Accounting Chapter 6 Smartbook

Determine which of the statements below describes a petty cash receipt

-A petty cash receipt is sometimes called a petty cash ticket -A petty cash receipt will have a signature line for the person receiving a disbursement from the fund -The petty cashier must present all paid receipts to the company cashier in order to replenish the fund -Any person wishing to withdraw funds from a petty cash fund must complete a petty cash receipt

Recall the preparation of a bank reconciliation by selecting the correct items below.

-Add deposits in transit to the balance per bank. -Compute the adjusted bank balance. -Compute the adjusted book balance. -Subtract any outstanding checks from the balance per bank.

Identify the principles of internal control by selecting the correct answers below.

-Apply technological controls -Perform regular and independent reviews -Separate recordkeeping from custody of assets -Insure assets -Establish responsibilities -Maintain adequate records

Jackson Co. needs to replenish its petty cash fund. Currently, it contains $11 in cash and receipts for supplies of $40 and delivery expenses of $49. The fund was initially established with $100. Demonstrate the journal entry to replenish the account by choosing the correct actions from those below.

-Cash is credited for $89 -Delivery Expense is debited for $49 -Supplies Expense is debited for $40

Describe the internal control principle of separating recordkeeping from custody of assets by completing the following sentence. A person who ____________ (identifies/controls/recommends) or has access to an asset must __________ (always/not/) keep that asset's accounting records.

-Controls -Not

Jackson Co. needs to replenish its petty cash fund. Currently, it contains $11 in cash and receipts for supplies of $40 and delivery expenses of $49. The fund was initially established with $100. Demonstrate the journal entry to replenish the account by choosing the correct actions from those below

-Delivery Expense is debited for $49 -Cash is credited for $89 -Supplies Expense is debited for $40

Jackson Co. needs to replenish its petty cash fund. Currently, it contains $5 in cash and receipts for supplies of $40 and delivery expenses of $49. The fund was initially established with $100. Demonstrate the journal entry to replenish the account and recognize the cash shortage by choosing the correct actions from those given below.

-Delivery Expense is debited for $49 -Cash is credited for $95 -Cash Over and Short is debited for $6 -Supplies Expense is debited for $40

Which of the following are principles of internal control?

-Divide responsibility for related transactions -Perform regular and independent reviews -Maintain adequate records -Establish responsibilities

Human ______________ (error/fraud) is related to misjudgment or confusion. Human ______________ (error/fraud) involves intent to defeat internal controls for personal gain

-Error -Fraud

Determine which of the statement(s) are correct if a Petty Cash account is not replenished at the end of the accounting period.

-Expenses would not be recorded in the period in which they were incurred -The balance sheet would show an overstated cash asset -The income statement would reflect a net income amount that was too high

Determine which of the items below would appear in the Deposits and Credits column of a bank statement and would cause an increase in the account's balance.

-Interest paid by the bank on the bank account balance -Deposits made during the month -A note collected by the bank on behalf of the account owner

Review the following statements and select the ones which accurately describe a Petty Cash fund

-It is established to pay for small payments like postage, shipping fees, etc -It is an asset reported on the balance sheet -It is used to avoid the time and cost of writing checks for small amounts

Review the following statements and select the ones which accurately describe a Petty Cash fund.

-It is established to pay for small payments like postage, shipping fees, etc. -It is used to avoid the time and cost of writing checks for small amounts. -It is an asset reported on the balance sheet.

Which of the answers below correctly describe the Cash Over and Short account?

-It records the effects of cash overages and cash shortages -It is an income statement account -A debit balance reflects an expense

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below

-Keeping detailed records makes it unlikely that assets are lost or stolen without detection -Reliable records are a source of information that managers use to monitor activities

A depositor's account is a(n) __________ (liability/asset/expense) on the bank's records, but it is a(n) ________ (liability/asset/expense) on the books of the account owner. Because of this, every time the account owner makes a deposit, the bank _________ (debits/credits) the account owner's account.

-Liability -Asset -Credits

Choose the items below that would be subtracted from the book balance on a bank reconciliation.

-Monthly check charges assessed by the bank -NSF customer check -Monthly bank service charge

Identify the bank reconciliation items that would require adjustments to the book balance.

-NSF check -Interest earned -Collection of note by bank -Bank charges

Choose the items below that would be added to the book balance on a bank reconciliation.

-Note collected by the bank for the depositor -Interest earned on the depositor's account

Identify the factors that cause the bank statement balance to differ from the depositor's book balance by matching each to its definition on the right. -Outstanding Check -Deposit in Transit -NSF Check -Bank Charges

-Outstanding check: A check written by the depositor that has not yet been received by the bank for payment -Deposit in transit: Deposit made and recorded by the depositor, but not yet recorded on the bank statement -NSF check: A check written by a customer who does not have enough money in his account to cover the check -Bank charges: Service fees charged by the bank

Which of the following are correct regarding why management uses internal controls?

-Protect assets -Ensure reliable accounting -Uphold company policies -Promote efficient operations

The triple threat of fraud involves:

-Rationalization -Pressure -Opportunity

A bank reconciliation is a(n) _________ (entry/charge/report) explaining any differences between the __________ (checking/subsidiary/sales) account balance according to the depositor's records and the balance reported on the _________ (income/financial/bank) statement.

-Report -Checking -Bank

Describe what a petty cash fund is by completing the following sentence. A petty cash fund is used for ________ (large/small) payments in order to _________ (increase/avoid) the time and cost of writing checks for ________ (large/small) amounts

-Small -Avoid -Small

Summarize the internal control principle of establishing responsibility by completing the following sentence. Proper internal control means that responsibility for a ____________ (task/shortage/sale) is clearly _________ (posted/established/compensated) and assigned to one person

-Task -Established

A cash register tape reflected total sales equaling $100, but the cash in the cash register drawer equaled $105. Review the statements below and determine which is correct regarding this discrepancy.

-The Cash account will be debited for $105 -The extra $5 collected will be treated as a miscellaneous revenue -The Cash Over and Short account will be credited for $5 -The Sales account will be credited for $100

Determine the statements below that are true regarding why a bank reconciliation is used.

-We must reconcile the balance of the bank's records and the Cash account in the general ledger and explain or account for any differences in the two. -Timing differences between the bank statement and the depositor's records are reflected in the bank reconciliation. -The bank reconciliation is useful in proving the accuracy of the Cash account in the general ledger.

Identify when the Petty Cash fund is debited or credited by selecting the correct answer below

-When the account is increased -When the account is reduced -When the account is created

In preparing a monthly bank reconciliation, a business follows several steps. Place the selected steps below in the correct order of occurrence

1. Enter the bank statement balance then add any deposits in transit and subtract any outstanding checks 2. Compute the adjusted bank balance 3. Enter the company's book balance 4. Add any unrecorded cash receipts, interest earned, and errors understating the book balance 5. Subtract any unrecorded bank fees, NSF checks, and errors overstating the book balance 6. Compute the adjusted book balance and compare it to the adjusted bank balance to verify equality

Review the items below and determine which would cause an increase in the monthly bank statement balance.

Cash deposits made by the account owner

At the end of the month, ABC Co.'s petty cash fund contains $4 in cash and receipts for postage of $50 and delivery expenses of $44. It started out with $100 in the fund at the beginning of the month. Demonstrate the journal entry to replenish the account and recognize its shortage by choosing the correct action from those given below.

Cash is credited for $96

At the end of the month, Brown Co.'s petty cash fund contains $4 in cash and receipts for postage of $50 and delivery expenses of $46. It started out with $100 in the fund at the beginning of the month. Demonstrate the journal entry to replenish the account by choosing the correct action from those given below.

Cash is credited for $96

At the end of the month, ABC Co.'s petty cash fund contains $4 in cash and receipts for postage of $50 and delivery expenses of $44. It started out with $100 in the fund at the beginning of the month. Demonstrate the journal entry to replenish the account and recognize its shortage by choosing the correct action from those given below

Cash is credited for $96.

Jackson Brothers established a petty cash fund of $200 at the beginning of the year, but it decides to reduce the amount in the fund to $130. Demonstrate the correct journal entry to reduce the amount in the account by choosing the correct action from those given below

Cash is debited for $70 and Petty Cash is credited for $70

What is the purpose of internal controls?

Companies create internal controls to protect assets and ensure reliable accounting

Demonstrate the required adjusting entry needed to record a $1,000 note receivable collected by the bank by choosing the correct entry below

Debit Cash $1,000 and credit Notes Receivable $1,000.

The cash in a cash register equaled $100, but the record of cash receipts/sales equaled $102. Determine which of the following entries is correct to record cash sales and the shortage.

Debit Cash $100; debit Cash Over and Short $2; and credit Sales $102

Which statement below describes the internal control procedure of insuring assets and bonding key employees?

Insuring assets against casualty and bonding employees who handle cash, reduces risk of loss

Identify the item below that would be added to the book balance.

Interest earned

Which statement below explains why liquid assets are needed in a business?

Liquid assets must be readily available to settle near-term debt or obligations

Good recordkeeping helps protect assets and helps managers:

Monitor company activities

Identify the item below that would be subtracted from the book balance on a bank reconciliation

NSF check

Select the items below that would cause the bank statement balance to differ from the depositor's book balance.

NSF check, Deposit in transit, interest paid by bank

Define what liquidity means by completing the following sentence. Liquidity refers to a company's ability to pay for its ____________ (near/long) -term obligations

Near

Responsibility for a task should be clearly established and assigned to:

One person

Choose the statement below which is correct regarding which bank reconciliation items require adjusting journal entries.

Only the items reconciling the book balance require adjustment.

Determine which of the statement(s) are correct if a Petty Cash account is not replenished at the end of the accounting period

Only the petty cashier is responsible for paying cash from the fund

Review the following statements regarding a petty cash fund used in a business.

Only the petty cashier is responsible for paying cash from the fund.

XYZ Co. decided to create a petty cash fund. They estimated that $100 would be needed in the fund. Demonstrate the correct journal entry to create the account by choosing the correct action from those below

Petty Cash is debited for $100

Jackson Brothers decided to create a petty cash fund. They estimated that $200 would be needed in the fund. Demonstrate the correct journal entry to create the account by choosing the correct action from those below

Petty Cash is debited for $200; Cash is credited for $200

Determine which of the statements below is true regarding the adjusted bank balance and the adjusted book balance on a bank reconciliation

The adjusted bank balance must equal the adjusted cash balance per books.

Review the statements below to determine the correct definition of a debit memorandum.

The bank notifies the depositor of each deduction to the account with a debit memorandum.

Review the statements below to determine the correct definition of a credit memorandum.

The bank notifies the depositor of each increase to the account with a credit memorandum

True or false: The adjusted book balance and the adjusted bank balance must equal each other on a bank reconciliation; otherwise, the cash account is not reconciled.

True

The formula to compute days' sales uncollected is:

accounts receivable divided by net sales times 365

Brown Co. decides to increase the amount in its petty cash fund from 100 to $150. To show this increase in the petty cash account, you would:

debit Petty Cash for $50

Bonding employees who handle cash is important because it:

discourages employee theft