Accounting - Chapter 6: LearnSmart Study Module

Choose the items below that would be added to the book balance on a bank reconciliation. (Check all that apply.)

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

Determine the statements below that are true regarding why a bank reconciliation is used. (Check all that apply.)

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. 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.

Determine which of the statements below accurately describe services provided by a bank. (Check all that apply.)

A bank account is a record set up by a bank for a customer. Each bank deposit is supported by a deposit ticket. To withdraw money from an account, the depositor can use a check.

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

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

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. (Check all that apply.)

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

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

What is the purpose of internal controls?

Companies create internal controls to protect assets and ensure reliable accounting.

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.

Match the banking term on the left with its definition on the right. Instructions Deposit ticket Deposit ticket drop zone empty. Check Check drop zone empty. Bank account Bank account drop zone empty. Remittance advice Remittance advice drop zone empty. Electronic funds transfer

Deposit ticket: Lists currency, coins and checks deposited into an account Check: A document signed by the depositor instructing the bank to pay a specified amount of money Bank account: Used to deposit money for safekeeping and help control withdrawals. Remittance advice: Explains the reason for payment Electronic funds transfer: Electronic transfer of cash from one party to another

Determine which of the items below would show up on a monthly bank statement. (Check all that apply.)

End-of-period balance in the account Deposits and other credits increasing the account during the period Checks and other debits decreasing the account during the period Beginning-of-period balance in the account

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

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

Internal control policies and procedures have limitations that arise from many elements. Match the limitation on the left with its definition on the right. Instructions Human error Human fraud Cost-benefit principle Internal control environment

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

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

Interest earned

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

It is an asset reported on the balance sheet. 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.

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.

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below. (Check all that apply.)

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

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

Identify the principles of internal control by selecting the correct answers below. (Check all that apply.)

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

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

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

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

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 factors that cause the bank statement balance to differ from the depositor's book balance by matching each to its definition on the right. Instructions Outstanding check Outstanding check drop zone empty. Deposit in transit Deposit in transit drop zone empty. NSF check NSF check drop zone empty. 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

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.

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

Technology has reduced the number of processing errors. Technologically advanced systems can record who made entries, the date and time of the entry and the source of the entry. Technology has encouraged the growth of e-commerce, so there is a higher risk of credit card number theft. Technology can be designed to require the use of password before access to the system is granted.

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

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.

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

Determine which of the statements below is correct regarding information reflected on a monthly bank statement.

The information on the bank statement reflects the bank's records of the depositor's account.

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

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

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

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

A more secure type of accounting ledger is called ledger.

blockchain

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

checks

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

error; fraud

A blockchain ledger is more secure because: (Check all that apply).

it is continuously updated. it is continuously verified. it is difficult to modify the ledger without a detailed record of changes.

Good recordkeeping helps protect assets and helps managers:

monitor company activities

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

Show your understanding of what a bank reconciliation is by completing the following sentence. 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

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

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 disbursement from the fund. Any person wishing to withdraw funds from a petty cash fund must complete a petty cash receipt. A petty cash receipt is sometimes called a petty cash ticket.

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

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

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

Cash deposits made by the account owner