 5. service charge on bank statement not recorded in books, $12 6. error by bank - Dillard company check charged on Dillion companies bank statement, $400 7. check for advertising expenses, $130, incorrectly recorded on books as $310 2 Internal control: Regent Company encountered the following situations: a. The person who opens the mail for Regent, Bill Stevens, stole a check from a customer and cashed it. The cover-up theft, he debited sales returns and allowances and credited Accounts Receivable in the general ledger. He also posted the amount to the customer’s account in the Accounts Receivable subsidiary ledger. b. The purchasing agent, Susan Martin, used a company purchase order to order building materials from builders marked. Later, she telephoned builders marked and changed the delivery address to her home address. She told builders marked to charge the materials to the company. At month end, she approved the invoice from builders marked for payment. c. Nashville Supply Company sent to invoices for the same order: the first on June 10 and the second on July 20. The accountant authorized payment for both invoices and both were paid. d. On January 1, Jack Monte, a junior accountant for Regent, was given the responsibility of recording all general journal entries. At the end of the year, the auditors discovered that Monty had made 150 serious errors in recording transactions. The chief accountant was unaware that Monty had been making mistakes. Required For each situation, describe any violation of good internal control procedures and identify the steps that you would take to prevent each situation. 3 Credit losses based on credit sales: Highland company uses the allowance method of handling credit losses. It estimates losses at 1% of credit sales, which were $1,200,000 during the year. On December 31, the accounts receivable balance was $280,000 in the allowance for doubtful accounts had a credit balance of $1700 before adjustment. a. Prepare the adjusting entry to record credit losses for the year. b. Show how the accounts receivable account and the allowance for doubtful accounts would appear on the December 31 balance sheet. 4 credit losses based on Accounts Receivable: Maxwell Inc. analyzed its accounts receivable balances on December 31 and arrived at the age to balances listed below, along with the percentage that is estimated to be uncollectible: age group balance probability of non-collection 0 - 30 days past due $100, to 60 days past due $18, to 120 days past due $20, to 180 days past due $ over 180 days past due $ $147,000 The company handles credit losses with the allowance method. The credit balance of the allowance to doubtful accounts is $840 on December 31, before any adjustments. a. Prepare the adjusting entry for estimated credit losses on December 31 b. prepare the journal entry to write off Porter company’s account on the following May 12 in the amount of $ allowance method: Fullerton company, which has been in business for three years, makes all of its sales on account and does not offer cash discounts. This firms credit sales, collections from customers, and write-offs of uncollectible accounts for the three-year period are summarized below: year sales collections accounts written off 2012 $300,000 $287,000 $ $385,000 $380,000 $ $420,000 $407,000 $3650 Required a. if Fullerton company had used the allowance method for recognizing credit losses and had provided for such losses at the rate of 1.2% of credit sales, what amounts in accounts receivable and the allowance for doubtful accounts would appear on the firm’s balance sheet at the end of 2014? What total amount of bad debts expense would have appeared on the firm’s income statement during the three year period? b. Comment on the use of the 1.2% rate to provide for credit losses in part a

Paper For Above instruction

The comprehensive analysis of financial controls and credit management practices is essential for understanding the integrity of internal processes and the accuracy of financial reporting in organizations. This paper discusses the steps involved in preparing a bank reconciliation for Dillion Company, evaluates internal control violations through various scenarios at Regent Company, and examines the application of the allowance method for estimating credit losses based on sales and outstanding receivables at Highland, Maxwell, and Fullerton Companies.

Bank Reconciliation for Dillion Company

Preparing an accurate bank reconciliation is crucial for ensuring the consistency of company records with bank statements. For Dillion Company as of April 30, the reconciliation begins with the balance per cash account, which is $6,042.10, and the bank statement balance of $6,300.28. The discrepancies include deposits not reflected on the bank statement, amounting to $650, and outstanding checks totaling $1,140.18. Additional adjustments involve correcting bank errors, such as the wrongful charge of a Dillard Company check costing $400, and accounting for the bank service charge of $12 not yet recorded in the books. Additionally, the misrecorded check for advertising expenses ($130 recorded as $310) requires correction. Implementing these adjustments ensures that the adjusted cash balance per books and bank statement match, revealing the true cash position of Dillion Company.

Internal Control Violations and Preventative Measures at Regent Company

Internal control weaknesses threaten organizational integrity. Several violations were observed at Regent Company:

• Mail Theft and Cover-up: Bill Stevens stole and cashed a check, then manipulated the ledger by debiting sales returns and allowances and crediting accounts receivable, thus concealing the theft. To prevent this, segregating mail handling responsibilities from cashier functions, implementing strict cash handling procedures, and conducting regular audits are vital.
• Unauthorized Changes by Purchasing Agent: Susan Martin altered delivery addresses and instructed charge to the company for personal benefits. Controls such as approval authority limits, verification of purchase order changes, and periodic review of supplier activities can mitigate such risks.
• Duplicate Invoice Payments: Payment for two invoices for the same order indicates a lack of verification. Employing purchase order matching systems, multiple approval layers, and regular reconciliations can curb duplicate payments.
• Unchecked Errors in Journal Entries: Jack Monte's recording errors went unnoticed by management. Establishing routine internal audits, review of journal entries, and oversight by senior accountants are essential to detect and correct such mistakes effectively.

Estimating Credit Losses

Highland Company

Highland Company utilizes the allowance method, estimating credit losses at 1% of credit sales totaling $1,200,000. The existing allowance for doubtful accounts has a credit balance of $1700 before adjustments. The adjustment involves calculating 1% of sales ($12,000), and adjusting the allowance account accordingly:

Debit: Bad Debts Expense $10,300

which increases the allowance to reflect the estimated uncollectible accounts. The resulting balance ensures proper valuation of receivables on the balance sheet.

Maxwell Inc.

Maxwell Inc. assesses its accounts receivable based on age groups and associated non-collection probabilities. The total estimated uncollectible amount is derived from applying the respective percentages to the aged balances. For example, if the older segments have higher uncollectibility rates, the adjustment reflects an accurate allowance for doubtful accounts. The journal entry recognizes this estimate, updating the allowance account accordingly.

In addition, writing off Porter Company’s specific account involves debiting Allowance for Doubtful Accounts and crediting Accounts Receivable, removing the uncollectible receivable from the books. Precise estimation and timely write-offs are essential for accurate financial statements.

Fullerton Company and Provision for Credit Losses

Fullerton Company, lacking cash discounts, records credit sales and accounts receivable consistently. Using a rate of 1.2% applied to credit sales over three years, the ending allowance and receivables are projected. Calculating the percentage of uncollectible accounts, the allowance for doubtful accounts at 2014's end, along with the net realizable value of receivables, provides a realistic financial outlook.

The total bad debts expenses over the period, following the allowance method, sum up to the necessary adjustments to the allowance account, reflecting the estimated uncollectible portion of receivables.

While the 1.2% rate aligns with industry averages, reliance on a fixed percentage may oversimplify the complex nature of credit risk, which is influenced by economic conditions and customer creditworthiness. Therefore, supplementary analysis using aging schedules and specific customer assessments enhances the robustness of allowance estimates.

Conclusion

Effective internal controls and accurate estimation of credit losses are cornerstones of sound financial management. Proper segregation of duties, routine audits, detailed analysis of receivables, and adherence to best practices in allowance estimation support the integrity of financial reporting. As organizations grow, these controls and procedures must evolve to address emerging risks and maintain stakeholder confidence.

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