ACCT Chapter 7 Internal Control and Cash

For each Petty Cash payment, the custodian of the account prepares a ____________.

petty cash ticket WHAT I NEED TO KNOW A petty cash ticket is prepared for each payment from the Petty Cash account. At the end of each month, the petty cash is replenished to its original balance.

When an order is placed for merchandise, the purchaser sends a(n) _________ to the vendor.

purchase order

After approving all documents from a shipment received, the ________ sends a check to the vendor.

purchaser WHAT I NEED TO KNOW: After all documents are approved, the purchaser sends a check to pay the vendor.

Shady Mills Company Cash account shows an ending balance of $1,200. The bank statement shows an ending balance of $770. Additional information includes: $30 Service charge $300 Deposit in transit $50 Outstanding checks What is the adjusted bank balance?

$1,020 WHAT I NEED TO KNOW: The adjusted bank balance takes the ending bank statement balance $770 + deposits in transit of $300 - outstanding checks of $50 = $1,020 *Service charge is part of the adjusted BOOK balance*

Tango Company Cash account shows an ending balance of $1,500. The bank statement shows an ending balance of $790. Additional information includes: $150 Service charge $400 Deposit in transit $50 Outstanding checks What is the adjusted bank balance?

$1,140 WHAT I NEED TO KNOW: The adjusted bank balance takes the ending bank statement balance of $790 + deposits in transit of $400 - outstanding checks of $50 = $1,140. *Service charge is part of the adjusted book balance.*

Shady Mills Company Cash account shows an ending balance of $1,000. The bank statement shows an ending balance of $680. Additional information includes: $30 Service charge $300 Deposit in transit $10 Interest earned on bank balance What is the adjusted book balance?

$980 WHAT I NEED TO KNOW: The adjusted book balance takes the ending Cash balance of $1,000 + Interest Receivable of $10 - Service Charge of $30 = $980. Deposit in transit is part of the adjusted bank balance.

Down Company Manufacturing has the following select financial data as of December 31. Cash $20,000 Cash Equivalents 4,000 Accounts Receivable 3,000 Total Current Liabilities 30,000 What is the cash ratio?

.80 WHAT YOU NEED TO KNOW: The cash ratio is calculated by Cash ratio = (Cash + Cash equivalents) / Total current liabilities Accounts Receivable is not included in this calculation. The cash ratio is (20,000 + 4,000) / 30,000 = 0.80.

Which of the following is subtracted from the book balance in a bank reconciliation? -Banks service charges -Deposits in transit -Interest revenue -Outstanding checks

Banks service charges are subtracted from the book balance for a bank reconciliation.

The controller compares the bank deposit to the journal entry for cash receipts to ensure that the bank deposit matches the accounting records for the _______ account.

Cash

Abbott Company completed the bank reconciliation and needs to record the $30 service charge from the bank. The journal entry to record this transaction would be:

Debit: Bank Expense $30 Credit: Cash $30 WHAT I NEED TO KNOW: To record the $30 service charge from the bank, you need to debit Bank Expense and credit Cash.

The following was paid out of the Petty Cash account: $200 for Office Supplies $100 for Delivery Expense $300 is needed to replenish the Petty Cash back to the original balance. The journal entry to record the replenishing of Petty Cash would be:

Debit: Office Supplies $200 Delivery Expense $100 Credit: Cash $300

To increase the amount in the current Petty Cash fund from $1,000 to $1,200, the journal entry would be:

Debit: Petty Cash $200 Credit: Cash $200 WHAT I NEED TO KNOW The current balance in Petty Cash is $1,000. To increase it to $1,200 you need to debit Petty Cash for the additional $200 and credit Cash for $200.

The journal entry to set up a Petty Cash Fund for $500 to pay incoming delivery expenses would be:

Debit: Petty Cash $500 Credit: Cash $500

Abbott Company completed the bank reconciliation and needs to record the $10 earned in interest from the bank balance. The journal entry to record this transaction would be:

Debit: Cash $10 Credit: Interest Revenue $10 WHAT I NEED TO KNOW: To record the interest received from our bank balance, we would debit Cash and credit Interest Revenue.

The following was paid out of the Petty Cash account: $200 for Office Supplies $100 for Delivery Expense After counting the cash that is left in Petty Cash, $320 is needed to replenish the Petty Cash back to the original balance. The journal entry to record the replenishing of Petty Cash would be:

Debit: Office Supplies $200 Delivery Expense $100 Cash Short & Over $20 Credit: Cash $320 WHAT I NEED TO KNOW Since the amount needed to replenish petty cash is more than the sum of the petty cash tickets, Cash Short & Over must be debited for $20. Office Supplies and Delivery Expense are debited and the Cash account is credited. Therefore, the entry is to debit Office Supplies for $200, Delivery Expense for $100, and Cash Short & Over for $20. The credit is to Cash for $320 to replenish the original amount to Petty Cash. Note: To replenish the petty cash fund for the $320 spent, the $320 must be withdrawn from the company's Cash account and put into the Petty Cash account. The Petty Cash account is unchanged and maintains a constant balance.

The following was paid out of the Petty Cash account: $400 for Store Supplies $200 for Postage Expense After counting the cash that is left in Petty Cash, $560 is needed to replenish the Petty Cash back to the original balance. The journal entry to record the replenishing of Petty Cash would be:

Debit: Store Supplies $400 Postage Expense $200 Credit: Cash Short & Over $40 Cash $560 WHAT I NEED TO KNOW The Petty cash account is $40 long (it has $40 more in cash than the payments made from Petty Cash). Therefore, the entry is to debit Store Supplies for $400 and Postage Expense for $200. The credits are to Cash Short & Over for $40 and to Cash for $560 to replenish the original amount to Petty Cash.

Advanced Learning uses the net method for handling sales transactions with credit cards. Advanced Learning sells merchandise inventory (ignore Cost of Goods Sold) to a customer for $4,000 on August 1. The customer pays with a third-party credit card. Advanced Learning would record the entry, assuming the card processor assesses a 3% fee and deposits the net amount, as which of the following:

Debited: cash $3880 credit card expense $120 Credited: Sales Revenue $4000 WHAT I NEED TO KNOW: The credit card transaction would be treated similar to a cash sale. The card processor fee would be treated as a credit card expense and reduces the amount of cash received. Therefore, you would debit Cash for $3,880 [$4,000 - ($4,000 * 3%)], and also debit the Credit Card Expense account for $120 ($4,000 * 3%). Sales Revenue would be the credit entry for the full amount of $4,000.

Which of the following is added to the bank balance in a bank reconciliation? -Outstanding checks -Deposits in transit -Bank service charges -Interest revenue

Deposits in transit

Which of the following is NOT a part of the definition of internal control? -Safeguard assets -Ensure reliable, accurate accounting records -Encourage employees to change the company policies -Promote operational efficiency

Encourage employees to change the company policies

Which of the following would be added to the book balance in a bank reconciliation?

Interest Revenue

The _______ uses the remittance advices to record the journal entries to Cash and customer accounts.

accounting department (or bookkeeper)

Which of the following is NOT a component of internal control? -assignment of duties -information systems -risk assessments -control procedures

assignment of duties

The Sarbanes-Oxley Act requires companies to _________.

conduct a review of internal controls and take responsibility for the accuracy and completeness of their financial reports

After approving all documents from a shipment received, the purchaser sends a(n) ________ to the vendor.

check

The _______ compares the bank deposit to the journal entry for cash receipts to ensure that the bank deposit matches the accounting records for the Cash account.

controller