ACCT 2110 Ch 4

Réussis tes devoirs et examens dès maintenant avec Quizwiz!

Garrison Corporation was closing its books on May 31, 2020. Garrison's accountant prepared a bank reconciliation as of May 31, 2020, and has found the following possible reconciling items between its book balance and its cash balance per the bank: Garrison's book balance 15,310 Outstanding checks 960 Customer's NSF check returned by the bank 190 Interest earned on checking account 160 In the search for reconciling items, the accountant also discovered that Garrison made an error in recording a customer's check: the amount was recorded in cash receipts as $320; the bank recorded the amount correctly as $920. What amount will Garrison report as its adjusted cash balance at May 31, 2020?

15310 + 160 + 600 - 190 = 15880

The accountant for Bellows Corp. was preparing a bank reconciliation as of April 30. The following items were identified: Bellows' book balance $28,750 Outstanding checks 900 Interest earned on checking account 84 Customer's NSF check returned by the bank 385 In addition, Bellows made an error in recording a customer's check; the amount was recorded in cash receipts as $370; the bank recorded the amount correctly as $730. What amount will Bellows report as its adjusted cash balance at April 30, 2019?

28750 + 84 + 360 - 385 = 28809

___________ consists of the methods and records used to identify, measure, record, and communicate financial information about a business

Accounting system

Initial entry into the accounting system should be from a consistent source with complete information

Adequate documents and records

The operating cycle transforms cash into goods and services and then back, through sales, into cash. All of the following are part of good cash management EXCEPT a. keeping all excess cash invested. b. making payments to suppliers as quickly as possible. c. keeping inventory levels as low as possible. d. speeding up the collection of cash from customers.

B

Which of the following is not one of the five components of internal control? a. Identify external risks b. Prepare tax returns c. Define responsibility authority d. Develop an internal audit group

B. Prepare tax returns

Pyramid Corporation is assessed a $20 fee as the result of a $185 NSF check received from a customer for services purchased on account. Neither the fee nor the NSF check has been accounted for on Pyramid's books. Record the appropriate journal entry to update Pyramid's books.

Bank service charge 20 A/R 185 Cash 205

____________ are risks associated with how the company allocates its resources to meet its objectives

Business process risks

A customer of Mutare paid for merchandise originally purchased on account with a check that has been erroneously entered into Mutare's cash account for $280 (it actually has been issued and paid for $820). Record the appropriate journal entry to correct the error.

Cash 540 A/R 540

One employee or department should verify the work of another.

Checks on recorded amounts

Specific approval is given by management for the performance of activities

Clearly defined authority and responsibility

______________- are policies and procedures established by top management to help ensure that the company's accounting system and financial statements are as accurate as possible

Control activities

The collection of environmental factors that influence the effectiveness of control procedures.

Control environment

Which of the following activities would be a good way for a company to manage its cash? a. Stockpiling inventory to avoid shortages b. Paying a late fee to suppliers in order to hold on to cash as long as possible c. Paying high dividends to investors to encourage potential investors to buy stock d. Selling account receivables for less than face value

D

What increases the cash balance on a bank reconciliation? *Bank side*

Deposit in transit

T/F A good system of internal controls requires that the physical custody of assets be separated from the accounting for those assets. This is known as safeguarding assets and records.

False

T/F An accounting system must be computerized in order to ensure the company has proper internal control

False

T/F If a company hires honest employees and its top management acts with integrity, no internal control procedures will be necessary

False

What increases the cash balance on a bank reconciliation? *Company side*

Interest Note Receivable

Collective term for procedures put into place to ensure that employees operate within the scope of their assigned responsibilities and act for the good of the business

Internal control system

Murphy, Inc., maintains a balance of $2,100 in its petty cash fund. On December 31, Murphy's petty cash account has a balance of $201. Murphy replenishes the petty cash account to bring it back up to $2,100. Murphy classifies all petty cash transactions as miscellaneous expense. What entry is made to record the replenishment of the petty cash fund?

Miscellaneous Expense 1899 Cash 1899

What decreases the cash balance on a bank reconciliation? *Bank side*

Outstanding checks Errors

Providing physical protection of the company's assets

Safeguarding

Blank checks should be stored in a locked location

Safeguards over assets and records

Accounting and cash collections should be properly separated

Segregation of duties

Action that reduces the likelihood that records could be used to conceal intentional misstatements, theft, or fraud

Segregation of duties

What decreases the cash balance on a bank reconciliation? *Company side*

Service charge NSF Check Recording Error

Possible external threats to the organization's success in accomplishing its goals

Strategic risks

T/F An internal control activity that separates responsibilities so that no one person handles all the tasks for a particular activity is referred to as segregation of duties

True

T/F The stronger the system of internal control, the higher the accuracy of the company's accounting records and financial reports

True

The stage of the operating cycle and cash management that focuses on inventory levels is a. buying inventory. b. paying for inventory. c. selling inventory. d. None of these choices are correct.

a

Which of the following is not one of the five categories of control activities? a. Accrual accounting and the matching principle b. Safeguards over assets and records c. Adequate documents and records d. Checks on amounts recorded in the accounting records

a. Accrual accounting and the matching principle

Control activities are the policies and procedures top management establishes to help ensure that its objectives are met. Which of the following is NOT one of the control activities? a. Adequate information communicated (information) b. Clearly defined authority and responsibility (authority) c. Safeguards over assets and records (safeguarding) d. Segregation of duties (separation)

a. Adequate information communicated (information)

The balance sheet typically reports the amount of cash and equivalents available a. on the balance sheet date. b. in the next year or operating cycle, whichever is longer. c. at the beginning of the period. d. on average for the period.

a. on the balance sheet date.

The stage of the operating cycle and cash management that focuses on earning interest on its cash is a. buying inventory. b. paying for inventory. c. selling inventory. d. None of these choices are correct.

b

Why do companies invest their cash in short-term investments? a. Short-term investments take advantage of long-term fluctuations in interest rates. b. Investments earn a greater rate of return than the return of a bank account. c. Short-term investments prevent a takeover. d. Banks often limit the amount that can be deposited in checking and savings accounts.

b.

Employee theft and fraud result in losses because which of the following components of internal control is NOT followed? a. Information and communication b. Control activities c. Clearly defined authority d. Risk assessment

b. Control activities

Except in very small businesses, top management delegates responsibility for engaging in business activities and recording their effects in the accounting system to other managers and employees. Which of the following is NOT management's desire? a. Ensure that employees operate within the scope of the assigned responsibility b. Ensure the internal control system is put in place by external auditors c. Ensure that employees act for the good of the business d. None of these choices are correct.

b. Ensure the internal control system is put in place by external auditors

There are five elements of internal control. Which of the following is NOT one of these elements? a. Control activities b. Quantifying and reporting c. Monitoring d. Risk assessment

b. Quantifying and reporting

Operations objectives ensure the effectiveness and efficiency of the entity's operations. This includes which of the following? a. Safeguarding assets against loss b. Safeguarding assets against loss and financial performance goals c. Financial performance goals d. None of these choices are correct.

b. Safeguarding assets against loss and financial performance goals

What is the primary role of internal controls in managing a business? a. To ensure that the financial statements are presented in such a manner as to provide relevant and reliable information to financial statement users and the company's creditors. b. To place boundaries around employees' activities in order to prevent them from deviating from prudent and effective processes and procedures that are in the best interests of the business. c. To encourage theft and to ensure that segregation of duties does not take place. d. To make it impossible for cash to be stolen.

b. To place boundaries around employees' activities in order to prevent them from deviating from prudent and effective processes and procedures that are in the best interests of the business.

The Sarbanes-Oxley Act requires all publicly traded corporations to have an internal audit function that reports to the a. president of the corporation. b. audit committee of the board of directors. c. accounting department manager. d. Securities and Exchange Commission.

b. audit committee of the board of directors.

The stage of the operating cycle and cash management that focuses on speeding up collection of receivables is a. buying inventory. b. selling inventory. c. paying for inventory. d. None of these choices are correct.

b. selling inventory.

When the petty cash custodian submits receipts for replenishment of the petty cash fund, the resulting journal entry includes a a. debit to Petty Cash. b. debit to Cash. c. credit to Cash. d. credit to Petty Cash.

c

The statement of cash flows shows a. the uses of cash during the year. b. investments that will be converted to cash during the year. c. both the sources and uses of cash during the year. d. the sources of cash during the year.

c.

The following items were identified during the June 30 bank reconciliation: Company's balance according to the general ledger: $18,750 Outstanding checks: $3,400 Deposit in transit: $1,200 Bank service charge: $25 Credit memo for receivable collected by the bank: $500 A customer's NSF check returned by the bank: $100 What is the cash balance from the bank statement?

c. $21,325 Adjusted balance: $18,750 ledger balance + $500 credit memo - $25 service charge - $100 NSF check = $19,125. Now add back the outstanding checks and deduct the deposit: $19,125 + $3,400 - $1,200 = $21,325

Bank reconciliations often identify differences between the cash account and the bank statement. Which of the following is NOT a reason for the difference? a. Errors were made in recording transactions on either set of records. b. Transactions were recorded by the business but not recorded by the bank in time to appear on the current bank statement. c. Transactions were recorded by both the bank and the business. d. Transactions were recorded by the bank but not yet recorded by the business.

c. Transactions were recorded by both the bank and the business.

The statement of cash flows shows a. the sources of cash during the year. b. investments that will be converted to cash during the year. c. both the sources and uses of cash during the year. d. the uses of cash during the year.

c. both the sources and uses of cash during the year.

Cash equivalents are, by definition, a. easily convertible into known amounts of cash. b. close enough to maturity that they are relatively insensitive to changes in interest rates. c. close enough to maturity that they are relatively insensitive to changes in interest rates and easily convertible into known amounts of cash. d. None of these choices are correct.

c. close enough to maturity that they are relatively insensitive to changes in interest rates and easily convertible into known amounts of cash.

The accounting system consists of the methods and records used to accomplish all of the following EXCEPT a. record and communicate financial information. b. identify financial information. c. ensure profitability using financial information. d. measure financial information.

c. ensure profitability using financial information.

The stage of the operating cycle and cash management that focuses on earning interest on its cash is a. buying inventory. b. selling inventory. c. paying for inventory. d. None of these choices are correct.

c. paying for inventory.

Which of the following procedures is designed to safeguard cash? a. Examination of cash records should be restricted to the individual assigned to maintaining the cash records. b. Controls for cash are clearly separated from the record-keeping system. c. Keeping cash and other securities at the business instead of paying the expense involved with having a bank account. d. Separating cash-handling activities and cash recording activities by assigning the activities to different individuals.

d

Which of the following is not one of the three areas for which internal control systems are intended to provide reasonable assurance? a. Compliance with applicable laws and regulations b. Effectiveness and efficiency of operations c. Reliability of financial reporting d. Certification that all revenues and expenses have been properly recorded

d. Certification that all revenues and expenses have been properly recorded

Which of the following is true of a credit memo issued by a bank? a. It is recorded on a company's books by crediting the cash account. b. It might result if the bank makes a prearranged deduction from the business' account to pay a utility bill. c. It is an asset to the bank. d. If it has not yet been recorded by the business, the bank balance will be larger than the cash account balance.

d. If it has not yet been recorded by the business, the bank balance will be larger than the cash account balance.

Cash is reported on both the balance sheet and the a. statement of retained earnings. b. income statement. c. statement of stockholders' equity. d. statement of cash flows.

d. statement of cash flows.


Ensembles d'études connexes

Longitudinal and cross-sectional studies

View Set

PSI Life & Health Insurance Exam Practice Test

View Set

Chapter 5: Policing History and Structure

View Set

Final for Med Surg II: Hematologic, eye, reproductive, male/female/

View Set