Smartbook Chapter 8

A good internal control to protect cash is to make cash payments using

checks

What is the purpose of internal controls?

to protect assets and ensure reliable accounting

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.

Identify which of the items below are goals of good cash management. (Check all that apply.)

Plan cash receipts to meet cash payments when due. Keep a minimum level of cash necessary to operate.

Good recordkeeping helps protect assets and helps managers:

monitor company activities

Each of the following are types of technological impacts related to internal control:

new evidence of processing reduced processing errors separation of duties more extensive testing of records

A person who has access to an asset must _____ access to that asset's accounting records.

not have

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

one person

Which of the following are correct regarding why management uses internal controls? (Check all that apply.)

protect assets uphold company policies ensure reliable accounting promote efficient operations

The triple threat of fraud involves:

rationalization pressure opportunity

Describe the internal control principle of dividing responsibility for related transactions by selecting the correct statements below. (Check all that apply.)

-Examples of transactions with divided responsibility are placing inventory orders and paying vendors. -This principle is often called separation of duties. -This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction.

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below. (Check all that apply.) Multiple select question. -Bonding employees reduces the risk of loss. -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. -Dividing responsibility for related transactions reduces the occurrence of recordkeeping errors.

-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.

Which of the statements below explains how technology has impacted internal control systems? (Check all that apply.)

-Technology has encouraged the growth of e-commerce, which means that there is a higher risk of credit card number theft. -Technologically advanced systems can record who made entries, the date and time of the entry and the source of the entry. -Technology has reduced the number of processing errors.

Describe the internal control principle of dividing responsibility for related transactions by selecting the correct statements below. (Check all that apply.)

-This principle is often called separation of duties. -Examples of transactions with divided responsibility are placing inventory orders and paying vendors. -This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction.

Principles of Internal Control

1. establish responsibilities 2. maintain adequate records 3. insure assets and bond key employees 4. separate record keeping from custody of assets 5. divide responsibility for related transactions 6. apply technological controls 7. perform regular and independent reviews

Which of the answers below correctly describe the Cash Over and Short account? (Check all that apply.)

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

Given the choices below, choose the examples of internal controls designed to control cash payments (Check all that apply.)

All payments should be made by check. Only authorized individuals should be allowed to sign checks. Use of a petty cash system. Use of a voucher system.

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.

Blank 1: controls Blank 2: not

Define what liquidity means by completing the following sentence. Liquidity refers to a company's ability to pay for its _______ liabilities

Blank 1: current

The internal control of ___________ of duties means that the responsibility for a transaction should be divided between two or more individuals.

Blank 1: separation or segregation

Describe what a petty cash fund is by completing the following sentence. A petty cash fund is used for (large/small) payments.

Blank 1: 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.

Blank 1: task Blank 2: established

An ID scanner is a type of _______ control

Blank 1: technological or technology

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. (Check all that apply.)

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

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. Brown Co.'s journal entry to replenish the fund would include which of the following?

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.

Identify the basic internal control guidelines which should be in place to protect a business's cash by selecting the correct answers below. (Check all that apply.)

Cash receipts are promptly deposited in a bank. Handling cash is separate from recordkeeping of cash. Cash payments are made by check.

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.

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. (Check all that apply.)

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

Which of the statements below describe the goals and principles of cash management? (Check all that apply.)

Encourage quick collection of receivables. Keep a minimum level of cash necessary to operate. Plan cash receipts to meet cash payments when due. Money should be spent only when it is available.

Internal control policies and procedures have limitations that arise from many elements. Match the limitation on the left with its definition on the right.

Human error: Can occur from carelessness, misjudgment or confusion Human fraud: Involves intent by people to defeat internal controls for personal gain Cost-benefit principle: Dictates that the costs of internal controls must not exceed their benefits Internal control environment: Management must convey commitment to internal control policies and procedures

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

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.

Review the following statements and select the ones which accurately describe a Petty Cash fund. Select all answers which apply.

It is established to pay for small payments like low-cost supplies and shipping fees, etc. It is an asset reported on the balance sheet.

Identify which of the items below are goals of good cash management. (Check all that apply.)

Keep a minimum level of cash necessary to operate. Plan cash receipts to meet cash payments when due.

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

Liquid assets must be available to pay current liabilities.

Which of the following are principles of internal control? (Check all that apply.)

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

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

One person

Review the following statements regarding a petty cash fund used in a business. Select the one that is correct.

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

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

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

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.

Which of the statements below describes the internal control principle of applying technological controls?

Technological controls, such as time clocks and cash registers, improve the effectiveness of controls.

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. (Check all that apply.)

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

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. (Check all that apply.)

The Sales account will be credited for $100. 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

Identify the examples of good internal control designed to protect over-the-counter cash receipts. (Check all that apply.)

The clerk and the cashier have access to cash, but not to the accounting records. Clerks should be required to give the customer a receipt for each sale.

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

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

There are several reasons why the petty cash fund would experience a shortage or an overage. Determine which of the actions below would result in a shortage or an overage in the petty cash fund.

The petty cashier failed to get a receipt for payment.

Determine which of the statements below describes a petty cash receipt. (Check all that apply.)

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

Determine which of the statements below are accurate regarding how a petty cash fund is created and used in a business. (Check all that apply.)

The sum of all petty cash receipts plus the remaining cash should equal the total of the fund amount at any given time. The petty cashier is responsible for keeping the cash in the fund safe. The petty cashier is responsible for making payments from the petty cash fund. A check is drawn by the company cashier to establish the petty cash fund

What is the purpose of internal controls?

To help managers know if the business is receiving the assets and services it has paid for.

Identify when the Petty Cash fund is debited or credited by selecting the correct answer below. (Check all that apply.)

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

All of the following describe blockchain:

blockchain is continuously and simultaneously updated and verified blockchain makes it more difficult for the ledger to be modified without a detailed record of changes

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.

Auditors focus more on testing the ____ of a company's blockchain processes and technology than on verifying the ___ of its output.

effectiveness/accuracy

Bonding employees who handle cash is important because it:

reduces risk of theft

To maintain control of cash payments, all payments should be made by check except

small payments made by petty cash

In addition to the cashier and clerk who have access to the cash a third employee should have access to

the records for cash, but not the actual cash