Continuing Problem: Front Row Entertainment}

Over the next two months, Front Row Entertainment continues to enjoy success in signing artists and promoting events. However, the increased business is placing considerable stress on the keeping of timely and up-to-date financial records. In particular, both Cam and Anna are concerned about the accounting and management of the company's cash.

The tour promotion industry is a cash-intensive industry, normally requiring large prepayments to secure venues and arrange advertising. When the number of artists under contract was small, Cam and Anna developed a simple system to manage the company's cash. Normally, any cash received was put in a file cabinet in the company's office. If the amount appeared to be getting large, a deposit was made. Similarly, if a large cheque needed to be written, either Cam or Anna would check the balance in the chequebook. If cash was not sufficient to cover the cheque, they'd get cash from the file cabinet and deposit the amount necessary to cover the cheque. However, with the increasing business, they often forget to make deposits, and this has caused several cheques to be returned for nonsufficient funds. In addition, they are in the process of hiring additional office staff who will start work on May 1. They know that leaving cash in a file cabinet is not a good idea.

In order to obtain a better understanding of their cash position, Anna decides to perform a bank reconciliation-something she has neglected to do since the company was started.

According to the accounting records, the cash balance at April 30 was \(\$ 7,495\). Anna has obtained the following information from Front Row's April bank statement and an analysis of cancelled cheques and deposits:

\section*{Required:}
1. Discuss the purpose of an internal control system. How would the development of an internal control system benefit Front Row Entertainment? In your answer, be sure to highlight any problems that you noted with Front Row Entertainment's current system of accounting for cash.
2. Prepare a bank reconciliation for Front Row Entertainment for the period ended April 30, 2018.
3. Prepare any journal entries necessary because of the bank reconciliation.
4. How could the failure to prepare a bank reconciliation before April 30 have potentially affected previous monthly financial statements?
\section*{Case

Balance per bank at April 30 Deposits in transit at April 30 Outstanding cheques as of April 30 Debit memo for April utilities Bank service charge for April Interest earned during April NSF cheque from customer $3,250 4,370 1,160 845 50 450 590