Acct 101 - Chapter 4
A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as
internal controls
Which of the following is not one of the categories of business activities reported in the statement of cash flows?
Accounting
Which of the following is considered cash for financial reporting purposes?
Checks received from customers
Which of the following is not an element of the fraud triangle?
Education
On May 28, the company pays $9,000 to purchase equipment.
Investing
So that employees can have easy access to office supplies, a company keeps supplies in unlocked cabinets in multiple locations.
Physical Controls
Some transactions of Blue River Company are given below. Indicate whether the transaction is an operating, financing, or investing activity.
SEE ANSWERS BELOW
What is the primary purpose of a bank reconciliation?
To ensure the bank balance per reconciliation is equal to the company balance per reconciliation
Which of the following is not a step in preparing a bank reconciliation?
Update the company's Cash account by recording reconciling items related to the bank's cash balance
Which of the following items are included in cash?
checks from customer, balance in checking, currency and coins
The actual performance of individuals or processes should be checked against their expected performance.
performance reviews
If a company records a transaction before the bank records the same transaction, this is called a/an ______ difference.
timing
Which of the following is an example of a detective control in a company?
Accounting personnel routinely reconciles the company's cash records with those of its bank to identify discrepancies.
Beaver's accountant made an error in recording check #354; the check was written for $670, but was recorded incorrectly as $760
Addition
Northern Bank collects $2,200 for a note owed to Beaver ($2,100 principal and $100 interest)
Addition
Northern Bank credited Beaver's account for $15 of interest earned during April
Addition
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
Lead audit partners are required to change every five years.
Auditor rotation
When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance? (Select all that apply.)
Charges for NSF checks, service charges
The framework for designing an internal control system is provided by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission.
Executives must personally certify the company's financial statements.
Corporate executive accountability
In examining its monthly bank statement, a company discovers that that its account was credited $30 for interest earned. The entry needed to adjust the company's cash balance for this reconciling item will include a:
Credit to Interest Revenue for $30
A customer paid $250 using a check for purchases made in the first week of January. The bank statement received at the end of the month showed that this was an NSF check. The entry needed to adjust the company's cash balance for this reconciling item will include a:
Credit to cash for 250
Purchase computer equipment of $940 using a credit card.
Debit equipment, credit accounts payable
Pay for maintenance of $340 for a company vehicle using a debit card.
Debit repairs and maintenance expense, credit cash
Pay employee salaries of $540 by issuing checks.
Debit salaries expense, credit cash
McGregor Company allows customers to pay with credit cards. The credit card company charges McGregor 3% of the sale. When a customer uses a credit card to pay McGregor $200 for services provided, McGregor would:
Debit service fee expense for $6
What would cause a bank statement not to agree with the cash balance in the accounting records?
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.
Which of the following is an example of a preventive control in a company?
Employees responsible for making cash disbursements are not in charge of cash receipts.
On May 21, the company borrows $10,000 from the bank to finance its short-term capital requirements.
Financing
Which of the following are the categories of business activities reported in the statement of cash flows?
Financing, Investing, Operating
Calculate the amount of cash to report in the balance sheet.
Include: Currency, short term investment, balance in checking, balance in savings, checks, and coins
Management must document the effectiveness of procedures that could affect financial reporting.
Internal control
Which of the following items will require a journal entry following a bank reconciliation? (Select all that apply.)
NSF checks, notes collected by the bank
On May 8, the company purchases supplies worth $4,000, on account.
No
Audit firm cannot provide a variety of other services to its client, such as investment advising.
Nonaudit services
Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?
Opening the mail and deposit of checks in the bank; Depositing checks into the bank and recording receipts in the accounting records
On May 1, the company pays salaries to employees.
Operating
On May 24, the company receives $1,000 cash from customers for services performed in April.
Operating
On May 8, the company purchases supplies worth $4,000, on account.
Operating
PCAOB establishes standards related to the preparation of audited financial reports.
Oversight board
A manufacturing company compares total sales in the current year to those in the previous year but does not compare the cost of production.
Performance Reviews
The company should maintain security over assets and accounting records.
Physical Controls
Investing cash flows would include which of the following?
Purchase of building with cash
At the end of the year only, the company compares its cash records to the bank's records of cash deposited and withdrawn during the year.
Reconciliations
Provided below are items related to Beaver Company during the month of April. The company discovered these items when examining its statement from Northern Bank. For each item, indicate whether it represents an addition or a subtraction in reconciling the company's cash balance.
SEE ANSWERS BELOW
Some transactions of Blue River Company are given below. Indicate whether the transaction will be reported in the statement of cash flows.
SEE BELOW FOR ANSWERS
At the end of each day, a single employee collects all cash received from customers, records the total, and makes the deposit at the bank.
Separation of duties
The balance in a company's Cash account on August 31 was $19,600 before the bank reconciliation was prepared. After examining the August bank statement and items included with it, the company's accountant found:
Subtract nsf, add note, and subtract service fee
An employee of Beaver Company used a company debit card to purchase office supplies, $80
Subtraction
Beaver paid $280 for utilities by EFT
Subtraction
Northern Bank charges service fees of $40 to Beaver
Subtraction
Northern Bank notifies Beaver of an NSF check in the amount of $420
Subtraction
On May 1, the company pays salaries to employees.
Yes
On May 24, the company receives $1,000 cash from customers for services performed in April.
Yes
On May 28, the company pays $9,000 to purchase equipment.
Yes
On May 8, the company purchases supplies worth $4,000, on account.
Yes
Which of the following items are not included in cash
accounts receivable from customers
List the steps for a bank reconciliation in the correct order. (Drag the items to put them in the proper order with the first step on top.)
adjust bank, adjust company, update company cash
The asset that is most susceptible to employee fraud is
cash
A bank reconciliation reconciles the bank statement with the company's
cash account in balance sheet
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded
checks outstanding
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
When a company finds out that an NSF check was written to the company, the company must ______ the balance in the cash account.
decrease
Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are
deposits outstanding
The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for
designing an internal control system
A periodic performance review is an example of a(n) _____ control
detective
The company should provide employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties.
employee management
Which of the following will cause differences between the bank statement balance and the accounting balance for cash?
errors, timing differences
The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational
fraud
When a person intentionally deceives another person or company for personal gain, this is referred to as
fraud
Identify cash equivalents from the listed items.
money market funds, three month treasury bills
Elements of fraud triangle
motivation, opportunity, rationalization
A company encourages employees to call an anonymous hotline if they believe other employees are circumventing internal control features.
none
NSF
nonsufficient funds
Which of the following are common controls over cash receipts? (Select all that apply.)
opening mail daily and making a detailed list of checks received, AND having two different employees take custody of the checks and make the deposit
A small amount of cash on hand to pay for minor purchases is commonly referred to as a(n) Input Field 1 of 2 petty unavailable correct Input Field 2 of 2 cash unavailable correct fund. (Enter one word per blank.)
petty cash
Separation of duties and E-commerce controls are examples of ______ controls.
preventative
Two types of control activities are
preventive and detective controls
All employees have the authority to refund a customer's money.
proper authorization
To prevent improper use of the company's resources, only certain employees are allowed to carry out certain business activities.
proper authorization
Internal control consists of plans to (Select all that apply.)
provide accurate and reliable accounting information. AND safeguard company assets
One of the most important internal controls for cash is the bank
reconciliation
Preparation of a bank Input Field 1 of 1 reconciliation unavailable correct helps maintain control of cash accounts.
reconciliation
Which of the following are detective controls?
reconciliation, performance reviews, audits
Management should periodically determine whether the amounts of physical assets of the company match the accounting records.
reconciliations
Authorizing transactions, recording transactions, and maintaining control of the related assets should be separated among employees.
separation of duties
Which of the following are preventive controls?
separation of duties, physical controls
Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's: (Select all that apply.)
statement of cash flows, balance sheet
