smartbook chapter 4

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding

Morrow Corp. had the following information on its bank reconciliation: NSF Checks $1,000 Outstanding Checks $3,000 Miscellaneous bank service charges $200 Recording the adjustment to cash would include:

credit Cash, $1,200 Reason: Cash is reduced by $1,200 for the NSF checks of $1,000 and the bank service charges of $200.

Largo Corp. discovered $2,000 for an NSF check in its bank reconciliation. When the cash account is updated for items that affect the company's cash balance, the entry will include

credit Cash, $2,000.

The bank will show a customer's deposit on bank statements as a ______.

credit, because a deposit is a liability from the bank's point of view

The two most common sources of occupational fraud are:

financial statement manipulation misuse of company resources

Published financial statements may be incorrect because of

fraud errors

Preparation of bank reconciliation

helps maintain control of cash accounts

The most common source of occupational fraud is:

misuse of company resources

Rice Corp. noticed that a check written by the company for $1,000 was incorrectly recorded by the bank as $1,100. How should this error be handled in a bank reconciliation?

$100 should be added to the bank balance.

Neumann, Inc.'s books show an ending cash balance of $20,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $2,000; deposits outstanding of $3,000; NSF check of $200; and interest earned on the bank account of $30, the company's up-to-date ending cash balance equals:

$19,830 Reason: Outstanding checks have already been recorded by the company. ($20,000-$200+$30)

Arcelia Corp.'s bank statement has an end balance of $40,000. The deposits outstanding were $7,000. A note was collected by the bank for $2,000. Checks outstanding at the end of the month were $1,000. Using the bank statement, what is the corrected cash balance?

$46,000 Reason: ($40,000 + 7,000 - 1,000 = $46,000) The note collected by the bank is already reflected on the bank statement.

Malik Corp.'s bank statement has an end balance of $50,000. The deposits outstanding were $6,000. NSF checks were $1,000. Checks outstanding at the end of the month were $3,000. Using the bank statement, what is the corrected cash balance?

$53,000 Reason: $50,000 + 6,000 - 3,000 = $53,000. The NSF checks are already recorded by the bank.

Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $3,000; deposits outstanding of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals:

$9,910 Reason: Outstanding checks and deposits outstanding have already been recorded by the company. $10,000 - $100 + $10

Melon Corp. noticed that a check written by the company for $2,100 was incorrectly recorded in the accounting records as $1,200. How should this error be handled in a bank reconciliation?

$900 should be subtracted from the cash balance in the accounting records.

Steps for Bank Reconciliation

1) adjust bank's cash balance 2) adjust the company's cash balance 3) update the company's Cash account by recording items identified in the previous step

the following steps are necessary to reconcile the bank balance and the cash account balance.

Adjust the company's cash balance for items not in company records Record items that reconcile the company's cash balance Adjust bank's cash balance for items not in bank statement

In a bank reconciliation, which of the following will require a journal entry by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true?

An entry must be made to debit Accounts Payable and credit Cash for $45.

When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance?

Charges for NSF checks Service charges

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collections of funds by the bank

Melon Corp. noticed that a check written by the company for $2,100 for advertising expense was incorrectly recorded in the accounting records as $1,200. What needs to be recorded to correct this error?

Debit Advertising Expense $900; credit Cash $900.

will cause differences between the bank statement balance and the accounting balance for cash:

Errors Timing differences

A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?

It would be added to the bank balance.

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? Is it added or subtracted from the bank balance or the company's cash (book) balance?

It would be deducted from the company balance. Reason: The company balance must be decreased by the amount of the NSF check noted on the bank statement. The company's balance was originally increased when the check was deposited but since the check is marked NSF, the company's balance must be reduced.

the following items will require a journal entry following a bank reconciliation

Notes collected by the bank NSF checks

When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?

Outstanding checks

What would cause a bank statement not to agree with the cash balance in the accounting records?

The bank paid interest that the company has not recorded. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The company made an error in recording a deposit. The bank made an error in recording a deposit made by the company.

In a bank reconciliation, a deposit outstanding is

added to the bank balance

In a bank reconciliation, the electronic funds transfer (EFT) received by the bank from a customer's note receivable owed to the company is

added to the companys cash balance

a mistake in accounting, which can be intentional or unintentional

an error

One of the most important internal controls for cash is the

bank reconciliation or recon

A check that is NSF (nonsufficient funds) is a check that

cannot be paid because the account does not contain enough funds.

The asset most susceptible to fraudulent activity is(are)

cash

A bank reconciliation reconciles the bank statement with the company's

cash account in the balance sheet.

The bank will show a customer's withdrawal as a ______.

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

When a company finds out that an NSF check was written to the company, the company must ______ the balance in the cash account.

decrease

In a bank reconciliation, an outstanding check is ______.

deducted from the bank balance

In a bank reconciliation, the bank's charge of $10 for checking account fees is

deducted from the company's cash balance.

When adjusting the bank balance in a bank reconciliation, which item must be added to the bank balance?

deposits outstanding

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding.

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called

occupational fraud

If a company records a transaction before the bank records the same transaction, this is called a/an ______ difference.

timing