Accounting Chp 5 Smartbook
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. (Enter one word per blank.)
reconciliation
A bank ______ is an important control because it provides independent verification of all cash transactions the bank has processed for the company. This internal report should be prepared by an employee whose duties are separate from recording and handling of cash.
reconciliation
A check that you have written has cleared the bank when ______.
funds have been withdrawn from your bank account to cover the check
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 book balance
Restricted cash is reported ______.
separately as an asset on the balance sheet
Paying by check helps a business to control cash when the ______.
checks are prenumbered and written sequentially manager studies the documents supporting the payment before signing the check
The Sarbanes-Oxley (SOX) Act provides increased regulations for ______. (Select all that apply.) the International Accounting Standards Board corporate executives auditors internal controls
corporate executives auditors internal controls
A(n) ______ is a collection of documents prepared in the process of approving, processing and documenting all purchases and payment made on account.
voucher
What are reasons internal controls can never completely prevent and detect errors and fraud? (Select all that apply.) Whistle blowing Restriction of access Costs exceed benefits Human error Collusion
Costs exceed benefits Human error Collusion
Why might a bank statement and the company's records differ? (Select all that apply.) Deposits were made at the end of the bank statement date in an ATM. Not all checks written cleared the bank. Deposits were made to petty cash. Customer checks that bounced (NSF).
Deposits were made at the end of the bank statement date in an ATM. Not all checks written cleared the bank. Customer checks that bounced (NSF).
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? (Select all that apply.) Deposits in transit Interest income Outstanding checks Services charges Electronic funds transfers
Interest income Services charges Electronic funds transfers
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.
Which of the following is not a proper segregation of duties for cash received in person?
Members of the accounting department are responsible for the collection of cash and depositing the cash in the bank.
Which principles of internal control are incorrectly described? (Select all that apply.) Establish responsibilities - assign each task to only one employee Segregate duties - do not make one employee responsible for all parts of a process Restrict access - prepare documents that show activities that have occurred Document procedures - do not provide access to assets or information unless it is needed to fulfill the assigned task Independently verify - check others' work
Restrict access - prepare documents that show activities that have occurred Document procedures - do not provide access to assets or information unless it is needed to fulfill the assigned task
What would cause a bank statement not to agree with the cash balance in the accounting records? (Check all that apply.) The company wrote checks that have cleared the bank. The company made an error in recording a deposit. The bank paid interest that the company has not recorded. The bank made an error in recording a deposit made by the company. 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 paid interest that the company has not recorded. The bank made an error in recording a deposit made by the company. Deposits outstanding that have been recorded on the company's records, but not on the bank's.
An advantage of direct deposits is they ______.
are convenient and efficient
NSF checks from customers should be subtracted from the ______ balance on a bank reconciliation.
book (The subtraction is from the book, not bank, balance because the check was originally recorded as an increase to Cash and needs to be reduced since the deposit was a bad check.)
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
Which of the following control components are part of the framework used when analyzing an internal control system? (Check all that apply.) control activities risk assessment loan covenants control environment monitoring activities information and communication
control activities risk assessment control environment monitoring activities information and communication
A _____ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts.
direct
True or false: The person who has custody of an asset should also account for the asset. A person who performs both duties will best know what the balance should be in the accounting records.
false (Segregation of duties is essential to safeguarding a company's assets. The person who has access to assets should not have access to the accounting records.)
Employee ______ is often grouped into 3 categories: corruption, asset misappropriation, financial statement fraud.
fraud
Outstanding checks are checks that ______.
have been written but have not yet cleared the bank
Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act?
increase rationalization
The principles underlying the internal control system include ______. (Select all that apply.) keeping expenses as low as possible independently verify establishing responsibility segregating duties documenting procedures restricting access increasing sales each year
independently verify establishing responsibility segregating duties documenting procedures restricting access
Which of the following control components are part of the framework used when analyzing an internal control system? (Check all that apply.) information and communication risk assessment control environment compliance monitoring activities control activities
information and communication risk assessment control environment monitoring activities control activities
The _____ _______ system consists of actions taken to promote efficient and effective operations, protect assets, enhance accounting information and adhere to laws and regulations.
internal control
Which of the following duties should not be the responsibility of an employee who has access to cash? (Select all that apply.) record cash collected in the journal perform bank reconciliations issue receipts at the point of sale scan items sold prepare cash count sheets
record cash collected in the journal perform bank reconciliations
The purchasing system begins with an authorized employee completing a manual or electronic purchase ______ form which is then reviewed and approved by a supervisor before an order is placed with a supplier.
requisition
_____ cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific purpose. (Enter one word per blank.)
restricted
The services provided by a bank help business control cash by ______.
restricting access and providing documentation and independent verification
Match each of the five principles of internal control with its description. -segregate duties -establish responsibilities -restrict access -document procedures -independent verify -check others' work -prepare documents to show activities that have occurred -do not make one employee responsible for all parts of a process -assign each task to only one employee in order to allow one to determine who is at fault for an error or theft -do not provide access to assets or information unless it is needed to fulfill the assigned task
segregate duties & Do not make one employee responsible for all parts of a process establish responsibilities & Assign each task to only one employee in order to allow one to determine who is at fault for an error or theft restrict access & Do not provide access to assets or information unless it is needed to fulfill the assigned task document procedures & Prepare documents to show activities that have occurred independent verify & check others' work
NSF checks from customers should be a(n) ______ on a bank reconciliation.
subtraction from the book balance
Deposits in ____ are added to the ______(bank/book) side of the bank reconciliation.
transit; bank
Internal control procedures surrounding payment of bills includes ______. (Select all that apply.) using prenumbered checks marking the voucher "paid" to avoid duplication of payments having the purchaser make the payment and record it in the accounting records to avoid paying for items not ordered by the purchaser. making payments only when a purchase is supported by complete voucher documentation
using prenumbered checks marking the voucher "paid" to avoid duplication of payments making payments only when a purchase is supported by complete voucher documentation
A(n) ______ system involves the processing of purchases and payments made on account.
voucher
A company has a $10,000 cash balance per its books. The bank statement has a balance of $9,580. The bank reconciliation included $800 of deposits-in transits, $500 of checks outstanding, a $100 NSF check from a customer, and a $20 bank service charge. Given the above reconciling items, the up-to-date cash balance equals ___.
$9,880
Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $3,000; deposits in transit 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 (The correct cash balance is $9,910 (=$10,000 - 100 + 10). Outstanding checks are checks that have been written and recorded by the company and sent to the payee.)
To segregate duties involving cash receipts, specific responsibilities are assigned to various employees. Put the following steps in the correct chronological order listing the first step at the top. -A supervisor is responsible for collecting the cash at the end of each cashier's shift. -Members of the accounting department are responsible for ensuring that cash sales are -Cashiers are responsible for collecting cash and issuing a receipt at the point of sales are properly recorded
-Cashiers are responsible for collecting cash and issuing a receipt at the point of sales are properly recorded -A supervisor is responsible for collecting the cash at the end of each cashier's shift. -Members of the accounting department are responsible for ensuring that cash sales are
Place the order of the steps in documenting and controlling purchases in a voucher system with the first step listed on the top and final step at the bottom. -Request goods or services by submitting a purchase requisition -Prepare a supplier invoice and prepare the journal entry -Prepare a receiving report -Prepare a purchase order after suppliers and prices have been approved
-Request goods or services by submitting a purchase requisition -Prepare a purchase order after suppliers and prices have been approved -Prepare a receiving report -Prepare a supplier invoice and prepare the journal entry
Fraudulent reporting by management includes ______. (Select all that apply.) -recording fictitious revenues from a phantom customer -improper asset valuation -reporting revenues before receiving the cash -mismatching revenues and expenses
-recording fictitious revenues from a phantom customer -improper asset valuation -mismatching revenues and expenses
A company has a $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, EFTs of $1,000 were received from customers, a $200 NSF check 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 are limitations in internal control systems? (Select all that apply.) Management is unable to bond employees and make them take vacations. Collusion can exist making it impossible to completely prevent fraud. A control may not be implemented because the cost of the control may exceed the benefit of reducing the fraud or potential errors. It is too difficult for the accountants to physically count all assets and ensure the assets are included in the financial records.
Collusion can exist making it impossible to completely prevent fraud. A control may not be implemented because the cost of the control may exceed the benefit of reducing the fraud or potential errors.
Which of the following is shown as an addition to the bank balance on a bank reconciliation?
Deposits in transit
Which of these are cash equivalents? (Check all that apply.) US Treasury bonds that mature in 1 year Investments within 3 months to maturity Money market funds Notes receivable that mature in 5 months
Investments within 3 months to maturity Money market funds
Which of the following is not an accurate statement about internal control?
It guarantees the management will behave ethically.
This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation?
It would be added to the book balance.
Why might a bank statement and the company's records differ? (Select all that apply.) Not all checks written cleared the bank. Deposits were made to petty cash. Deposits were made at the end of the bank statement date in an ATM. Customer checks that bounced (NSF).
Not all checks written cleared the bank. Deposits were made at the end of the bank statement date in an ATM. Customer checks that bounced (NSF).
Cashiers at a supermarket have to talk to a manager before approving price changes at the register. Which internal control principle is being followed?
Segregate duties (The duty of approving price changes is segregated from the cashiers' duties to prevent the cashiers from collecting a different amount than the amount entered into the cash register. Restricting access is not applicable because the cashiers have access to both cash and the cash register (i.e., the accounting records)
What would cause a bank statement not to agree with the cash balance in the accounting records? (Check all that apply.) -The bank made an error in recording a deposit made by the company. -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 company wrote checks that have cleared the bank.
The bank made an error in recording a deposit made by the company. 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.
In a bank reconciliation, interest revenue on the bank account balance is added to the ______ balance.
book
Which of the following poses a high risk of theft because of its high volume and ease of portability?
cash
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
In a bank reconciliation, an outstanding check is ______.
deducted from the bank balance (Outstanding checks have already been subtracted from the book's balance but have not yet been subtracted from bank's balance. Thus the outstanding checks must be subtracted from the bank's balance on the reconciliation.)
Outstanding checks have already been ______.
deducted from your cash balance per your books but not the bank balance
Outstanding checks written by the company should be a(n) ______ on the company's bank reconciliation.
deduction from the bank balance
Cash ______ are short-term, highly ______ investments purchased within ______ of maturity.
equivalents; liquid; 3 months
True or false: The person who has custody of an asset should also account for the asset. A person who performs both duties will best know what the balance should be 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.)
Internal control for cash is important because ______. (Check all that apply.) of the large volume of cash transactions of the high risk of theft cash is portable and is "owned" by whomever possesses it it is the largest asset of all companies the risk of cash-handling errors is significant
of the large volume of cash transactions of the high risk of theft cash is portable and is "owned" by whomever possesses it the risk of cash-handling errors is significant
Bank reconciliations are needed to reconcile for ______. (Select all that apply.) outstanding checks deposits in transit deposits that are included in both the bank and the books tax purposes
outstanding checks deposits in transit (Reconciliations explain the differences between the bank's and the book's cash balance. Deposits in transit and outstanding checks are reconciling items because these amounts have not yet been recorded by the bank and have been recorded by the company resulting in different cash balances.)
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.
purchase requisition
How do banks help businesses control cash? (Select all that apply.) restricting access to cash independently verifying documenting procedures restricting the amount in the petty cash system
restricting access to cash independently verifying documenting procedures