Ch. 4 accounting
_____ are fees charged by the bank for checking account services
service charges
Bank reconciliation
since the bank's accounting records and company's accounting records often disagree due to timing differences, these must be 'reconciled' to ensure that the accounting records are consistent with the bank's accounting records
What would not appear on a bank statement for a checking account?
Outstanding checks
While preparing a bank reconciliation, what item would be subtracted from the balance per the bank statement?
Outstanding checks
A ______ is the process used by an accountant to ensure consistency between the balance shown on the bank statement for a particular account and the balance shown on the accounting record.
Bank reconciliation
While preparing a bank reconciliation, what item would be subtracted from the balance per the company records?
Bank service charges
Allowing only certain employees to order goods and services on behalf of the company is an example of what internal control activity?
Establishing responsibility
Which internal control activity is followed when management authorizes the purchasing department to order goods and services for the company?
Establishing responsibility
According to the Sarbanes-Oxley Act of 2002, who is primarily responsible for establishing and maintaining a system of internal control over the company's financial reporting?
Management of the company
A check returned by a bank because the issuer's cash account balance could not cover the check is called a:
NSF check
Which internal control activity is followed when a physical count of inventory in performed under a perpetual inventory system?
Physical security
Which internal control activity is following when inventory storage areas are secured with limited access?
Physical security
What is an essential element of internal control?
Procedures for proper authorization of transactions
Under the _______ Act, management of publicly-traded corporations has increased responsibility for a system of internal controls that ensures reliability of financial statements.
Sarbanes-oxley
How are cash equivalents reported or disclosed in the financial statements?
They are included with cash as a current asset on the balance sheet
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
What statement best describes the term "outstanding check" from a company's point of view?
a check written by a company but not yet presented to the bank for payment
Having one employee prepare company checks and sign those checks is:
a violation of proper segregation of duties
A credit memorandum appeared on Arthur's September bank statement. How will Arthur treat this amount on the September bank reconciliation?
add it to the company's balance
In the reconciliation of a bank statement, deposits in transit should be:
added to the unadjusted bank statement balance
What best describes the act of collusion?
an intentional act of two or more employees to accomplish theft of company assets
_____ are those investments and deposits with financial institutions that are readily convertible into known amounts of cash and that have original maturities of 3 months or less.
cash equivalents
The account used to record the discrepancies that will occasionally occur between the amounts deposited and amount shown on cash register tapes is called ______.
cash over and short
The account which records the difference between the cash needed for replenishment and the amount of receipts is called:
cash over and short
What would never be considered a cash equivalent?
common stock issued by a corporation
Which component of internal control relates to the policies and procedures that management establishes to address the risks that might prevent the organization from achieving its objectives?
control activities
A ______ could result if the bank collected a note receivable for the business.
credit memo
Items that are included on a bank statement and increase the bank account balance are called ______.
credit memorandums
Suppose that a company noted a discrepancy whereby the amount of cash deposited in the bank account exceeded the amount included as cash sales on the register tapes. This overage should be recorded as a:
credit to cash over and short
A _________ might result if the bank makes a prearranged deduction from the business's account to pay a bill.
debit memo
Items that are included on a bank statement and decrease the bank account balance are called ______.
debit memorandums
A debit memorandum appeared on Mallory's bank statement for the month of May. How will Mallory treat this amount on the May bank reconciliation?
deduct it from the company's balance
An amount recorded as an increase in the company's cash account at the end of the period, but in which has not yet been reflected on the bank statement is called a ________.
deposit in transit
Cash collected and recorded by a company but not yet reflected in a bank statement are known as:
deposits in transit
While preparing a bank reconciliation, what item would be added to the bank statement balance?
deposits in transit
______ cause the bank balance to be smaller than the business's cash account balance.
deposits in transit
Which internal control activity is violated when the cashier at a cash register in a retail store also records the daily receipts in a journal?
segregation of duties
____ represents the cash flow that a company is able to generate after considering the maintenance or expansion of its assets (capital expenditures) and payment of dividends.
free cash flow
Which internal control activity is following when the work of one department acts as a check on the work of another?
independent verification
A necessary element of internal control is:
information and communication
Annual report in which management states its responsibility for internal control and provides an assessment of its internal control is called an ________.
internal control report
What is a true statement regarding a credit memorandum and its relationship to a company's bank reconciliation procedures?
it must be recorded as a debit to the balance per the company's records
A petty cash custodian should always:
maintain supporting documentation for any payment made from the petty cash fund
Cash equivalents include:
money market accounts and commercial paper
When a firm uses internal auditors, it is adhering to what internal control element?
monitoring
What is an example of a debit memorandum?
notice of a bank service charge
What is an example of a credit memorandum?
notice of interest earned on a checking account
A check written by a company but not yet presented to the bank for payment is called an _______.
outstanding check
Which of the following is a reconciling item when reconciling the bank balance to the correct balance?
outstanding checks
________ cause the bank balance to be higher than the business's cash account balance.
outstanding checks
Segregation of duties is most effective in:
preventing collusion
Monitoring
refers to the assessment of the quality of an organization's internal control can be accomplished in two ways the first is through ongoing activities the second is through a separate evaluation
Risk assessment
refers to the identification and analysis of these risks, with the goal of effectively managing them because business conditions can change throughout time, this is an ongoing organizational activity
A component of internal control is:
risk assessment
The financial statement that summarizes the operating, investing, and financing activities of a business over a period of time is the _____.
statement of cash flows
Control environment
the atmosphere in which the members of an organization conduct their activities and carry out their responsibilities often called the "tone at the top" because it reflects the overall control consciousness of an organization
The primary purpose of the statement of cash flows is to provide information about:
the cash inflows and outflows of the company
If a company erroneously records a $50 check received from a customer as $500 in its records, What must occur when reconciling its bank statement?
the company must decrease the balance per its records by $450
If a company erroneously records a $500 deposit as $50 in its records, what must occur when reconciling its bank statement?
the company must increase the balance per its records by $450
Control activities
the policies and procedures management establishes to address the risks that might prevent the organization from achieving its objectives
If the balance on the bank statement does not equal the balance per the company's records, then it can be assumed that:
there will be items reconciling the difference
In _____ analysis, cash balance is expressed as a percent of the total assets.
vertical