Financial accounting exam 3 chapter 7, Strickland

b

(SO2) Which of the following statements is correct? a. Control is most effective when two or three people are given responsibility for the same task. b. The person who has custody of assets should not perform the record-keeping for the assets. c. The person who has custody of assets should also perform the record-keeping for the assets. d. It is a waste of company resources to have an employee perform independent internal verification.

d

(SO2) Which of the following statements is incorrect? a. Related purchasing activities should be assigned to different individuals. b. Safeguarding of assets is enhanced by the use of physical controls. c. Independent internal verification should be done by an employee independent of the personnel responsible for the information. d. The use of prenumbered documents is not an important internal control principle.

check

(SO4) A company should generally make payments by _________________________ rather then by cash.

NSF (non sufficient funds)

(SO5) A previously deposited check that "bounces" because the company that issued it does not have the money to cover the check is called ______________________.

miscellaneous expense

(SO5) In its journal entries relating to a bank reconciliation, a company will debit _______________________ ______________________ for bank service charges.

bank, cash

(SO6) If a _________________________ will accept an item at face value for deposit, then it is considered to be _________________________.

Treasury bills or commercial paper or money market funds

(SO6) _______________________ and _______________________ are examples of cash equivalents.

receivables, liabilities

(SO7) Two basic principles of cash management are to increase the speed of collection on ________________________ and to delay payment of _________________________.

financing

(SO8) The _________________________ section of a cash budget shows expected borrowings and repayment of principal and interest.

safeguard, enhance, increase, ensure

1. (SO1) Internal control consists of measures to ________________________ assets, and ________________________ the accuracy and reliability of accounting records, _________________________ efficiency of operations, and ________________________ compliance with laws and regulations.

Sarbanes-Oxley Act of 2002

2. (SO1) The ______________________________ Act requires that all publicly traded U.S. corporations maintain an adequate system of internal control.

a

6. (SO5) Which of the following is deducted from the balance per bank statement side of a bank reconciliation? a. An outstanding check for $300. b. A bank service charge for $10. c. An NSF check in the amount of $50. d. A deposit in transit of $200

petty cash fund

A _________ is used for small disbursements, disbursements for which it would not be economical to write a company check

cash equivalent

A ___________ is a short-term, highly liquid investment which is readily convertible to cash and so near its maturity that its market value is relatively insensitive to changes in interest rates

cash budget

A ___________ is an important tool in effective cash management. It helps a company plan its cash needs by showing its anticipated cash flows.

companys objective in the management of cash

A _______________ is to have sufficient cash to meet payments as they come due but to minimize the amount of non-revenue-generating cash on hand.

a

A company has the following items: cash on hand, $1,000; cash in a checking account, $3,000; cash in a savings account, $5,000; postage stamps, $50; and Treasury bills, $10,000. How much should the company report as cash on the balance sheet? a. $ 9,000. b. $ 9,050. c. $19,000. d. $19,050.

bank

A company may use a _____ as a depository and clearinghouse for checks received and written.

internal control over cash receipts

A company must have effective __________________, whether they are over-the-counter or mail receipts. While different size companies may apply them differently, all six internal control principles are important

reconcile, cash

A company receives monthly bank statements and must _______ the ending balance on the statement with the ending balance in the general ledger account "_____."

b

A company's monthly bank statement shows a collection by the bank of a note in the amount of $500 and related interest of $30. The journal entry to record the collection will include a: a. credit to Cash for $530. b. credit to Note Receivable for $500. c. credit to Note Receivable for $530. d. debit to Note Receivable for $500.

journal entry

After the bank reconciliation has been prepared, each reconciling item in the balance per books column must be recorded by the company in a ___________.

petty cash fund

At all times the total of the cash in the petty cash drawer and the vouchers should equal the total of the __________.

subtracted, books

Bank service charges are _________ from the balance per ______ column.

a check must be written for $227 When the journal entry is written, various expense accounts will be debited for $225 (the amount of the receipts), Cash will be credited for $227, and the difference of $2 will be debited to Cash Over and Short

Consider the following example. A company has a balance in the Petty Cash account of $300. At the end of the period, there are receipts in the petty cash drawer totaling $225, and there is cash in the drawer of $73.What must happen to bring the drawer up to $300?

c

Cooper Corporation showed a balance in its Cash account in its books of $1,250 when it received its monthly bank statement. It found the following reconciling items: deposits in transit, $256; outstanding checks, $375; NSF check in the amount of $102; bank service charges of $27; and note and interest collection by the bank for $850. What is the adjusted cash balance Cooper will show on its bank reconciliation? a. $1,131. b. $1,852. c. $1,971. d. $1,981.

a

Cumberland Corporation showed a balance in its Cash account in its books of $1,900 when it received its monthly bank statement. It found the following reconciling items: deposits in transit, $260; outstanding checks, $170; bank service charges, $20; and an NSF check in the amount of $100. It also found an error. A customer's check for $620 was recorded as $260. What is the adjusted cash balance Cumberland will show on its bank reconciliation?

added, bank

Deposits in transit (deposits which the company has recorded but the bank has not) are always______ to the balance per_____ column.

d

Effective internal control over cash disbursements includes: a. the use of prenumbered checks. b. the storage of blank checks in a secure place. c. the separation of authorization of checks and the actual writing of the checks. d. All of the above are part of effective internal control over cash disbursements.

c

Effective internal control over cash receipts includes: a. the use of one person to receive and record cash receipts. b. leave cash receipts in an unlocked drawer overnight allowing access the next morning. c. using bonded employees and requiring employees to take vacations. d. All of the above are part of effective internal control over cash receipts.

added or subtracted

Errors are ___________ from the column depending on the nature of the error.

cash equivalents

Examples of _________ include Treasury bills, commercial paper, and money market funds.

a

Expected incoming dividends and interest will be listed in the __________ section of a cash budget. a. cash receipts b. cash disbursements c. cash investments d. financing

b

Expected payments for direct materials will be listed in the __________ section of a cash budget. a. cash receipts b. cash disbursements c. cash investments d. financing

d

If cash is restricted as to its use and will be used within the next year, then it should be: a. included in the Cash and Cash Equivalents line on the balance sheet.. b. reported as a current liability on the balance sheet. c. reported as a noncurrent asset on the balance sheet. d. reported as a current asset separate from Cash and Cash Equivalents on the balance sheet.

miscellaneous expense, income statement

If the account (cash over and short) has an overall debit balance, then it is reported as a ____________ on which financial statement?

debiting Petty Cash and crediting Cash for $200

If the company sets up a petty cash fund for $200, then it writes a check to the custodian for that amount, what is recorded as a journal entry?

cash over and short

If the total of the receipts does not equal the total cash required, the difference is either debited or credited to which temporary account?

segregation of duties, record keeping and physical custody of assets should be assigned to different individuals

In a corporation the controller is responsible for record keeping functions, while the treasure has physical custody of assets. what does this describe?

safeguard its assets, enhance the accuracy and reliability of its accounting records, increases efficiency of operations, and ensure compliance with laws and regulations

Internal control consists of methods and measures adopted within a business to do what?

no other responsibilities for cash

It is customary to reconcile the balance per books and balance per bank to their adjusted (correct or true) cash balances. The reconciliation should be prepared by someone who has __________.

debited, accounts receivable

It is important to note that an NSF check is ________ to which account? , signaling the intention of the company to try to collect on the bounced check.

b

Keeping inventory levels low and planning the timing of major expenditures are two basic principles of: a. internal control. b. cash management. c. inventory management. d. capital stock management.

treasurer

Management of cash is the job of a company's _________ and is critical to a company's success

subtracted, books

NSF checks (bounced checks) are________ from the balance per______ column

added, books

Note and interest collections are ______ to the balance per _______ column.

a

On which two financial statements is Cash reported? a. Balance sheet and statement of cash flows. b. Balance sheet and income statement. c. Balance sheet and statement of retained earnings. d. Income statement and statement of cash flows.

subtracted, bank

Outstanding checks (checks recorded by the company which have not yet been paid by the bank) are always _______ from the balance per______ column.

a

The Petty Cash account has a balance of $800. The total of the receipts in the petty cash drawer is $608, and the cash in the drawer totals $198. When the fund is replenished, the journal entry will include a: a. credit to Cash Over and Short for $6. b. debit to Cash Over and Short for $6. c. debit to Cash for $602. d. credit to Petty Cash for $602.

accuracy of assumptions made by the company

The accuracy of the cash budget depends on the

cash receipts, cash disbursements, and financing

The cash budget has three sections:

c

The journal entry to establish a petty cash fund involves a: a. debit to Cash and a credit to Petty Cash. b. debit to Accounts Receivable and a credit to Cash. c. debit to Petty Cash and a credit to Cash. d. debit to Petty Cash Expense and a credit to Cash.

bank

The use of a _____ can increase good internal control over cash.

Increase the speed of collection on receivables, Keep inventory levels low,Delay payment of liabilities,Plan the timing of major expenditures, Invest idle cash

There are five principles of cash management?

fraud

This is a dishonest act by an employee that results in a personal benefit to the employee at a cost of the employer.

a control environment, risk assessment, control activities, information and communication, and monitoring

What are the 5 primary components of an internal control system?

establishment of responsibilities, segregation of duties, documentation procedures, physical controls, independent internal verification, and human resource controls

What are the six principles of control activities?

opportunity financial pressure rationalization

What are the three components of the fraud triangle?

risk assessment

Which of the 5 primary components of an internal control system does this describe? by which the company determines risk factors and how to manage these factors

monitoring

Which of the 5 primary components of an internal control system does this describe? by which the system is checked periodically to ensure adequacy

information and communication

Which of the 5 primary components of an internal control system does this describe? ensuring that important information is communicated both up and down the organization

control activities

Which of the 5 primary components of an internal control system does this describe? policies and procedures designed to address specific risks

a control environment

Which of the 5 primary components of an internal control system does this describe? showing that management values ethics and integrity

b

Which of the following is added to the balance per books side of a bank reconciliation? a. An outstanding check for $300. b. A note of $500 collected by the bank. c. A deposit in transit of $150. d. A bank service charge for $50 for check printing.

a

Which of the following is not a cash equivalent? a. Money order. b. Money market fund. c. Treasury bill. d. Short-term corporate note.

c

Which of the following is not considered cash? a. Coins. b. Money orders. c. Short-term investment in stock. d. Checking account.

c

With respect to cash management, most companies try to: a. keep as much spare cash on hand as possible in case of emergency. b. keep a lot of cash in a non-interest-bearing checking account because that type of account has the lowest fees. c. invest idle cash, even if only overnight. d. invest idle cash in illiquid investments because that is where money earns the greatest return.

cash

_______ consists of coins, currency (paper money), checks, money orders, and money on hand or on deposit in a bank or similar depository.

cash

________ is reported on the balance sheet and on the statement of cash flows

cash

_________ is listed first in the current assets section because it is the most liquid of assets.

miscellaneous revenue, income statement

if the account ( cash over and short) has an overall credit balance, then it is reported as a __________ on which financial statement?

establishment of responsibility

in accordance to internal control over cash receipts, which of the 6 principles of control activities does this describe? Only designated personnel should be authorized to handle cash receipts.

physical controls

in accordance to internal control over cash receipts, which of the 6 principles of control activities does this describe? A company must store cash in secure areas, limit access to storage areas, and use cash registers.

documentation procedures

in accordance to internal control over cash receipts, which of the 6 principles of control activities does this describe? A company must use remittance advices, cash register tapes, and deposit slips.

human resource controls

in accordance to internal control over cash receipts, which of the 6 principles of control activities does this describe? Cash-handling personnel should be bonded and required to take vacations, and background checks should be conducted.

segregation of duties

in accordance to internal control over cash receipts, which of the 6 principles of control activities does this describe? Custody of and record-keeping for cash should be separated.

independent internal verification

in accordance to internal control over cash receipts, which of the 6 principles of control activities does this describe? Supervisors should count receipts daily, and the treasurer should compare total receipts to bank deposits daily.

Human resource controls

in accordance to the major internal control over cash disbursements, which of the 6 principles of control activities does this describe? Cash-handling personnel should be bonded and required to take vacations, and back ground checks should be conducted

Documentation procedures

in accordance to the major internal control over cash disbursements, which of the 6 principles of control activities does this describe? Checks should be prenumbered and used in sequence, and they should be issued only if an invoice has been approved. Invoices should be stamped "paid."

Segregation of duties

in accordance to the major internal control over cash disbursements, which of the 6 principles of control activities does this describe? Again, custody and record-keeping should be separated: those who make payments should not record the transactions.

Physical controls

in accordance to the major internal control over cash disbursements, which of the 6 principles of control activities does this describe? Blank checks should be secured, and check amounts should be printed with indelible ink.

Independent internal verification

in accordance to the major internal control over cash disbursements, which of the 6 principles of control activities does this describe? Checks and invoices should be compared, and a monthly bank reconciliation should be prepared.

Establishment of responsibility

in accordance to the major internal control over cash disbursements, which of the 6 principles of control activities does this describe? Only authorized personnel should sign checks and approve vendors

Electronic funds transfers (EFT)

these are disbursement systems that use wire, telephone, or computers to transfer cash from one location to another.

internal auditors

these are employees of the company who evaluate on a continuous basis the effectiveness of the company's system of internal control.

related sales activities

these include making a sale, shipping(or delivering) the goods, and billing the customer. and the responsibility of these should be segregated.

related purchasing activities

these include ordering merchandise, receiving goods, and paying (or authorizing payment) for merchandise. and the responsibility of these should be segregated.

internal controls

this generally provide reasonable assurance that assets are safeguarded and that the accounting records are accurate and reliable

human resource controls, rotating employees duties and requiring employees to take vacations

this helps to deter employees from attempting theft because the employees know that they cannot permanently conceal their theft.

human resource controls, bonding employees who handle cash

this involves acquiring of insurance protection against misappropriation of assets by dishonest employees.

limitations of any internal control system, human element

this is a dishonest or careless employee can render the system ineffective, and two or more employees may collude to circumvent the system. (Performing a thorough background check when considering whether to hire a person is crucial.)

A major internal control over cash disbursements

this is to use a voucher system (a network of approvals by authorized individuals, acting independently, to ensure that all disbursements by check are proper), except for small amounts that may be disbursed via a petty cash fund. Again, all six internal control principles apply

the use of a bank

this minimizes the amount of currency that must be kept on hand, and a double record of all transactions is kept.

human resource controls, conducting thorough background checks

this should help the company in hiring honest employees to begin with.

Deposits in transit, outstanding checks, errors

what are adjustments made to the column called "Balance per bank statement"?

NSF checks, bank service charges, note and interest collections, errors

what are adjustments made to the column called "Balance per books"?

limitations of any internal control system, the size of the company

what does this describe? A large company has the resources, both human and financial, to put into place a sophisticated system of internal control. A small company may be very limited in both areas and must do the best it can with what it has.

when it is running low on funds and at the end of every accounting period

when should the petty cash fund should be replenished ?(so that all expenses will be recorded before financial statements are prepared).

physical controls

which of the 6 principles of control activities does this describe? Their use is essential. _______(such as safes and locked computer rooms) relate to the safeguarding of assets , while mechanical and electronic controls( such as time clocks television monitors, and computer passwords) safeguard assets and enhance the accuracy and reliability of the accounting records.

human resource controls

which of the 6 principles of control activities does this describe? These include bonding of employees who handle cash, rotating employees' duties and requiring employees to take vacations, and conducting thorough background checks.

segregation of duties

which of the 6 principles of control activities does this describe? a. the responsibility for related activities should be assigned to different individuals b. record keeping and physical custody of assets should be assigned to different individuals

establishment of responsibility

which of the 6 principles of control activities does this describe? control is most effective when only one person is responsible for a given task. this are includes authorization and approval of transactions

documentation procedures

which of the 6 principles of control activities does this describe? wherever possible, documents should be renumbered, and all documents should be accounted for ( this includes voided documents). source documents should be forwarded promptly to the accounting department to ensure accurate and timely recording of a transaction.

independent internal verification

which of the 6 principles of control activities does this describe? This involves the review of data prepared by employees. this should be made periodically or on a surprise basis; this should be done by an employee who is independent of the personnel responsible for the information; and discrepancies and exceptions should be reported to a management level that can take appropriate corrective action. this is often performed by internal auditors who are employees of the company who evaluate on a continuous basis the effectiveness of the company's system of internal control