Problem 6-24A Petty Cash Fund

Internal Control and Accounting for Cash

Problem 6-24A Petty Cash Fund

Austin Co. established a petty cash fund by issuing a check for $300 and appointing Steve Mack as petty cash custodian. Mack had vouchers for the following petty cash payments during the month:

• Stamps: $62
• Miscellaneous items: $20
• Employee supper money: $70
• Taxi fare: $50
• Window-washing service: $75

There was $21 of currency in the petty cash box at the time it was replenished.

Required

a. Prepare all general journal entries necessary to (1) establish the fund, (2) reimburse employees, (3) recognize expenses, and (4) replenish the fund. (Hint: Journal entries may not be required for all the events.)
b. Explain how the Cash Short and Over account required in this case will affect the income statement.
c. Identify the event depicted in each journal entry recorded in Requirement a as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE).
d. Show the effects of the events in Requirement a on the financial statements using a horizontal statements model like the following one. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an account was not affected by the event.

Problem 6-25A Auditor Responsibilities

You have probably heard it is unwise to bite the hand that feeds you. Independent auditors are chosen by, paid by, and can be fired by the companies they audit. What keeps the auditor independent? In other words, what stops an auditor from blindly following the orders of a client?

Required

Write a memo that explains the reporting responsibilities of an independent auditor.