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Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition
CHAPTER 7
INTERNAL CONTROL AND CASH
LEARNING OBJECTIVES
1. Explain the primary components of an internal control system, including its
control activities and limitations.
2. Apply the key control activities to cash receipts and payments.
3. Prepare a bank reconciliation.
4. Explain the reporting and management of cash.
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES

AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Questions
1. 1 C 6. 1 C 11. 2 C 16. 2,3 C 21. 3 K
2. 1 C 7. 1 C 12. 2 C 17. 3 C 22. 4 C
3. 1 C 8. 1 C 13. 2 C 18. 3 C 23. 4 C
4. 1 K 9. 1 C 14. 2 C 19. 3 C 24. 4 C
5. 1 C 10. 2 C 15. 2,3 C 20. 3 C 25. 4 C
Brief Exercises
1. 1 C 4. 1,2 K 7. 3 AN 10. 3 AP 13. 4 AP
2. 1 K 5. 3 C 8. 3 AN 11. 3 AP
3. 1,2 K 6. 3 AN 9. 3 AP 12. 4 C
Exercises
1. 1 C 4. 1,2 C 7. 3 AP 10. 4 AN
2. 1 C 5. 3 AP 8. 3 AP 11. 4 E
3. 1,2 C 6. 3 AP 9. 3 AP
Problems: Set A and B
1. 1,2 C 4. 1,2 AN 7. 3 AP 10. 4 C
2. 1,2 AN 5. 3 AP 8. 3 AP 11. 4 C
3. 1,2 AN 6. 3 AP 9. 4 AN
Accounting Cycle Review
1. 3,4 AP
Cases
1. 1 C 3. 1 C 5. 4 E
2. 4 C 4. 1,2 S 6. 1,2 C
Solutions Manual 7-1 Chapter 7

Copyright © 2017 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
Legend: The following abbreviations will appear throughout the solutions manual file.
LO Learning objective
BT Bloom's Taxonomy
K Knowledge
C Comprehension
AP Application
AN Analysis
S Synthesis
E Evaluation
Difficulty: Level of difficulty

S Simple
M Moderate
C Complex
Time: Estimated time to prepare in minutes
AACSB Association to Advance Collegiate Schools of Business

Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
CPA CM CPA Canada Competency

cpa-e001 Ethics Professional and Ethical Behaviour
cpa-e002 PS and DM Problem-Solving and Decision-Making
cpa-e003 Comm. Communication
cpa-e004 Self-Mgt. Self-Management
cpa-e005 Team & Lead Teamwork and Leadership
cpa-t001 Reporting Financial Reporting
cpa-t002 Stat. & Gov. Strategy and Governance
cpa-t003 Mgt. Accounting Management Accounting
cpa-t004 Audit Audit and Assurance
cpa-t005 Finance Finance
cpa-t006 Tax Taxation

ANSWERS TO QUESTIONS
1. The five primary components of a good internal control system include the
control environment, risk assessment, control activities, information and
communication, and monitoring.
A control environment encourages integrity and a high standard of ethical

behaviour. Risk assessment involves identification and management of key
business risks. Control activities are policies and procedures to help
mitigate the business risks. Information and communication ensures that
the internal control system captures and communicates the appropriate
information to internal and external users. Monitoring the internal control
system for its adequacy is a recurring process.
LO 1 BT: C Difficulty: S Time: 3 min. AACSB: None CPA: cpa-t001 CM: Reporting
2. Management is responsible for establishing a company’s control

environment. Since management is responsible for the preparation and
delivery of accurate and fair financial statements, it follows that
management should also be responsible for the internal control system
that generates the financial information communicated to the users of that
information.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
3. When designing and explaining to all employees the system of internal

control of the company, management must be clear as to their
expectations concerning what actions all employees must take and the
consequences of not following management’s policies and procedures.
Those individuals in top management must set the correct tone by strictly
adhering to the company policies and procedures and providing a
consistent example and message to all employees. This conformance will
demonstrate commitment on the part of management to the importance of
the internal control system and environment for all concerned and the
pledge to administer consequences to anyone not following their lead.
4. The five control activities that apply to most companies are assignment of
responsibility, segregation of duties, documentation, physical controls, and
review and reconciliation.
LO 1 BT: K Difficulty: S Time: 3 min. AACSB: None CPA: cpa-t001 CM: Reporting

5. Documentation procedures contribute to good internal control by providing

evidence of the occurrence of transactions and events and, when
signatures (or initials) are added, the documents establish responsibility for
the transactions. The prompt transmittal of documents to the accounting
department contributes to recording transactions in the proper period, and
the pre-numbering of documents helps to ensure that a transaction is
recorded only once.
6. Independent review and reconciliation by internal auditors is necessary

because employees can forget to, or intentionally fail to, follow internal
controls, or they might become careless if there is no one to observe and
evaluate their performance. Segregating the physical custody of assets
from accounting record keeping is not enough to ensure that nothing has
been stolen or recorded incorrectly. A performance review still needs to
be done to ensure these controls were working effectively.
LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001, cpa-t004 CM: Reporting and Audit
7. External auditors are required to be independent of the organization they

audit. This independence provides the reassurance needed by external
users and owners of the organization about the financial condition and
performance of the business depicted in the financial statements.
Independence provides the proper environment to arrive at appropriate
accounting and disclosure conclusions, particularly when judgement is
involved. Internal auditors are not independent of the organization as they
are employees of the organization. Their role is to assist management in
their responsibility to provide a proper internal control system and
environment.
LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001, cpa-t004 CM: Reporting and Audit
8. A company’s system of internal control can only give reasonable

assurance that assets are properly safeguarded and that accounting
records are reliable because the cost of a perfect system outweighs its
benefits. For example, if a company wanted flawless accounting records,
they could double the number of accountants on staff and have the new
accountants check all of the work that was done by experienced
accountants but the benefit of this is outweighed by the costs. Absolute
assurance is too costly. Furthermore, even if cost was not a factor,
human error and collusion cannot be eliminated.

9. Collusion occurs when two or more employees agree to circumvent

procedures or controls or get around control activities in an organization in
order to gain an advantage or to cover up theft or fraud. The internal
control activity that is most affected by collusion is the segregation of
employees’ duties.
10. Electronic funds transfers normally result in better internal control since no
cash or cheques are handled by employees, thereby limiting the possibility
of misappropriation. However, controls over EFT payments (and
collections) do need to be put in place.
11. This is a violation of the assignment of responsibility control activity. Each

cash register should only be used by one employee and an independent
verification of the cash in each register at the end of each shift should be
compared to the total of the sales recorded in the cash register plus the
float (coins and paper currency for making change) in the register. If a
discrepancy arises, the employee responsible for that register can be held
responsible.
12. Cash registers are visible to the customer. Thus, they prevent the sales
clerk from ringing up a lower amount for the price and pocketing the
difference. In addition, the customer receives an itemized receipt, and the cash register tape
13. This statement is true if the alternative to a cheque payment is a cash

payment. It is not always practical to make all payments by cheque but
payment by cheque contributes to effective internal control over cash
disbursements as it provides a record of all payments. Also, having only
authorized individuals sign the cheques reduces the likelihood of payments
being made for unauthorized amounts or to unauthorized vendors.
14. The receptionist has an opportunity to commit fraud. In the case of an

appointment where the customer pays cash, the cash can be pocketed by
the receptionist. The receptionist can then cancel the appointment, leaving
no trace in the accounting records of the revenue generated by the service.
This is a clear case of lack of segregation of duties.
LO 2 BT: C Difficulty: C Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
15. An employee who has no other responsibilities that relate to cash should

prepare the bank reconciliation. If a person had responsibility for handling

cash and also prepared the bank reconciliation, they could use the bank
reconciliation to hide fraud by falsifying the bank balance or misstating
reconciling items.
LO 2,3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
16. A bank contributes significantly to internal control over cash because it:
(1) safeguards cash on deposit, (2) minimizes the amount of cash that
must be kept on hand, and (3) provides another record of all bank
transactions.
17. The lack of agreement between the cash balances may be due to either:
(1) Timing differences—caused by recording a transaction on the
company’s books in one month and the bank recording it another
month (example – outstanding cheque) or the bank recording a
transaction first which the company will record after completing the
bank reconciliation (example – a bank service charge, or an NSF
cheque).
(2) Errors—made by either the company or the bank. For example, a
cheque for $110 is recorded by the depositor at $101.
18. (a) An NSF cheque is a cheque issued by a customer that was recorded
by the company when it was received and then deposited in the bank
only to discover later that the customer did not have the funds to
cover the cheque payment.
(b) An NSF cheque makes the bank balance lower than the book
balance and requires the book balance to be updated. Consequently,
it is deducted from the balance per books.
(c) An NSF cheque results in an entry in the company’s books, as a debit
to Accounts Receivable and a credit to Cash (assuming the cheque
deposited was a collection on account). The debit to Accounts
Receivable includes any additional charge that the bank may add for
their services with respect to the NSF cheque or the company may
add for late payment.
19. Since the March cheque has still not cleared the bank at April 30, it must
be included in the April 30th bank reconciliation as an outstanding cheque.

20. When performing a bank reconciliation, outstanding cheques are

subtracted from the bank balance to “move” that balance closer to the one
recorded on the company’s books. Since the bank balance is lower than
the book balance by the amount of this fraud, Sam will understate the
amount of outstanding cheques on the reconciliation. For example, if there
was no fraud, let’s assume that the bank balance would be $5,000 and that
the outstanding cheques were $3,000 so the book balance should be
$2,000. After the fraud the book balance is still $2,000 but the bank
balance is now $3,300 instead of $5,000. When Sam prepares the
reconciliation he has to make sure that the $3,300 will reconcile to $2,000
so he will list the outstanding cheques as only $1,300, thereby understating
them by the amount of cash he has stolen. The real outstanding cheques
of $3,000 less the stolen amount of $1,700, equals $1,300.
21. Cash includes cash on hand and cash in bank accounts. Cash equivalents
include short-term, highly liquid held-for-trading investments less any bank
overdrafts. Together, these two amounts combine and are reported as
cash and cash equivalents in the current assets section of the statement of
financial position.
22. Restricted cash is not available for general use as it is restricted for a
special purpose. When the restricted purpose is of a long-term nature, the
restricted cash is reported as a non-current asset. If it is expected to be
used within one year of the statement of financial position date, it would be
classified as a current asset and disclosed in the financial statements.
Compensating balances are minimum cash balances which lenders
specify that a borrower must maintain in the borrower’s bank account to
provide support for a loan. A compensating balance should be reported as
a non-current asset and the details of the loan conditions should be
disclosed in the notes to the financial statements.
23. The line of credit facility of $16 million does not represent a liability until
Brandon Corporation borrows (or draws) money under the line of credit.
In the notes to the financial statements, the terms of the line of credit and
its available limit of $16 million should be reported to demonstrate how
the business is well positioned to deal with future cash flow demands or
to take advantage of investment opportunities.

24. The basic principles of cash management are: (1) increase the speed of
collection on receivables, (2) keep inventory levels low, (3) delay payment
of liabilities, (4) plan the timing of major expenditures, (5) invest idle cash,
and (6) prepare a cash budget. The first three principles are ways to
increase cash on hand. The last three principles focus on making sure
management understands when cash balances will be high so that
investment income can be earned from idle cash and when cash
balances will be low so that bank loans or other financing can be
obtained.
25. Having too much cash on hand may hinder a business’ performance if the
cash cannot be used effectively and therefore not give a proper return to
the shareholders. Effective uses of cash can include upgrading existing
property, plant, and equipment, expanding the business, paying down
debt, repurchasing shares, or paying dividends.

SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 7-1
Control Activity Example
Assignment of Responsibility One person operates the cash register at the exit
of the parking garage.
Segregation of duties Tickets are provided to those entering the garage

by an automated machine. This ticket is given to
the attendant on exiting the parking garage. In
this way, the attendant does not authorize the
parking and collect the cash.
Documentation The time on the ticket is entered into a machine

to determine the amount owed, which is keyed
into the cash register before the gate will open. In
this way the total time in the parking garage is
recorded.
Physical controls Cash is kept in a cash register.
Review and reconciliation If a customer is overcharged, they will complain.

Review to make sure parking gate is not being
raised prior to payment being received.
Reconcile the number of parking tickets issued to
the amount of cash received.
BRIEF EXERCISE 7-2
(a) 3 All transactions should include original, detailed receipts.

(b) 4 Undeposited cash should be stored in the company safe.
(c) 5 Surprise cash counts are performed by internal audit.
(d) 1 Responsibility for related activities should be assigned to specific
employees.
(e) 2 Cheque signers are not allowed to record cash transactions

BRIEF EXERCISE 7-3
1. Documentation and physical controls

2. Review and reconciliation
3. Segregation of duties
4. Assignment of responsibility
5. Physical controls
LO 1,2 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-4
1. Documentation
2. Review and reconciliation
4. Assignment of responsibility
5. Segregation of duties
LO 1,2 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-5
1. Bank – 7. Book +
2. NA 8. Bank –
3. Bank + 9. Book –
4. Book – 10. Book –
5. Bank + 11. Bank –
6. Book – 12. Book +

BRIEF EXERCISE 7-6
January deposits in transit:
Deposits in transit at beginning of month ........................................... $ 0

Add: Deposits recorded in company books this month ...................... 5,000
Less: Deposits recorded on this month’s bank statement ................. 4,000
Deposits in transit at end of month .................................................... $1,000
February deposits in transit:
Deposits in transit at beginning of month ........................................... $1,000

Add: Deposits recorded in company books this month ...................... 5,600
Less: Deposits recorded on this month’s bank statement ................. 4,600
Deposits in transit at end of month .................................................... $2,000
LO 3 BT: AN Difficulty: M Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-7
November outstanding cheques:
Outstanding cheques at beginning of month ..................................... $ 0

Add: Cheques recorded in company books this month ..................... 27,100
Less: Cheques recorded on this month’s bank statement ................. 25,900
Outstanding cheques at end of month ............................................... $ 1,200
December outstanding deposits:
Outstanding cheques at beginning of month ..................................... $1,200

Add: Cheques recorded in company books this month ..................... 23,200
Less: Cheques recorded on this month’s bank statement ................. 19,700
Outstanding cheques at end of month ............................................... $ 4,700

BRIEF EXERCISE 7-8
(a) Kashechewan should correct its books for the error in recording the
cheque by reducing cash by $90 ($659 – $569).
The cheque in the amount of $415 mistakenly deducted by the bank

should be added back to the bank balance since it is the bank’s error.
(b) Accounts Payable ..................................................................... 90

Cash ........................................................................... 90
No entry is necessary for the cheque mistakenly deducted by the bank,

although the bank should be notified of this error.
BRIEF EXERCISE 7-9
June 30, reconciled cash balance per bank reconciliation ............... $18,920
Add: Cash receipts in July ............................................................... 21,700
Less: Cash disbursements in July ................................................... 24,300
July 31, unreconciled cash balance ................................................. $16,320
LO 3 BT: AP Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-10
Cash balance per bank $19,260

Add: Deposits in transit 1,450
20,710
Less: Outstanding cheques 3,630
Reconciled cash balance per bank $17,080
Cash balance per books (as per BE7-9) $16,320

Add: EFT collections on account 2,170
18,490
Less: Bank service charge $ 90
NSF cheque and fee ($1,270 + $50) 1,320
1,410
Reconciled cash balance per books $17,080

BRIEF EXERCISE 7-11
July 31 Cash ......................................................................... 2,170

Accounts Receivable......................................... 2,170
Bank Charges Expense ............................................ 90

Cash .................................................................. 90
Accounts Receivable ................................................ 1,320

Cash .................................................................. 1,320
BRIEF EXERCISE 7-12
Ouellette Ltée should report the cash in the bank, the payroll bank account, and
the cash register floats as cash. The held-for-trading investments would be
reported as cash equivalents because they mature within 90 days. Cash and
cash equivalents are recorded as a current asset. Assuming the restricted cash
is not expected to be used during the next year, the restricted cash for the plant
expansion should be reported as a non-current asset. The compensating
balance should also be reported as a non-current asset and disclosed in the
notes.
LO 4 BT: C Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 7-13
(a)
Cash in savings account $22,000
Less compensating balance 5,000 $17,000
Cash on hand 1,700
Cash in chequing account 14,000
Cash reported as a current asset $32,700
(b)
Compensating balance reported as non-current asset
and disclosed in the notes. 5,000
Income tax refund, current assets: Income Tax Receivable 2,000
Postdated cheques received from customers of $1,000 are not yet valid and
represent underlying current assets of accounts receivable.

SOLUTIONS TO EXERCISES
EXERCISE 7-1
(a) (b)
Control Strength or Weakness Suggested Improvements
1. No establishment of responsibility over The employees should use separate cash

the cash – weakness drawers.
Cash counts not performed Cash counts should be performed by a
independently – weakness supervisor at the end of the shift and the totals
compared to the cash register reading.
2. By shredding the receipts there is no Retain supporting information until such time
record maintained of sales for as all independent verification is complete
independent internal or external (a comparison of the receipts to the sales
verification – weakness recorded in the accounting records). Shred the
receipts only after the verification is complete.
3. Cash receipts procedures appear to NA
illustrate good internal control – the
segregation of duties between
receiving, recording, and depositing
cash greatly reduces the likelihood of
cash being stolen or recorded
incorrectly – strength
4. Improper segregation of duties could Different individuals should receive cash,
result in the misappropriation of cash record cash receipts, and deposit the cash.
and the ability to misstate the
accounting records to cover up the In a small business this may be impossible;
misappropriation – weakness therefore, it is imperative that management
take an active role in the operations and
supervision of the business to enable
detection of any accounting irregularities.
5. The procedures in place to conduct the NA

physical inventory count appear to be
reasonable – strength

EXERCISE 7-2
1. (a) It is possible to detect this type of fraud by comparing the amount of
inventory consumed during the evening with the sales that were
recorded in cash registers.
(b) This fraud can be prevented by segregating the duties of those
individuals handling the drinks to those individuals having access to
the cash register. If additional staff is not available, the floor
supervisor should keep a close eye on the bartender or inventory
could be counted once a day.
2. (a) It is possible to detect this type of fraud as the bottles of liquor sold
to establishments are not the same as those sold at a liquor store. A
special label is attached, which can be detected at the end of the
shift. As well, if the additional empty bottles are on hand at the end
of the shift, when the inventory consumed (including the bartender’s
bottle) at the end of the bartender’s shift is compared to sales, a
discrepancy will be noticed.
individuals handling the drinks to those individuals having access to
the cash register. If additional staff is not available, the floor
supervisor should keep a close eye on the bartender and do a bottle
count at the end of the shift.
3. (a) It is possible to detect this type of fraud if someone notices that the
number of appointments and services given by the spa does not
reconcile to the revenue deposited in the bank account for the day.
Most businesses of this nature will have someone comparing the
bank deposit slips with the appointment schedule (often the
schedule will be printed off a day or two prior to the scheduled date).
individuals handling the appointments, to those handing the cash,
and again to those individuals making the bank deposit. If additional
staff is not available, the owner of the spa should at least make the
bank deposit and require that the scheduling software not allow
appointment changes on the day of the appointment.

EXERCISE 7-2 (CONTINUED)

4. (a) It is possible to detect this type of fraud but likely only after the first
instance of fraud. The individual in charge of approving the bank
reconciliation could insist on looking at the cheques returned by the
bank and detect the unauthorized cheque.
individuals handling the cheques with the individual preparing the
bank reconciliation, and by being vigilant in scrutinizing the bank
reconciliation and its supporting documents.
EXERCISE 7-3
(a) (b)
Recommended
Weakness Control Activity Improvement
1. Inability to fix responsibility Assignment of There should be separate

for cash to a specific clerk. responsibility cash drawers and register
pass codes for each clerk.
2. Cash is not adequately Physical controls Cash should be stored in a

protected from theft. locked safe until it is
deposited in the bank.
3. Cash is not independently Review and A cashier office supervisor

counted. reconciliation should count cash and
reconcile the amount of cash
received to the cash register
reading.
4. The accountant should not Segregation of duties An employee not otherwise

handle cash and record cash handling cash or the
transactions. accounting records should
make the deposits.
5. Some sales will not be Documentation and All sales should be entered in
recorded so that they can be physical controls the cash register to provide
independently verified later; evidence the transaction has
cash is not adequately occurred. In addition, the
protected from theft. loose change box should be
locked to keep it safe until the
funds are deposited.
LO 1,2 BT: C Difficulty: M Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

EXERCISE 7-4
(a) (b)
Recommended
Weakness Control Activity Improvement
1. Cheques are not Physical controls Cheques should be stored in a safe or

stored in a secure locked file drawer.
area.
2. The approval of and Assignment of The purchasing manager should not

payment to suppliers responsibility and approve bills for payment nor should this
is done by the wrong segregation of manager have signing authority. An
employee. duties employee, other than one involved with
purchasing, who is aware of delivery of
goods and services, should be
authorizing the payment and another
member of senior management should be
assigned cheque signing duties.
3. Blank cheques are Assignment of Establish a second signing authority with

signed. responsibility the bank.
4. Cheques are not Documentation Cheques should be prenumbered and

prenumbered. their serial continuity subsequently tested
for completeness.
5. The bank Review and A person independent of the accountant

reconciliation is not reconciliation should prepare the bank reconciliation. If
independently this is not possible, then the accountant
prepared. can prepare the reconciliation but the
owner not the store manager (because
they can access cash) should approve it.
LO 1,2 BT: C Difficulty: M Time: 20 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

EXERCISE 7-5
(a)
August 31 reconciled cash balance per bank reconciliation ............. $ 34,780
Add: (4) Cash deposits in September ............................................. 199,680
Less: (1) Cheques issued ................................................ $176,978
(2) Salaries deposited to employee accounts ......... 39,170
(3) Monthly EFT payment for rent ........................... 2,600 218,748
September, unreconciled cash balance ............................................ $ 15,712
(b) None of the above items would be included in the bank reconciliation as
they are included in the starting (unreconciled) cash balance and already
have been recorded by the company.

EXERCISE 7-6
Bank Books Journal

Not
Item Add Deduct Add Deduct Appli- Entry
(Credit) (Debit) (Debit) (Credit) Required
cable
1. Deposits in transit at √ No
the end of April
2. Deposits in transit at √
the beginning of April No
that cleared the bank
in April
3. Outstanding cheques √
at the beginning of No
April that cleared the
bank in April
4. Outstanding cheques √ No
at the end of April
5. Bank service charges √ Yes
6. Deposit of $400 made
in error by the bank to √ No
the company’s
account
7. Cheque written for
$250 recorded in error √ Yes
as $520 on the books
8. NSF cheque received √ Yes
from customer
9. EFT collection on √ Yes
account not previously
recorded by company
10. Interest earned on √ Yes
bank account
LO 3 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

EXERCISE 7-7
(a) Deposits in transit: July 31

Deposits in transit, June 30 .................................................. $ 2,000
Add: Deposits recorded in company books in July .............. 14,750
Less: Deposits recorded on bank statement in July............. 15,820
Deposits in transit, July 31 .................................................... $ 930
Deposits in transit: August 31

Deposits in transit, July 31 .................................................... $ 930
Add: Deposits per books in company books in August ........ 22,900
Less: Deposits recorded on bank statement in August ........ 22,500
Deposits in transit, August 31 ............................................... $ 1,330
(b) Outstanding cheques: July 31

Outstanding cheques, June 30 ............................................. $ 570
Add: Cheques recorded in company books in July ............... 18,200
Less: Cheques recorded on July bank statement ................. 17,200
Outstanding cheques, July 31............................................... $ 1,570
Outstanding cheques: August 31

Outstanding cheques, July 31............................................... $ 1,570
Add: Cheques recorded in company books in August .......... 22,700
Less: Cheques recorded on August bank statement ............ 23,520
Outstanding cheques, August 31 .......................................... $ 750

EXERCISE 7-8
(a)
NEOPOLITAN LTD.
Bank Reconciliation
July 31
Cash balance per bank statement $10,670

12,638
Cash balance per books $ 8,953

Add: Cheque No. 373 error ($980 – $890) 90
EFT deposits 1,276
10,319
Less: Bank service charges 40
(b) July 31 Cash ................................................................. 90

Office Supplies ............................................ 90
Cash ................................................................. 1,276

Accounts Receivable ................................... 1,276
31 Bank Charges Expense .................................... 40

Cash ............................................................ 40

EXERCISE 7-9
(a) Outstanding deposit of May 31 $ 7,820

(b) Outstanding Cheques:
Cheque No. 003 – March 14 $1,675
Cheque No. 005 – March 18 360
Cheque No. 007 – March 22 2,130
Cheque No. 008 – March 23 525 $ 4,690
(c) Returned cheque – NSF S. Gillis – deduct 1,350
NSF fee – deduct 25
Bank service charges – deduct 40 $ 1,415
(d) May1, beginning balance ........................................................ $ 0
Add: Cash receipts in May ...................................................... 37,470
Less: Cash disbursements in May .......................................... 26,819
May 31, unreconciled cash balance........................................ $10,651
(e)
SHARP MANUFACTURING LTD.
Bank Reconciliation
May 31
Cash balance per bank statement $6,106

13,926
Cash balance per books $ 10,651

Less: Returned cheque – NSF S. Gillis 1,350
NSF fee 25
Bank service charges 40 1,415

EXERCISE 7-10
(a) Items that are considered cash but not cash equivalents would include:
1. Currency and coin $ 123
2. Royal Bank chequing account 4,325
3. Royal Bank savings account 5,000
5. Undeposited April customer cheques 750
7. Over-the-counter receipts ($1,735 + $1,230) 2,965
9. Cash register floats 500
Total cash $13,663
(b) 4. The $25,000 government treasury bill is considered a cash equivalent
because it matures within 90 days and the value at which it will
mature at is certain.
(c) Cash and cash equivalents = $13,663 [from (a)] + $25,000 = $38,663
(d) 6. Post-dated cheque—Accounts Receivable; Statement of Financial Position
8. IOU from company receptionist—Advances to Employees; Statement
of Financial Position
EXERCISE 7-11
Suggestions to improve cash management practices for Tory, Hachey, and
Wedunn:
1. Prepare a cash budget.
2. Adopt a time docketing accounting system that will track work performed
on files for individual clients.
3. Invoice clients monthly as work progresses using the accounting records
established for docketing time.
4. To the extent practicable, ask clients for retainers before work on files
begins. Use the retainers received to apply payments for monthly invoices
sent to clients.
5. When retainers are used up, request additional retainers until the case is
completed.
6. Establish an operating line of credit with the bank for day-to-day
operations.
7. Arrange a non-current loan for renovations and equipment with repayment
terms structured to coincide with expected future cash inflows.
8. Negotiate terms with suppliers that allow for delayed payments.
9. To the extent necessary, obtain additional investments from the three
lawyers to ensure payment to suppliers and employees are made on time.
LO 4 BT: E Difficulty: C Time: 25 min. AACSB: None CPA: cpa-t001 CM: Reporting

SOLUTIONS TO PROBLEMS
PROBLEM 7-1A
(a) Control Activities Application to Cash Receipts
Assignment of responsibility Only cashiers are authorized to sell tickets.

Only the manager and cashier can handle cash.
Only ushers authorize entrance.
Segregation of duties The duties of receiving cash and admitting

customers are assigned to the cashier and to the
doorperson. The manager maintains custody of
the cash, and the company accountant records
the cash.
Documentation Tickets are prenumbered. Cash count sheets are

prepared and initialled. Deposit slips are
prepared.
Physical controls Cash is deposited in a bank vault nightly.

Prenumbered tickets are locked into the machine
by the manager and the machine is used to issue
tickets.
Review and reconciliation Cash counts are made by the manager at the
end of each cashier’s shift. Daily comparisons
are made by the head cashier and accounting
department of cash received, deposited, and
recorded.
(b) Actions by the usher and cashier to collaborate to misappropriate cash

include:
1. Instead of tearing the tickets, the usher could return the tickets to the
cashier who could resell them, and the two could divide the cash.
2. The cashier could issue a lower priced ticket than paid for and the
usher would admit the customer. The difference between the ticket
issued and the cash received could be divided between the usher and
cashier.

PROBLEM 7-2A
(a) Control Weaknesses (b) Improvements
Fred or Asmaa can order goods John or Rehana should take on

(assignment of responsibility) and the responsibility for the
approve invoices for payment (up to purchase of goods.
$20,000 for Fred and up to $5,000 for
Asmaa). Fred is the sole signer of
cheques less than $20,000. Fred could
purchase items for personal use or
create and pay invoices to companies
that he owns.
Fred signs cheques and prepares the Someone who does not record
bank reconciliation. Fred could write a cash transactions or has
cheque to himself and cover it up in the access to cash and cheques
bank reconciliation and/or through should prepare the bank
journal entries. reconciliation. If this is not
possible, then one of the
owners should either prepare or
at least review and approve the
reconciliation.
One person can sign cheques At least two individuals should

sign each cheque to prevent
inappropriate expenditures.
LO 1,2 BT: AN Difficulty: C Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting

PROBLEM 7-3A
(a) Control Weaknesses (b) Recommendations
1. No segregation of duties between receiving the The duties of receiving cash and
cash and admitting students to the lessons. The admitting students should be
instructor could admit students for free or charge assigned to separate individuals.
extra and pocket the difference or report fewer
students and pocket the extra money.
2. There is no segregation of duties in the accounting An independent person should

function. The general manager could prepare approve the invoices for payment
fictitious invoices for payment or write cheques to and prepare the bank
himself and not be detected because the general reconciliations.
manager also prepares the bank reconciliation.
3. Each salesperson is responsible for determining An independent and experienced

credit policies and they receive a commission person should be responsible for
based on sales. They could provide credit to setting credit limits for customers.
customers who should not receive credit in order to Credit limit criteria should be
earn the commission on the sale. determined by the company and
consistently applied.
4. All programmers have access to the accounting Access to the accounting records
software which could provide unauthorized should be restricted and
changes to the accounting records (such as wage protected with password or
rates). biometric restrictions.
5. Eliminating receiving reports and purchase orders Receiving reports and purchase
causes problems when invoices from suppliers are orders should be reinstated.
received. Accountants will not be able to verify if
the invoice pertains to items that have actually
been received or approved. Incorrect or fictitious
invoices may be paid or unauthorized orders made.
LO 1,2 BT: AN Difficulty: M Time: 40 min. AACSB: None CPA: cpa-t001 CM: Reporting

PROBLEM 7-4A
The tickets were unnumbered so there is Tickets should be prenumbered so

no way of knowing if duplicates were that the students could be held more
made and sold. accountable for the tickets and a
final reconciliation could be
performed between cash receipts
and sales.
No record was kept of which students Roger should have kept a record of
took tickets to sell or how many they took which tickets were issued to each
so there is no way of knowing if tickets student for resale. (Note: This
were given away for free and how many problem could have been largely
tickets were actually sold. avoided if the tickets had been sold
at the door on the day of the dance.)
There was no control over unsold tickets. Students should have been required
This deficiency made it possible for to return the unsold tickets to Roger
students to sell tickets, keep the cash, as well as the cash. In each case,
and tell Roger that they had disposed of the students should have been
the unsold tickets. issued a receipt for the cash they
turned in and the tickets they
returned.
Did not receive a receipt from Obnoxious A receipt should have been obtained
Al. Without a receipt, there is no way to from Obnoxious Al.
verify how much Obnoxious Al was
actually paid. For example, it is possible
that he was only paid $100 and that
Roger took the rest.

PROBLEM 7-4A (CONTINUED)
(a) and (b) (continued)
Inadequate control over the cash box. Only Roger should have had
access to the key and disbursed
funds when necessary for
purchases.
Praveen Patel counted the funds, made Roger should have counted the
out the deposit slip, and took the funds to funds, with someone observing him.
the bank. Praveen could have taken some Then he could have made out the
of the money. deposit slip and had Praveen
deposit the funds.
Students taking money for decorations Roger should reimburse each

were not required to have a receipt and student when a receipt is provided.
had unrestricted access to the cash box to
pay for their purchases.
Sara Wu was collecting tickets and There should have been one
receiving cash for additional tickets sold. person selling tickets at the door
and a second person collecting
tickets. The tickets collected times
the price per ticket could then be
compared to the cash collected.
Net cash receipts were less than A final reconciliation should have
anticipated. been performed between cash on
hand, ticket sales, and purchase
receipts.
LO 1,2 BT: AN Difficulty: C Time: 50 min. AACSB: None CPA: cpa-t001 CM: Reporting

PROBLEM 7-5A
(a) BEAUPRÉ LTD.

Bank Reconciliation
July 31
Cash balance per bank statement .............................................. $21,722
Less: Outstanding cheques ($2,738 – $2,162) .......................... $ 576

Deposit incorrectly posted by bank ................................. 3,100 3,676
Reconciled cash balance per bank ............................................. $18,046
Cash balance per books ............................................................. $12,934

Add: EFT collections ................................................................ 5,230
18,164
Less: Bank service charges ....................................................... 118
Reconciled cash balance per books ........................................... $18,046
The salaries are not a reconciling item because they were recorded by
both the bank and the company.
(b) July 31 Cash ....................................................................... 5,230

Accounts Receivable ..................................... 5,230
31 Bank Charges Expense .......................................... 118

Cash .............................................................. 118

PROBLEM 7-6A
(a) HIRJI HOLDINGS LTD.

Bank Reconciliation
October 31
Cash balance per bank statement ........................ $16,780

Add: Outstanding deposits .................................... 6,300
............................................................................... 23,080
Less: Outstanding cheques .................................. 2,650
Reconciled cash balance per bank ....................... $20,430
Cash balance per books ........................................ $19,070

Add: Note receivable collection ............................ $ 2,000
Interest receivable collection on note ........... 180 2,180
21,250
Less: NSF cheque ................................................ $ 575
Cheque #3421 error ($860 - $680) ............... 180
Bank service charges ................................... 65 820
Reconciled cash balance per books ....................... $20,430
(b) Oct. 31 Cash ................................................... 2,180

Notes Receivable ..................... 2,000
Interest Receivable ................... 180
31 Accounts Receivable .......................... 575

Cash .......................................... 575
31 Utilities Expense ................................. 180

Cash .......................................... 180
31 Bank Charges Expense ...................... 65

Cash .......................................... 65

PROBLEM 7-7A
(a) February 28, reconciled cash balance per bank reconciliation $17,029
Add: Cash receipts in March.................................................... 9,249
Less: Cash disbursements in March ........................................ 7,912
March 31, unreconciled cash balance ..................................... $18,366
(b) Deposits in transit: $4,012 (dated March 31).
(c) Outstanding cheques: #3473 for $4,947 (dated March 29).
(d)
YAP LTD.
Bank Reconciliation
March 31
Balance per bank statement .......................................... $17,163

Add: Deposits in transit [from (b)] .............................. $4,012
Error in recording cheque #3472
($1,823 – $1,283) ......................................... 540 4,552
21,715
Less: Outstanding cheques
No. 3473 [from (c)] ........................................... 4,947
Reconciled cash balance per bank ............................... $16,768
Balance per books [from (a)] ........................................ $18,366

Add: EFT collection—Boudreault ............................. 610
18,976
Less: Service charges ................................................ $ 89
NSF cheque and fee—Mustafa ($870 + $35) ... 905
EFT loan payment ............................................ 1,214 2,208
Reconciled cash balance per books .............................. $16,768

(e) Mar. 31 Cash ....................................................... 610

Accounts Receivable ...................... 610
31 Bank Charges Expense .......................... 89

Cash ............................................... 89
31 Accounts Receivable .............................. 905

Cash ............................................... 905
31 Bank Loan Payable ................................ 1,130

Interest Expense..................................... 84
Cash ............................................... 1,214

PROBLEM 7-8A
(a)
October 31, reconciled cash balance per bank reconciliation ....... $23,812
Add: Cash receipts in November .................................................. 21,438
Less: Cash disbursements in November ...................................... 30,968
November 30, unreconciled cash balance .................................... $14,282
(b) HAMPTONS LIMITED

Bank Reconciliation
November 30
Balance per bank statement ......................................... $18,958

Add: Deposits in transit (Nov. 30 cash receipt) ........... 2,676
21,634
Less: Outstanding cheques
No. 2474 ........................................................ $1,008
No. 2480 ........................................................ 1,224
No. 2482 ........................................................ 1,660 3,892
Reconciled cash balance per bank ............................... $17,742
Balance per books [from (a)] ........................................ $14,282

Add: EFT collection .................................................. 5,008
19,290
Less: NSF cheque and fee ($500 + $80) ................... $580
Bank service charges ....................................... 50
Error in recording cheque No. 2476
($4,760 – $5,660) ............................................ 900
Error in Nov. 20 deposit ($5,908 – $5,890) ...... 18 1,548
Reconciled cash balance per books ............................. $17,742

(c) Nov. 30 Cash ..................................................................... 5,008

Notes Receivable ........................................ 4,400
Interest Revenue .......................................... 608
30 Bank Charges Expense ........................................ 50

Cash ............................................................. 50
30 Accounts Receivable (Giasson Developments) .... 580

Cash ............................................................. 580
30 Accounts Payable ................................................. 900

Cash ............................................................. 900
30 Accounts Receivable............................................. 18
Cash ............................................................. 18

PROBLEM 7-9A
(a) and (b) Cash and cash equivalents (reported in Current Assets section)
Cash:
1. Cash on hand ............................................................... $ 2,920
2. Commercial bank savings account............................... 57,800
Commercial bank chequing account ............................ 25,000
U.S. bank account (Canadian equivalent) .................... 27,000
Total cash ............................................................................... 112,720
Cash equivalents:
5. Government of Canada Bond....................................... 50,000
Total cash and cash equivalents ............................................. $162,720
(c) 3. Restricted cash would be reported as a current or non-current

asset, depending on the timing of the equipment replacement.
4. Amounts due from employees (travel advances) of $8,700 would

be classified as other receivables in an account called Advances to
Employees.
5. Held-for-trading investments would be listed separately in the

current assets section of the statement of financial position and
would include the term deposit that matures in 120 days (to be a
cash equivalent it would have to mature in 90 days or less) and the
shares of Loblaw Companies Limited. The classification of the
shares could also be non-current depending on management’s
intentions for holding the shares.
6. NSF cheques would be included in Accounts Receivable,

assuming the company expects collection. If collection is doubtful,
they might have been provided for as part of Bad Debts Expense
and related Allowance for Doubtful Accounts or written off as
uncollectible.
7. This amount would be reported as restricted cash in the non-

current assets section of the statement of financial position.

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Number of sample 1 2 3 4 5 6
Number of hours required for water
to disappear 4.3 1.8 10.3 3.0 21.0 4.3
Depth of moisture at time of
disappearance of water 11.0 12.0 11.4 13.3 11.7 12.0 centimeters.
Total depth of moisture 13.0 18.1 13.0 19.0 12.0 16.5 „
158. Determination of the Coefficient of Evaporation.—The coefficient

of evaporation is the number of milligrams of water evaporated from a square
centimeter of soil surface in a given unit of time. It is evident that this number
will vary with the physical state of the soil, the velocity of the wind, the saturation
of the air with aqueous vapor and the temperature. In all statements of analyses
these factors should appear.
The process may be carried on first (a) with soil samples kept continually
saturated with water and (b) with samples in which the water is allowed to
gradually dry out.
Method a.—The determination may be made in the shade or sunlight.
In the Shade.—A zinc cylinder (Z Fig. 20), fifteen centimeters in diameter and
7.5 centimeters high, with a rim one centimeter wide and one centimeter from
top, is covered at one end with linen or cotton cloth and filled with fine earth,
with gentle jolting, until even with the top. It is then placed in a zinc holder H,
into the circular opening of which it snugly fits as in A. This holder is twenty
centimeters in diameter and 7.5 centimeters deep. It has an opening at O through
which water can be added until it is filled so as to wet the bottom of Z when in
place. As the water is absorbed by the soil more is added and, the top being
covered, the apparatus is allowed to stand for twenty-four hours. At the end of
this time the soil in the zinc cylinder is saturated with water to the fullest
capillary extent.
The whole apparatus, after putting a stopper in O, is now weighed on a large
analytical balance and placed in an open room, with free-air circulation, for
twenty-four hours. At the end of this time it is again weighed and the loss of
weight calculated to milligrams per square centimeter. Where large and delicate
balances can not be had, the apparatus can be constructed on a smaller scale
suitable for use with a balance of the ordinary size.
In the Sunlight.—The apparatus described above is enclosed in a wooden box
having a circular opening the size of the soil-zinc cylinder. In the determination
of the rate of evaporation, the apparatus, charged and weighed as above
described, is exposed to the sun for a given period of time, say one hour. On the
second weighing the loss represents the water evaporated. The time of year, time
of day, velocity of wind and temperature, and degree of saturation of the air with
aqueous vapor, should be noted. The data obtained can then be calculated to
milligrams of water per square centimeter of surface for the unit of time.
Method b.—As in method a the determination may be made in the shade or in
the sunlight. The rate of evaporation is, in this method, a diminishing one and
depends largely on the reserve store of water in the sample at any given moment.
The same piece of apparatus may be used as in the determinations just
described. After charging the sample with moisture all excess of water in the
outer zinc vessel is removed and the rate of evaporation determined by exposure
in an open room or in the sunlight, as is done in the operations already
described.
Alternate Method.—The zinc cylinders used in determining saturation
coefficient, paragraph 145, may also be employed in determining the rate of
evaporation. Each cylinder should be wrapped with heavy paper or placed in a
thick cardboard receptacle, and all placed in a wooden box, the cover of which is
provided with circular perforations, just admitting the tops of the cylinders,
which should be flush with the upper surface of the cover.
Arranged in this way the cylinders previously weighed are exposed in the
shade or to direct sunlight and reweighed after a stated interval. On account of
the small surface here exposed in comparison with the total quantity of soil and
moisture it is recommended to weigh the cylinders once only in twenty-four
hours. The weighings may be continued for a fortnight or even a month.
In soils fully saturated with water the rate of evaporation is at first nearly the
same on account of the surface being practically that of water alone. As the
evaporation continues, however, the rate changes markedly with the character of
the soil.
159. Rapid Method of Wolff.—In order to expose a larger surface to
evaporation and to secure the results in a shorter period of time, Wolff[110] fills
square boxes, having wire-gauze bottoms, with fine earth, and after saturating
with moisture weighs and suspends them in the open air. The wire-gauze
bottoms are previously covered with filter paper to prevent loss of soil.
Figure 20.
Apparatus for Determining Coefficient of Evaporation.
160. Estimation of Water Given up in a Water-Free Atmosphere.—

The air-dried sample, in quantities of from five to ten grams in a thin layer on
glass, is placed over a vessel containing strong sulfuric acid. It is then placed on a
ground glass plate and covered with a bell jar. The sample is weighed at intervals
of five days until the weight is practically constant.
This method is valuable in giving the actual hygroscopic power of a soil
depending on its structure alone.
161. Estimation of the Porosity of the Soil for the Passage of Gases.—
Some further notion of the physical state of the soil known as porosity, may also
be derived by a study of the rate at which it will admit of the transmission of
gases. A method for estimating this has been devised by Ammon.[111]
Air is compressed in two gas holders by means of a column of water of proper
height to give the pressure required.
The tubes through which the air passes out of the gas holders are each
furnished with a stop-cock and united with a glass tube having a side tube set in
at right angles for carrying off the air.
The use of two holders makes it possible to carry on the experiment as long as
may be desired, one holder being filled with air while the other is emptying.
The common conducting tube is joined with a meter which is capable of
measuring, to 0.01, the volume of air passing through it. The pressure is
regulated by means of the stop-cocks. The air passing from the meter is received
in a drying tube filled with calcium chlorid.
From the drying tube the air enters a drying flask filled below with
concentrated sulfuric acid and above with pumice stone saturated therewith.
Next the dried air passes through a worm, eight meters long, surrounded with
water at a given temperature. The dried air of known temperature next enters the
experimental tube. This tube is made of sheet zinc 125 centimeters in length and
five centimeters in internal diameter. It is placed in an upright position, and
about six centimeters from its upper end carries a small tube at right angles to
the main one for connection with a water-filled manometer.
The upper and lower ends of the tube are closed with perforated rubber
stoppers carrying tubes for the entrance and exit of the air.
In the inside of the zinc tube are found two close-fitting but movable disks, of
the finest brass wire gauze, between which the material to be experimented upon
is held.
The layer of fine soil is held between these disks and may be of such a depth as
is required for the proper progress of the experiment. With soils of firm texture
opposing a great resistance to the passage of the air the column of earth tested
should be shorter than with light and very permeable soils. The experimental
tube is surrounded with a water jacket, which may also be made of sheet zinc,
carrying small tubes directed upwards for holding thermometers. The water
jacket should be kept at the same temperature as the air which is used in the
experiment.
The process of filling the tube, the amount of pressure to be used and the air
and soil temperature, will naturally vary in different determinations.
The volume of air at a given pressure and temperature which passes a column
of soil of a given length in a unit of time will give the coefficient of permeability.
162. Determination of Permeability in the Open Field.—A method for
determining the rate of transmission of a gas through the soil in the field has
been devised by Heinrich.[112]
A box C (Fig. 21) is made of strong sheet iron and has an opening below, ten
centimeters square, and a height of about twenty centimeters. At exactly ten
centimeters from the bottom, the box has a rim at right angles to its length so
that it can be placed only ten centimeters deep in the soil. The box holds a
volume of earth equal to 1,000 cubic centimeters.
The part of the box above ground is
connected with the bottle B by a glass tube as
indicated in the figure. The bottle B should
have a capacity of about ten liters. The air in
B is forced out through C by water running
in from the supply A and the pressure in B is
recorded by the manometer D. The
experiment should be tried on a soil
thoroughly moist.
In measuring the pressure in B the water
pressure should be cut off by the pinch-cock
between A and B, and the pressure on the
manometer observed after the lapse of one to
two minutes.
Figure 21.
Method of Heinrich.
MOVEMENT OF WATER THROUGH SOILS:
LYSIMETRY.
163. Porosity in Relation to Water Movement.—The intimate relation

which water movement in a soil bears to fertility makes highly important the
analytical study of this feature of porosity. A soil deficient in plant food, in so far
as chemical analysis is concerned, will produce far better crops when the flow of
moisture is favorable than a highly fertile soil in which the water may be in
deficiency or excess.
Aside from the actual rain-fall the texture of the soil, in other words its
porosity, is the most important factor in determining the proper supply of
moisture to the rootlets of plants. Even where the rain-fall is little, a properly
porous soil in contact with a moist subsoil will furnish the moisture necessary to
plant growth. This fact is well illustrated by the beet fields in Chino Valley,
California. In this locality most excellent crops of sugar beets are produced
without irrigation and almost without rain.
164. Methods of Water Movement—The translocation of soil water is
occasioned in at least two ways; namely,
1. By changing the porosity of a given stratum of soil.
2. By changing the amount of water a given stratum contains.
The following experiment by King[113] illustrates a convenient method of
studying this movement of water:
On a rich fallow ground of light clay soil, underlaid at a depth of eighteen
inches by a medium-grained sand, water, to the amount of two pounds per
square foot on an area of eight by eight feet, was slowly added with a sprinkler,
samples of soil having been previously taken in six-inch sections down to a depth
of three feet. The samples were taken along a diagonal of the square under
experiment and one foot apart. The middle sample of the line being from the
center of the area. The sampling and wetting occurred between one and three P.
M., on July 22, and on the evening of the 23 a corresponding series of samples
was taken along a line parallel to the first but eight inches distant. The changes in
the percentages of water in the soil are given in the following table, showing the
translocation of water in soil due to wetting the surface:
PER CENT OF WATER. DIFFERENCE.
Inches. Before wetting. After wetting. In per cent. In pounds per cu. ft.
0–6 14.00 22.23 +8.23 +2.873
6–12 15.14 15.71 +0.57 +0.199
12–18 16.23 15.75 –0.48 –0.213
18–24 17.70 16.92 –0.78 –0.347
24–30 16.76 14.41 –2.35 –1.032
30–36 15.51 15.21 –0.30 –0.132
The figures given in the last column of the table are computed from the
absolute dry weights of the upper three feet of soil as determined in a locality
some rods from the place of experiment, and are therefore only approximations,
but the error due to this cause is certainly small. It will be seen that while only
two pounds of water to the square foot were added to the surface, the upper six
inches contained 2.87 pounds per square foot more than before the water was
added, and the second six inches contained 0.199 pound more, and this too in
the face of the fact that the evaporation per square foot from a tray sitting on a
pair of scales close by, was 0.428 pound during the interval under consideration.
Similar experiments were made by taking the samples of soil at 5.30 P. M. in one-
foot sections down to four feet, at four equally distant places along the diagonal
of a square, six by six feet, and having the ground sprinkled. At the same time
four similar sets of samples were taken on lines vertical to each of the sides of the
square but four feet distant from them. The amount of water the soil contained
was then determined, and at 11.30 A. M., nineteen hours later, another series of
samples was taken at points about four inches distant from the last and the
amount of water determined with the result given below.
Translation of Water Occasioned by Wetting the Surface.
Depth of WET AREA. AREA NOT WET.
samples. Second
Before wetting. After wetting. First samples. samples.
Pounds Pounds Pounds Pounds
of of of of
Per water Per water Per water Per water
cent per cent per cent per cent per
of cubic of cubic of cubic of cubic
water. foot. water. foot. water. foot. water. foot.
0–12
inches 16.86 11.78 20.15 14.06 17.72 12.38 18.27 12.75
12–24 „ 17.76 15.79 19.71 17.52 19.18 17.05 19.94 17.72
24–36 „ 16.76 14.73 17.72 15.58 16.97 14.92 17.52 15.40
36–48 „ 15.01 14.03 16.47 15.40 15.49 14.48 15.16 14.17
Averages 16.59 14.08 18.51 15.64 17.34 14.71 17.71 15.01
Total
amount of
water 56.33 62.56 58.83 60.04
Amount
of change +6.23 +1.21
The above data show sufficiently well the method of investigation to be
pursued in studies of this kind.
165. Capillary Movement of Water.—The method of investigation
proposed by King[114] consists in taking samples of soil at intervals of one, two,
three, or four feet in depth, and determining the amount of moisture in each in
connection with the amount of rain-fall during the period. The quantity of water
contained in a given soil, at various depths and on different dates, is shown in the
following table:
Depth in Date. Per cent Pounds per cubic Increase or
feet. water. foot. decrease.
Pounds per cubic
foot.
1 March 24.33 16.98
8th
1 April 22.37 15.61 –1.37
18th
2 March 15.80 14.05
8th
2 April 21.64 19.24 +5.19
18th
3 March 11.16 9.81
8th
3 April 16.24 14.27 +4.46
18th
4 March 7.87 7.36
8th
4 April 11.19 10.46 +3.10
18th
The rain-fall during the interval was 4.18 inches, equal to 21.77 pounds per
square foot.
166. Lateral Capillary Flow.—To determine the lateral capillary flow of
water in a soil the following method, used by King[115] may be employed:
A zinc lined tray, six by six feet in area and eight inches deep, is filled with a
soil well packed. In one corner of this tray a section of five inches of unglazed
drainage tile, having its lower end broken and jagged, is set and the dirt well
filled in round it. By means of a Mariotte bottle water is constantly maintained in
the bottom of this tile, three-quarters of an inch deep, so that it will flow laterally
by capillary action into the adjacent soil, the object being to determine the extent
and rate of capillary flow laterally.
The water content of the soil is determined at the time of starting the
experiment, on the circumferences of circles described with the tile as a center,
the distance between the circles being one foot. At stated periods, usually at
intervals of one day, the content of moisture is again determined at the same
points. The investigations show that the lateral movement of water in the soil is
not rapid enough to extend much beyond three feet in thirty-one days, for
beyond that distance the soil was found to be drier than at the beginning of the
experiment. A record is to be kept of the amount of water delivered to the soil by
weighing the supply bottle at intervals, and the rates given at which the soil takes
up the water in grams per hour and pounds per day. Also the amount of flow per
square foot of soil section together with the mean daily evaporation should be
noted. The mean flow per foot of soil section is computed on the assumption that
the outer face of the zone of completely saturated soil is the delivering surface. In
King’s work this point, as nearly as could be determined, was twelve inches from
the corner of the tray and hence the figures at best can only be regarded as
approximations. The method of stating results is shown in the following table:
Showing the Rate of Lateral Capillary Flow of Water in Clay Loam.
Date. No. Total mean, Total mean, Mean daily flow Mean daily
of hourly flow, daily flow, per square foot, evaporation,
days. grams. pounds. pounds. pounds.
Jan. 28 5 70.70 3.73 2.38
to
Feb. 2
Feb. 2–7 5 85.98 4.54 2.91
Feb. 7– 5 79.33 4.19 2.64
12
Feb. 12– 5 79.41 4.19 2.64 0.598
17
Feb. 17– 5 70.79 3.74 2.38 0.534
22
Feb. 22– 6 59.89 3.16 2.01 0.451
28
Feb. 28 6 60.74 3.21 2.04 0.458
to
March
6
Mar. 6– 7 60.37 3.14 2.00 0.448
13
Means 2.38 0.498
From this table it will be seen that the flow of water in the soil varied in rate,
being slower during the first five days than in the succeeding fifteen days. After
twenty days the flow dropped again to the beginning rate and then fell below, but
remained quite constant during the following nineteen days. For the sake of
uniformity in units of measure the daily quantity of flow should be given in
kilograms when the hourly flow is given in grams.
167. Causes of Water Movement in the Soil.—The movement of water in
a soil as explained by Whitney[116] is due to two forces, viz., gravitation and
surface tension.
The force of gravitation in a given locality is always uniform, both in direction
and magnitude per unit volume of water.
Surface tension is the tendency of any exposed water surface to pull itself
together. It may act in any direction, according to circumstances, and may thus
sometimes help and sometimes antagonize the force of gravitation.
According to the law of surface tension any particle of moisture tends to
assume the smallest possible area. This tendency is a constant definite force per
unit of surface at a given temperature. In the soil this constant strain on the free
surface of water particles serves, in a high degree, to move them from place to
place, in harmony with the requirements of the different portions of the field.
When a soil is only slightly moist the water clings to its grains in the form of a
thin film. When these soil particles are brought together the films of water
surrounding them unite, one surface being in contact with the soil particles and
the other exposed to the air. If more water enter the soil the film thickens until
finally, when the point of saturation is reached, all the space between the soil
particles becomes filled with water, and surface tension within the soil is thus
reduced to zero. Gravity then alone acts on the water and with a maximum force.
In a cubic foot of ordinary soil the total surface of the soil particles will be at
least 50,000 square feet. It follows that when the soil is only slightly moist the
exposed water surface of the films surrounding the soil particles approximates
that of the particles themselves. If such a mass of slightly moist soil be brought in
contact with a like mass saturated with water, the films of water at the point of
contact will begin to thicken in the nearly dry soil at the expense of the water
content of the saturated mass. The water will thus be moved in any direction.
During evaporation the surface tension near the surface of the soil is increased,
and water is thus drawn from below. In like manner, when rain falls on a
somewhat dry soil, the surface tension is diminished and the greater surface
tension below pulls the moisture down even when gravitation would not be
sufficient for that purpose.
Certain fertilizers have the faculty of modifying surface tension and thus
change the power of the soil in its attraction for moisture. In this way such
fertilizers act favorably on plant growth, both by providing plant food and by
supplying needed moisture.
168. Surface Tension of Fertilizers.—Whitney gives the following data in
respect of the surface tension of aqueous solutions of some of the more common
fertilizing materials. It is expressed in gram meters per square meter, i. e., on a
square meter of liquid surface there is sufficient energy to lift the given number
of grams to the height of one meter.
Surface Tension of Various Fertilizing Solutions.
Solution of— Specific gravity. Gram meters per square meter.

Salt 1.070 7.975
Kainite 1.053 7.900
Lime 1.002 7.696
Water 1.000 7.668
Acid phosphate 1.005 7.656
Plaster 1.000 7.638
Ammonia 0.960 6.869
Urine 1.026 6.615
Magnesium chlorid 1.1000 7.964
Basic slag 1.0012 7.890
Marl 1.0013 7.855
Potassium chlorid 1.1000 7.853
Ammonium sulfate 1.1000 7.834
Dried blood 1.0001 7.764
Ground bone 1.0007 7.749
Sodium nitrate 1.1000 7.730
Sodium sulfate 1.1000 7.730
Wood ashes 1.0038 7.674
Potassium nitrate 1.1000 7.661
Potassium sulfate 1.0830 7.658
Ammonium nitrate 1.1000 7.656
Dried fish 1.0026 7.594
Stable manure 1.0013 7.464
Cotton-seed meal 1.0054 6.534
Tankage 1.0169 4.844
Cotton seed 1.0070 4.788
Surface Tension of Soil Extracts.
Kind of Soil. Specific gravity. Surface tension.

Kentucky blue grass 1.000 7.244
Triassic red sandstone 1.000 7.244
Wheat soil 1.000 7.098
Garden soil 1.000 7.089
169. Method of Estimating Surface Tension.—The determination of

surface tension is made by measuring the rise of the liquid in a capillary tube. A
short piece of thermometer tubing is used, the diameter of the bore being
determined by careful microscopic measurements with a micrometer eyepiece.
The diameter of the tube should be about 0.5578 millimeter. The tube is very
thoroughly cleaned after each observation, or set of observations, with a strong
caustic potash solution, and, after washing, is allowed to stand for some time in a
saturated solution of potassium bichromate in strong sulfuric acid. The height of
the rise in the capillary tube is measured with a cathetometer.
The following formula is used for the calculation of the results:
T = 4hcos.
dω
a
Where T is the surface tension, d is the diameter of the tube in centimeters; h

the height to which the liquid rises in the capillary tube in centimeters; ω is the
specific gravity of the solution; and 4 cos. a refers to the angle of the liquid with
the sides of the glass tube. For a tube of the size given above, 5° 24′ is the value of
this edge angle. In regard to saline solutions, Quincke[117] says, that the edge
angle appears to increase a little with augmenting concentration of the saline
solution, but otherwise to differ only inconsiderably from the edge angle of pure
water.
170. Effect of the Solutions on Surface Tension.—The mineral
fertilizers, as a rule, increase the surface tension of water, while organic matters
in solution decrease it. But it must not be forgotten in this connection that but
little of the organic matter in the fertilizers employed for the experiment passes
into solution. Moreover, with these substances, the accuracy of the work is
impaired somewhat by the increased viscosity. In general, the results of the
experiment are in harmony with the well-known effect of magnesium, sodium,
and potassium chlorids, and sodium nitrate, to make the soil more moist in dry
weather, and the opposite effect produced by the application of organic matter.
171. Method of Preparing Soil Extracts.—The soil extracts used in
determining the surface tension, as given in the above table, are prepared as
follows:
Ten grams of the soil are rubbed up with fifteen to twenty cubic centimeters of
distilled water and allowed to stand for twenty-four hours with frequent stirring.
Any fine particles not removable by a filter are neglected, although they may give
a turbid appearance to the solution.
172. Lysimetry.—The process of measuring the capacity of a soil to permit
the passage of water and of collecting and determining the amount of flow and
determining soluble matters therein is known as lysimetry. In general, the rate at
which water will pass through a soil depends on the fineness and approximation
of its particles. Water will pass through coarse sand almost as rapidly as through
a tube, while a fine clay may be almost impervious. The study of the phenomena
of filtration through soil, and the methods of quantitatively estimating them, are
therefore closely related to porosity.
Two cases are to be considered, viz.: First, percolation through samples of soil
prepared for analysis, and second, the passage of the water through soil in situ,
whether it be virgin or cultivated.
The determination of the rate of flow through a soil in laboratory samples,
gives valuable information in respect of its physical properties, while the same
determination made on the soil in situ, has practical relations to the supply of
moisture, to growing plants, and the waste of valuable plant food in the drainage
waters. The determination of the rate of flow of water through a small sample,
disturbed as little as possible in its natural condition, is classed with the first
divisions of the work, inasmuch as the removal of a sample of soil from a field,
and its transfer to the laboratory, subjects it to artificial conditions, even if its
texture be but little disturbed by the removal.
173. Calculation of the Relative Rate of Flow of Water Through
Soils.—There will evidently be one space, or opening, into the soil for every
surface grain, as pointed out by Whitney,[118] and the approximate number of
grains, or of openings, on a unit area of surface may be found by the following
formula:
N = (√(M ×V W)⅔
where N is the number of grains, or openings, on one square centimeter of
surface, M is the approximate number of grains in one gram of soil, W is the
weight of soil, V is the total volume of the soil grains and the empty space.
If the grains are assumed to be symmetrically arranged and the spaces between
them cylindrical in form, the radii of the spaces can be found by the following
formula:
V₁
r = √πNL
where r is the radius of a single space, V is the total volume of the empty space, N
is the number of grains or spaces on one square centimeter of surface, and L is
the depth of the soil.
If the space within the soil is completely filled with water the relative rate of
flow of water through the soil will be according to the fourth power of the radius
of a single space multiplied by the number of spaces on the unit area of surface,
as shown by the following formula:
N(r)⁴T
T₁ = N₁(r₁)⁴
where N-N₁ are the numbers of spaces, and r-r₁ are the radii of single spaces in
the respective soils, and T-T₁ the times required for a unit volume of water to
flow through the soils under the same head or pressure.
The space within the soil is rarely filled with water in agricultural lands, and
the most favorable amount of water for the soil to hold, as Hellriegel and others
have shown, is from thirty to fifty per cent of the total amount of water the soil
can hold if all the space within it were filled.
If the space within the soil be only partly filled with water, as in most arable
lands, the water will move in a thin film surrounding the soil grains and
according to the fourth power of the thickness of the film. The mean thickness of
the film surrounding the soil grains may be theoretically determined by the
following formula, which is based on the conception that the film is cylindrical
and of uniform size throughout:
t = r(1 − √s +s p)
where s is the per cent by weight of water which the soil will hold when the empty
space is filled with water, p the per cent of water actually contained in the soil, r
the radius of a single space, and t the mean thickness of the film surrounding the
soil grains.
The relative rate of flow of water through the soils will then be according to the
following formula:
N(t)⁴T
T₁ = N₁(t)₁⁴ )
It must be remembered that these formulæ give only approximate and
comparative values for comparing one soil with another. The structure of the soil
is altogether too intricate to expect ever to obtain absolute values.
If the observed rate of flow varies widely from the relative rate calculated from
the mechanical analysis, it will indicate a difference in the arrangement of the
soil grains, or in the amount or condition of the organic matter in the soils. In the
older agricultural regions of the United States, south of the influence of the
glacial action, the great soil areas appear to have sensibly similar arrangements
of the soil grains, and sensibly uniform conditions of organic matter, save where
these have been modified by local conditions.
174. Measurement of Rate of Percolation in a Soil Sample.—In order
to measure the power of the soil for permitting the passage of water, a box, about
twenty-five centimeters high and having a cross section of about three
centimeters square, is used. Below, this box has a funnel-shaped end with a
narrow outlet tube, which at its lower end is closed with cotton, in such a way
that a portion of the cotton extends through the stem of the funnel. A little coarse
quartz sand is scattered over the cotton and afterwards the funnel part of the
apparatus filled with it. The sand and the cotton are saturated with water and the
apparatus weighed. The box is then filled with the fine sample of earth, with light
tapping, until the depth of earth has reached about sixteen centimeters. The
apparatus, after the addition of the air-dried earth, is again weighed to determine
the amount of earth added, and the soil is then saturated by the careful addition
of water. After the excess of water has run down the funnel, the total quantity of
absorbed water is determined by reweighing the apparatus and the total water-
holding power of the soil is determined. There is carefully added, without stirring
up the surface of the soil, a column of water eight centimeters high, making in all
from sixty to seventy grams. The time is observed until the water ceases to drip
from the funnel. The dripping begins immediately after the water is poured on
and ceases as soon as the liquid on the surface of the soil has completely
disappeared. On the repetition of this operation a longer time for the passage of
the water is almost always required than at the first time. The experiment,
therefore, must be tried three or four times and the mean taken.
175. Method of Welitschowsky.[119]—The soil is placed in the vessel a, Fig.
22, which is cylindrical in shape and five centimeters in diameter. The lower end
of the cylinder is closed with a fine wire-gauze disk and the upper end is provided
with an enlargement for the reception of the tube b, which is connected to a with
a wide rubber band. The lower end of the tube b is also closed with a wire-gauze
disk. These tubes may be conveniently made of sheet zinc. The tube b carries on
the side, at distances of ten centimeters, small tubes of fifteen millimeters
diameter. On the opposite side it is provided with a glass tube set into a side tube
near the bottom for the purpose of showing the height of the water. The side tube
carrying the water meter is provided with a stop-cock as shown in the figure.
In conducting the experiment, after the apparatus has
been arranged as described, the small lateral tubes are, with
one exception, closed with stoppers. On the open one, d, a
rubber tube is fixed for the purpose of removing the water.
The required water pressure is secured by taking the lateral
opening corresponding to the pressure required. Water is
introduced into the apparatus slowly through the glass tube
f.
The water rises to d and then any excess flows off
through e. By a proper regulation of the water supply the
pressure is kept constant at d. The water flowing off
through a is collected by the funnel and delivered to
graduated flasks where its quantity can be measured for
any given unit of time. Since the rate of flow at first shows
variations, the measurement should not be commenced
until after the flow becomes constant.
In general, the experiments should last ten hours, and,
beginning with a water pressure of 100 centimeters, be
repeated successively with pressures of eighty, sixty, forty,
and twenty, centimeters, etc. In coarse soils, or with sand,
one hour is long enough for the experiment.
176. Statement Of Results.—In the following tables
the results for ninety centimeters, seventy centimeters, etc.,
are calculated from the analytical data obtained for 100
centimeters, eighty centimeters, etc.
Figure 22.
Method of
Welitschowsky.
Material—Quartz Sand.
Liters of Water Passing in

Ten Hours.
No. of Diameter of sand Water
Exp. particles in pressure in Thickness of Soil Layer.
mm. cm. 10 cm. 20 cm. 30 cm.
10 0.244 0.187 0.151
20 0.282 0.198 0.154
30 0.320 0.209 0.158
40 0.358 0.220 0.161
50 0.396 0.231 0.165
1. 0.01–0.71
60 0.434 0.242 0.168
70 0.472 0.253 0.172
80 0.510 0.264 0.175
90 0.548 0.275 0.179
100 0.586 0.286 0.182
10 2.194 1.724 1.425

20 2.898 2.012 1.578
30 3.602 2.300 1.731
40 4.306 2.588 1.884
50 5.010 2.876 2.037
2. 0.071–0.114
60 5.714 3.164 2.190
70 6.418 3.452 2.343
80 7.122 3.740 2.496
90 7.826 4.028 2.649
100 8.530 4.316 2.802
Similar sets of data have been collected with powdered limestone, clay and
humus.
The general conclusions from the experiments are as follows:
1. Clay (kaolin) and humus (peat) are almost impermeable for water, and fine
quartz and limestone dust are also very impermeable.
2. The permeability of a soil for water increases as the particles of the soil
increase in size, and when particles of different sizes are mixed together the
permeability approaches that of the finer particles.
3. The quantity of water passing through a given thickness of soil increases
with the water pressure but is not proportional thereto, increasing less rapidly
than the pressure.
4. The quantity of water passing under a given pressure is inversely
proportional to the thickness of the soil layer when the particles are very fine and
the pressure high.
177. Method of Whitney.—To determine the permeability of the soil or
subsoil to water or air, in its natural position in the field, the following method,
due to Whitney, can be recommended:
A hole should be dug, and the soil and subsoil on one side removed to the
depth at which the observation is to be made. A column of the soil or subsoil, two
inches or more square, and four or five inches deep, is then to be carved out with
a broad bladed knife, or a small saw can be conveniently used for cutting this out.
A glass or metal frame, a little larger than the sample and three or four inches
deep, is slipped over the column of soil, and melted paraffin is run in slowly to fill
up the space between the soil and the frame. The soil is then struck off even with
the top and bottom of the frame, preferably with a saw, or at any rate taking care
not to smooth it over with a knife, which would disturb the surface and affect the
rate of flow. The frame is then placed upon some coarse sand or gravel,
contained in a funnel, to prevent the soil from falling out and to provide good
drainage for the water to pass through. Another similar frame can then be placed
on top and secured by a wide rubber band. A little coarse sand, which has been
thoroughly washed and dried, is then placed on the soil, and water carefully
poured on until it is level with the top of the frame. When the water begins to
drop from the funnel more water must be added to the top, so as to have the
initial depth of water over the soil the same in all the experiments. A graduated
glass is then pushed under the funnel, and the time noted which is required for a
quantity of water to pass through the soil. The quantity usually taken for
measurement is equivalent to one inch in depth over the soil surface. In taking
the sample, root and worm-holes are to be avoided, and these are particularly
troublesome in clay lands.
178. Measurement of Percolation through the Soil in Situ.—If lateral
translocation could be prevented, the measurement of the quantity of water
descending in the soil through a given area would be a matter of simplicity. But
to secure accurate results all lateral communication of a given body of soil with
adjacent portions must be cut off. Various devices have been adopted to secure
this result. An elaborate system of lysimetric measurements is illustrated by the
apparatus erected by the Agricultural Experiment Station, of Indiana.
The plan and section of the apparatus are shown in Fig. 23.
Each lysimeter box, when finished, resembles somewhat a hogshead with one
head out. The sides, however, are perfectly straight inside, having a slight
thickening in the center, on the outside, for making them stronger. The sides and
bottom of the apparatus are constructed of oak and lined with sheet copper
carefully soldered so as to be water-tight. Six inches above, and parallel to the
bottom of each of the boxes, is a perforated copper tube, which extends entirely
across the lysimeter, and passing through one of the sides connects the box with
an underground vault in which the observations are taken. These tubes give an
outlet to the drainage water, as described further on. The lysimeters are made of
any required depth, the two which are shown in section being three and two-
thirds and six and two-thirds feet deep, respectively.
The following method is employed for filling them with soil: There are first
placed in the bottom of each lysimeter six inches of fine sand, sifted and washed,
which fills them up to the level of the drainage tubes. The lysimeters are then
filled with fine, sifted surface soil, to the depth of three and six feet, respectively,
making a complete pair of lysimeters, and leaving two inches of the lysimeter
boxes projecting above the surface of the soil so that each one will receive exactly
its proper share of the rain-fall.
The lysimeters of the other pair, which are the same size as the first, are filled
in a different way. The lysimeters are first constructed and placed over vertical
columns of soil in situ, which are obtained by digging away all the surrounding
soil and leaving the columns standing. The shorter lysimeter is sunk in this way
to within two inches of its entire length. It is then tipped over carrying the
column of soil with it. Six inches of the subsoil are then removed, when the
drainage tube and sand are put in, as in the first pair, and the bottom of the tube
soldered in place. The lysimeter is thus filled with the natural soil in place. The
longer box is in the same way filled, as far as possible, with the soil in place, but a
gravelly nature of the soil may render it impossible to do the filling with a single
column unbroken, so the gravel and sand from the lower portion of the soil are to
be filled in separately. The drainage tube and bottom of sand are placed in the
longer lysimeter in the same way as in the shorter.
Figure 23.
Ground Plan and Vertical Section of Lysimeters and Vaults Showing

Position of the Apparatus.
1, 1, 1, 1, Lysimeters.
2, 2, 2, 2, Receiving bottles.

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SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES

Solutions Manual 7-1 Chapter 7

Difficulty: Level of difficulty

Time: Estimated time to prepare in minutes

AACSB Association to Advance Collegiate Schools of Business

CPA CM CPA Canada Competency

Solutions Manual 7-2 Chapter 7

A control environment encourages integrity and a high standard of ethical

2. Management is responsible for establishing a company’s control

3. When designing and explaining to all employees the system of internal

Solutions Manual 7-3 Chapter 7

5. Documentation procedures contribute to good internal control by providing

6. Independent review and reconciliation by internal auditors is necessary

7. External auditors are required to be independent of the organization they

8. A company’s system of internal control can only give reasonable

Solutions Manual 7-4 Chapter 7

9. Collusion occurs when two or more employees agree to circumvent

11. This is a violation of the assignment of responsibility control activity. Each

13. This statement is true if the alternative to a cheque payment is a cash

14. The receptionist has an opportunity to commit fraud. In the case of an

Solutions Manual 7-5 Chapter 7

prepare the bank reconciliation. If a person had responsibility for handling

Solutions Manual 7-6 Chapter 7

20. When performing a bank reconciliation, outstanding cheques are

Solutions Manual 7-7 Chapter 7

Solutions Manual 7-8 Chapter 7

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 7-1

Control Activity Example

Segregation of duties Tickets are provided to those entering the garage

Documentation The time on the ticket is entered into a machine

Physical controls Cash is kept in a cash register.

Review and reconciliation If a customer is overcharged, they will complain.

BRIEF EXERCISE 7-2

(a) 3 All transactions should include original, detailed receipts.

Solutions Manual 7-9 Chapter 7

BRIEF EXERCISE 7-3

1. Documentation and physical controls

BRIEF EXERCISE 7-4

BRIEF EXERCISE 7-5

Solutions Manual 7-10 Chapter 7

BRIEF EXERCISE 7-6

January deposits in transit:

Deposits in transit at beginning of month ........................................... $ 0

February deposits in transit:

Deposits in transit at beginning of month ........................................... $1,000

BRIEF EXERCISE 7-7

November outstanding cheques:

Outstanding cheques at beginning of month ..................................... $ 0