Ch 6

Deposits in transit are a common reconciling item in the computation of the adjusted book balance of cash on a bank reconciliation.

False Deposits in transit appear on the bank side of the bank reconciliation

Policies and procedures to protect assets ensure reliable accounting

Internal controls

At the end of the day, the cashier: (1) counts the money in the cash drawer, (2) compares the cash count with the recorded cash sales for the day, and (3) makes notations of differences (that is, cash overages or shortages) on a special report that is forwarded, along with the cash, to the accounting department. How should this procedure be described?

It is an unacceptable procedure, not following internal control principles. The cashier shouldn't count their own drawer. Another party needs to verify it balances.

How the bank refers to bounced checks (deposits that don't clear)

NSF non sufficient funds

Checks that we've recorded but the bank hasn't deducted from our account yet

Outstanding checks

Which of the following items would not be shown as an adjustment to the book balance of cash on a bank reconciliation?

Outstanding checks

Account used for making small cash payments

Petty cash

The internal control principle violated when doors are ulocked, and safes, cash registers, time clocks and electronic sensors are NOT used

Physical / technological controls

Which of the following is a purpose of an internal control system?

Protect assets Ensure reliable accounting Promote efficient operations Urge adherence to company policies All of the above

The internal control principle violated when the accountant signs checks or makes deposits

Separate record keeping from custody of assets

Which of the following would require the Petty Cash account to be debited?

The Petty Cash account is being created.

An analysis prepared to explain the difference between the balance of the checking account of the depositor and the checking account balance shown on the bank statement is called the bank reconciliation.

True

When preparing the bank reconciliation, it is discovered that a check written in the amount of $97.00 for payment of the company's telephone bill was recorded in error in the depositor's accounting records at $79.00. This error will require a journal entry to correct the balance of the Cash account.

True

Which of the following would be an appropriate use for petty cash?

postage

Which of the following is not a proper control procedure relating to cash?

Cash receipts are deposited on a weekly basis in a bank Deposits should take place at least daily.

Account used when too much or too little cash is on hand

Cash short/over

When two or more individuals work together to get around internal controls

Collusion

What is the proper journal entry to adjust the cash account for a check returned as NSF by the bank?

Debit Accounts Receivable; Credit Cash

The company's accountant recorded a bank deposit at $460, but the bank recorded the deposit at its correct amount of $640. (The accountant made the error.) How should this error be treated on the bank reconciliation?

addition to book balance

After completing a bank reconciliation, you journalize items on the ___________

book side of reconciliation

Deposits we've recorded but the bank hasn't yet added to our account

Deposits in transit

The internal control principle violated when the same person authorizes purchases as receives goods

Divide responsibility for related transactions (segregation of duties)

The internal control principle violated when two people use the same cash register simultaneously

Establish responsibility

If two sales clerks share the same cash register, which principle of internal control has been compromised (or violated)?

Establishing responsibilities.

A journal entry is made each time a petty cash disbursement is made.

False

A person who has custody of an asset should maintain that asset's accounting records.

False

A properly designed and effective internal control system provides guarantees against losses and errors in accounting.

False

If the bank has recorded a deposit of $1,112 in error as a deposit of $1,121, the bank should be notified and a journal entry is required on the books of the depositor.

False

How should a deposit in transit be treated on a bank reconciliation?

Addition to the bank statement balance

The internal control principle violated when copies of checks, purchase orders invoices aren't kept, or checks are not prenumbered

Adequate record keeping

The reimbursement of a petty cash fund will require a credit to the Petty Cash account for the amount of the reimbursement.

False

Treasury bills, money markets and commercial paper

Cash equivalents

Resolving the difference between the bank statement and our checkbook or cash account

Bank reconciliation

Items we recorded, but the bank hasn't recorded appear on the _____________

Bank side of reconciliation

Which of the following would be a benefit of having employees bonded?

Bonding reduces the risk of loss. Bonding discourages theft. The bonding company is unlikely to be sympathetic with an employee involved in theft. ! All of the above.

Items the bank recorded, but we haven't recorded appear on the ____________

Book side of reconciliation

When there is a difference between recorded cash sales and the count of cash in the cash register, the difference is recorded in an account called petty cash.

False