Financial Accounting Chapter 5

True or False: Strong internal control surrounding cash receipts requires the cashier to perform the following procedures: count the cash receipts, take the cash to the bank, and record the amount in the accounting records.

False

True or False: Internal controls prevent and detect all errors and fraud.

False Internal Controls can fail because of human error or fraud

When a check is presented to a bank for payment and the amount is deducted from the payer's account, the check is said to have _________ the bank.

cleared

The journal entry to replenish a petty cash fund is a debit to ____________ and a credit to ___________

Expense, Cash

A company has an $8,000 cash balance per its books. The bank statement has a balance of $8,450. The bank reconciliation included $800 of deposits-in transits, $500 of checks outstanding, EFT's of $1,000 were received from customers, a $200 NSF heck from a customer, and a $50 bank service charge. Given the above reconciling items, the up-to-date cash balance equals ___________

$8,750

Which of the following would be added to the ending cash balance per bank when performing a bank reconciliation? EFT's Service charges NSF checks Deposits in transit

Deposits in transit

If a cashier rang up sales totaling $5,096, but had $5,100 to deposit, which journal entry would be recorded? A debit to Cash of $5,100; a credit to Cash Overage of $4; and a credit to Sales Revenue of $5,096. A debit to Cash of $5,096; a debit to Cash Shortage of $4; and a credit to Sales Revenue of $5,100. A debit to Sales of $5,100; a debit to Cash Overage of $4; and a credit to Cash of $5,096. A debit to Cash of $5,096; a debit to Cash Shortage of $4; and a credit to Deferred Revenue of $5,100.

A debit to Cash of $5,100; a credit to Cash Overage of $4; and a credit to Sales Revenue of $5,096.

Which element is NOT part of the Fraud Triangle? Sustainability Rationalization Incentive Opportunity

Sustainability

____________ is one of the 3 Fraud Triangle components where the fraudsters perceive the misdeed is unavoidable or justified.

rationalization

___________ of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. A person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records.

segregation

In a strong system of internal control, which employee should be the one to verify cash count sheets and prepare deposit slips and take the cash to the bank? cashier accountant supervisor

supervisor

Deposits in _____ are added to the _____ (bank/book) side of the bank reconciliation

transit, bank

A(n) _________ system involves the processing of purchases and payments made on account. voucher accounts payable imprest cash receipts reconciliation

voucher

Deposits in transit occur when you make a deposit ____________. and the check bounces (NSF) infrequently using an EFT after the bank's normal business hours

after the bank's normal business hours

Which of the following responsibilities should NOT be given to the accounting department? (multiple) recording the journal entry preparing the purchase order preparing the receiving report preparing the purchase requisition

preparing the purchase order preparing the receiving report preparing the purchase requisition

After approval of a purchase has been obtained, the purchasing agent completes a pre-numbered _________ that identifies the supplier, the delivery location, and the approved quantity and cost. purchase requisition purchase order supplier invoice receiving report voucher

purchase order

In a bank reconciliation, an EFT received from a customer is ____________ added to the book balance deducted from the book balance added to the bank balance deducted form the bank balance

added to the book balance

In a bank reconciliation, interest revenue earned on the bank account balance is ____________ deducted from the bank balance added to the bank balance deducted from the book balance added to the book balance

added to the book balance

Employee ________ is often grouped into 3 categories: corruption, asset misappropriation, financial statement fraud

fraud

The principles underlying the internal control system include__________. (multiple) independently verify establishing responsibility increasing sales each year keeping expenses as low as possible documenting procedures restricting access segregating duties

1. establishing responsibility 2. segregating duties 3. restricting access 4. documenting procedures 5. independently verify

True or False: Accountants are spending more of their time on executing the basic steps of a voucher system that has been spent in the past.

False Many of the steps are performed using Robotic Process Automation

This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation? It would be deducted from the book balance It would be deducted from the bank balance It does not belong on the bank reconciliation It would be added to the bank balance It would be added to the book balance

It would be deducted from the book balance

Which component of the Fraud Triangle is exemplified best by an employee being able to steal because no documentation is required for amounts taken from petty cash? Rationalization Opportunity Incentive

Opportunity

Which of the following is an example of weak internal controls? The accounting department compares goods received with the related purchase order The mail-room clerk records daily cash receipts in the journal Employees must take vacations

The mail-room clerk records daily cash receipts in the journal -rotation of duties is a good internal control so that the work of others is reviewed

True or False: Committing financial fraud can result in stiff penalties, including fines and jail sentences.

True Penalties may include up to $5 million in fines, and up to 20 years in jail

An advantage of direct deposits is they _________. prevent wrong amounts from being recorded are EFT's require checks be deposited once and payment is made automatically are convenient and efficient

are convenient and efficient

Outstanding checks have _________ been recorded by the company but not yet the bank been recorded by the bank but not yet the company not been recorded by the bank or the company been recorded by both the bank and the company

been recorded by the company but not yet the bank

Which of the following poses a high risk of theft because of its high volume and ease of portability? vehicles accounts receivable cash deferred revenue computers

cash

What journal entry must be prepared when the company is notified by the bank that a customer's check that had been deposited in the amount of $776 was returned NSF? debit Accounts Receivable and credit Cash for 776 debit Cash and credit Accounts Receivable for 776 debit NSF Check Expense and credit A/R for 776 No journal entry is necessary

debit Accounts Receivable and credit Cash for 776

The bank will show a customer's withdrawal as a _________. credit, because a withdrawal increases its liability from the bank's point of view debit, because a withdrawal decreases its liability from the bank's point of view debit, because cash is an asset credit, because cash is an asset

debit, because a withdrawal decreases its liability from the bank's point of view

Your customer's NSF check found on the bank statement is a reconciling item on a bank reconciliation and will need to be __________ deducted from the bank balance twice since it was added in error originally deducted from the Cash balance in your accounting records added to the Cash balance in your accounting records added back to the bank balance

deducted from the Cash balance in your accounting records

In a bank reconciliation, an outstanding check is _________ added to the bank balance deducted from the book balance deducted from the bank balance added to the book balance

deducted from the bank balance

The bank credited your account for a deposit that should have been deposited into another customer's bank account, not yours. This bank error should be a(n)__________ on a bank reconciliation. addition to the book balance deduction from the bank balance addition to the bank balance

deduction from the bank balance

Which of the following are typical reconciling items on the book side of a reconciliation because the company did not know about these items until it got the bank statement? (multiple) interest income service charges electronic funds transfer deposits in transits outstanding checks

electronic funds transfer interest income service charges

Cash ________ are short-term, highly _________ investments purchased within __________ of maturity. deposits; risky; 1 year deposits; liquid; 1 year equivalents; liquid; 3 months equivalents; risky; 3 months

equivalents; liquid; 3 months

Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act? increase rationalization reduce opportunities for fraud encourage good character counteract incentives for fraud

increase rationalization

Which of the following is NOT an accurate statement about internal control? it guarantees the management will behave ethically it helps protect against the theft of assets it enhances the reliability of accounting information it promotes efficient and effective operations

it guarantees the management will behave ethically

Some managers commit fraud because they are under great pressure to report a high net income to meet __________. (multiple) loan covenant requirements financial analysts' earning forecasts internal revenue service regulations shareholders' expectations

loan covenant requirements financial analysts' earning forecasts shareholders' expectations

If a bank reconciliation included a deposit in transit of $670, the company's journal entry for this reconciling item would include __________ a credit to cash for 670 nothing, because the deposit has already been recorded. a debit to cash of 670

nothing, because the deposit has already been recorded. Journal entries are not needed for the reconciling items of the bank's side because the items have already been recorded by the company. It is the bank that will make the entries when the items clear the bank

To avoid duplicate payment, the voucher should be marked "_________" as the final step in the voucher system.

paid

Good internal control for cash receipts to be performed by the accounting department should include _________. (multiple) recording the cash receipts in the journal restricting access to cash by locking it up giving a cash register receipt to every customer completing bank deposits comparing cash register sales with the cash count sheets and bank deposit slip

recording the cash receipts in the journal comparing cash register sales with the cash count sheets and bank deposit slip

_________ cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific purpose.

restricted

How do banks help businesses control cash? (multiple) restricting the amount in the petty cash system restricting access to cash independently verifying documenting procedures

restricting access to cash independently verifying documenting procedures

Which parts of the Sarbanes-Oxley Act (SOX) may encourage employees to be honest? (multiple) code of ethics whistle-blower protection stock options anonymous tip lines

code of ethics whistle-blower protection anonymous tip lines

An example of an EFT is __________ a voucher system direct deposit of employee paychecks a remittance advice a purchase requisition

direct deposit of employee paychecks

Incentives for committing fraud in order to satisfy personal greed include ___________. (multiple) getting a bigger paycheck reconciliation increasing personal wealth decreasing equity financing

getting a bigger paycheck increasing personal wealth

Good internal control for checks received through the mail would include the mail clerk ________ (multiple) verifying the cash receipts its with the deposit slip from the bank giving checks and money orders to the supervisor who makes the bank deposit sending the cash receipts list and the customers' remittance devices to the accounting department

giving checks and money orders to the supervisor who makes the bank deposit sending the cash receipts list and the customers' remittance devices to the accounting department

The purchasing system begins with an authorized employee completing a manual or electronic _________ which is then reviewed and approved by a supervisor before an order is placed with a supplier. receiving report purchase requisition purchase order supplier invoice voucher

purchase requisition

A cash register does NOT _________ document the amount of cash received for items sold restrict access to cash reconcile accrual accounting with cash accounting summarize the cash register's total cash sales

reconcile accrual accounting with cash accounting

A bank __________ is an internal report used to compare the bank statement with the company's cash records and should be prepared by an employee whose duties are separate from recording and handling of cash.

reconciliation