Capitalbanc Corporation Case 2.4

Reconciling all sub-ledgers to the general ledger for accurate interpretation of the business activity. For example, Accounts Payable Aging Report will be compared to the General ledger for the Accounts Payable account. The auditor must scan future payable transactions to see if they affect the current company outcome.

| (TCO 2) Transaction analysis results in the development of a journal entry. In the start-up of a business, the owner contributes $750,000 of cash. (1) Name the accounts impacted and how to use the format account name/debit or credit/dollar amount (10 points), and (2) explain how the Accounting Equation is impacted. (10 points)

The cash account is a balance sheet account and is in the liquid funds accounts It is important for the system be able to discriminate between balance sheet accounts (real accounts) and income statement accounts (nominal accounts). This classification is important for closing purposes and also for developing the financial statements. The account classification (liquid funds) is also important for the system when developing the financial statements.

The entries used to record the disposition when the receivables are sold to a factor often detail the cash received plus the service charge. The company can then balance their receivables account. When a credit card company records a credit card

Each Friday, the cash clerk records the amount of cash receive and deposit the money in the bank account. Each quarter, the controller requests information from the bank necessary to prepare bank reconciliation.

|   |   | | | |   | Trial Balance | |   | | | |   | 07/31/12 | |   | | | |   | | Debit | Credit | | | |   | | |   | | | | Cash | | 5410 |   | | | | Equipment | | 8000 |   | | | | Common Stock | | | 12000 | | | | Accounts Payable | | | 5400 | | | | Supplies | | 900 |   | | | | Prepaid Insurance | | 1800 |   | | | | Accounts Receivable | | 6200 |   | | | | Service Revenue | | | 7800 | | | | Salaries and Wages Expense | | 2000 |   | | | | Maintenance and Repairs Expense | | 290 |   | | | | Dividends | | 600 |   | | | |   |   | 25200 | 25200 | | | | | | | | | | D. Journalize Adjusting Entries | | | | | | | | | | | | | | Date | Account Titles and Explanations | Debit | Credit | | | | 2012 | Adjusting Entries | |   | | | | 07/31/12 | Accounts Receivable | 1700 |   | | | |   | Service Revenue | | 1700 | | | |   | (To record Services unbilled and uncollected) |   | | | | 31 | Depreciation Expense | 180 |   | | | |   | Accumulated Depreciation-Equip | | 180 | | | |   | (To record monthly depreciation) | |   | | | | 31 | Insurance Expense | 110 |   | | | |   | Prepaid Insurance | | 110 | | | |   | (To record 1/12 of expired insurance) | |   | | | | 31 | Supplies Expense | 580 |   | | | |   | Supplies | | 580 | | | |   | (To

‘Cash and cash equivalents’ include certain short-term investments and, in some cases, bank overdrafts. Like IFRS, ‘cash and cash equivalents’ include certain shortterm investments, although not necessarily the same short-term investments as under IFRS. Unlike IFRS, bank overdrafts are considered a form of short-term financing, with changes therein classified as financing activities. The statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. Like IFRS, the statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. The separate components of a single transaction are classified as operating, investing or financing. Unlike IFRS, cash receipts and payments with attributes of more than one class of cash flows are classified based on the predominant source of the cash flows unless the underlying transaction is accounted for as having different components. Cash flows from operating activities may be presented using either the direct method or the indirect method. If the direct method is used, then an entity presents a reconciliation of profit or loss to net cash flows from operating activities; however, in our experience practice varies regarding the measure of profit or loss used. Like IFRS, cash flows from operating activities may be presented using either the direct method or the indirect method. Like IFRS, if

During the first two weeks, Learning Team “A” studied several objectives. During Week One, we learned how to prepare journal entries to account for transactions related to accounts receivable and bad debt using both percentage of sales and the percentage of receivables methods, ways to distinguish between tangible and intangible assets, the means to identify the entries associated with acquisition, disposal, and sales of plant assets, and closed out the week by distinguishing between revenue and capital expenditures, and the entries associated with each. As we advanced into Week Two, we studied how to differentiate among accounts payable, notes payable and accrued expenses, methods to properly

The chief executive of the company was closely working with the vendors whose confirmations were vital in the auditing work and hence they could have submitted false confirmations. The auditing firm established a national risk management program for its clients and so national reviews were done to identify the high risk items in the financial statement. The vendor allowances were particularly high but they were not documented. As such, the auditors were supposed to demand for the documentations and compare them with the real figures. It is however noted that most of the documentations received were non-standard and this could have led to a different audit report given that vendor allowances were earlier identified as a high risk area. Inventory management was found to be poor especially in the allowances for inventory reserves. The audit firm was therefore obliged to carry out a thorough evaluation of the inventory reserves and determine whether it was reasonable. The valuation was also supposed to include all classes of inventory but for the case of the company, the evaluation excluded instances where no sales had been made. Hence, this evaluation could not accurately represent the position of the inventory reserve in the company. (Waters,2003)

e. “The auditor considers the level of assurance, if any, he wants from substantive testing for a particular audit objective and decides, among other things, which procedure, or combination of procedures, can provide that level of assurance. For some assertions, analytical

o The auditors should have done further testing should have been performed to discover the

Additional concerns have been made in regards to the red flags missed by auditors. First of all, auditors should have been alarmed by the size of the cash account held in the Cayman Islands. Auditors should have remained skeptical about the existence of this account. They should’ve addressed this red flag with

This frequently puts the auditor in the position, in effect, of deciding whether a company is able to obtain the funds it needs to continue operating. Thus, the auditor’s qualification tends to be a self-fulfilling prophecy. The auditor’s expression of uncertainty about the company’s ability to continue may contribute to making it a certainty.

Account Payable – records information about money that organization owes to suppliers and service providers

As a new auditor for the CPA firm of Croix, Marais, and Kale, you have been assigned to review the internal controls over mail cash receipts of Manhattan Company. Your review reviews the following: checks are promptly endorsed “For Deposits Only”, but no list of the checks is prepared by the person opening the mail. The mail is opened either by the cashier or by the employee who maintains the accounts receivable records. Mail receipts are deposited in the bank weekly by the cashier.