ACCT - Smartbook #5
How do banks help businesses control cash?
- restricting access to cash - independently verifying - documenting procedures
Why might a bank statement and the company's records differ?
- 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)
Deposits in transit are ______ on a bank reconciliation.
- added to the bank balance (Deposits in transit are reconciling items on the bank side. The bank's balance needs to be increased by these deposits it has not yet recorded.)
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
Internal control for cash is important because ______.
- cash is portable and is "owned" by whomever possesses it - the risk of cash-handling errors is significant - of the high risk of theft - of the large volume of cash transactions
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
A check that you have written has cleared the bank when ______.
- funds have been withdrawn from your bank account to cover the check
NSF checks from customers should be subtracted from the ______ balance on a bank reconciliation.
BOOK
Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act?
Increase rationalization
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
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
Deposits in transit have already been ______.
added to your cash balance per your books and not to the bank balance
Employee _____ is often grouped into 3 categories: corruption, asset misappropriation, financial statement fraud.
fraud
Bank reconciliations are needed to reconcile for ______.
- outstanding checks - deposits in transit
NSF checks from customers should be a(n) ______ on a bank reconciliation.
- subtraction from the book balance
A ______deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts.
direct
A goal of the Sarbanes-Oxley Act is improving corporations' internal controls. Which of these may accomplish this goal?
- External auditors must test the effectiveness of the company's internal controls. - An audit committee of independent directors oversees financial matters of the company. - Marketing managers must determine whether the marketing team is submitting accurate sales and expense reports.
This item would be listed as an adjustment to the balance per books. A journal entry is required for each item reflected as an adjustment to the cash balance per books.
- Improper asset valuation - Recording fictitious revenues from a phantom customer - Mistarching revenues and expenses
Which of the following responsibilities should not be given to the accounting department?
- Preparing the purchase order - Preparing the purchase requisition - Preparing the receiving report
Which of the following are the steps involved in a petty cash system?
- Putting money into petty cash to establish a fund - Paying money out to reimburse others - Replenishing the petty cash fund
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?
- Service charges - Electronic fund transfers - Interest Income
In a bank reconciliation, interest revenue earned on the bank account balance is ______.
- added to the BOOK balance
An advantage of direct deposits is they ______.
are convenient and efficient
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.)
The 3 categories of employee fraud are ______.
- Asset misappropriation - Corruption - Financial Statement Fraud
Which of the following are limitations in internal control systems?
- 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 these are cash equivalents?
- money market funds
Which of the following control components are part of the framework used when analyzing an internal control system?
- monitoring activities - risk assessment - control activities -Information and communication - control environment
Comparing two sets of records is called ______.
- reconciling
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.
1. Request goods or services by submitting a purchase requisition 2. Prepare a purchase order after suppliers and prices have been approved 3. Prepared a receiving report 4. Prepare a supplier invoice and prepare the journal entry
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
Match the following control components of the framework used when analyzing internal control systems with the appropriate description.
Control environment = refers to the attitude of the people in the organization and their commitment to integrity Risk assessment = evaluate the potential for fraud Control Activities = work responsibilities and duties completed to reduce risks to an acceptable level Monitoring Activities = evaluating the internal control system to see if working as intended
Which of the following is added to the bank balance on a bank reconciliation?
Deposits in transit
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 collected 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.)
A ______ cash system involves putting money into a fund, paying money out to reimburse others and putting money back into to replenish the fund.
Petty
_________ 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
True or false: An internal control goal for cash receipts is to ensure that the business documents the correct amount of cash received and safely deposits the cash into its bank account.
True (Because cash is valuable, portable, and owned by the person who possesses it, special care must be taken to safeguard all cash receipts.)
A(n) ______ system involves the processing of purchases and payments made on account.
Voucher
Which of the following poses a high risk of theft because of its high volume and ease of portability?
cash
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
Deposits in transit occur when you make a deposit ______.
- after the bank's normal business hours
_______ of durites 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
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
The Sarbanes-Oxley (SOX) Act provides increased regulations for ______.
- Corporate Executives - Auditors - Internal Controls
Which principles of internal control are incorrectly described?
- Document procedures -- do not provide access to assets or information unless it is needed to fulfill the assigned task - Restrict access --prepare documents that show activities that have occurred
Match each of the five principles of internal control with its description. Instructions
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
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
Which of the following is not an accurate statement about internal control?
- It guarantees the management will behave ethically
________checks written by the company that has not cleared the bank are subtracted from the ________ balance on a bank reconciliation.
- outstanding - bank
The services provided by a bank help business control cash by ______.
- restricting access and providing documentation and independent verification
Restricted cash is reported ______.
- separately as an asset on the balance sheet
A bank reconciliation is a(n) ______.
internal report prepared to compare the company's cash records with the bank statement
