Chapter 4

Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $3,000; deposits outstanding 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

List the steps for a bank reconciliation in the correct order.

-Adjust the Bank's cash balance -Adjust the Company's cash balance -update the company's cash account by recording items identified in the previous step

Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated? Opening the mail and making a list of checks received Opening the mail and deposit of checks in the bank Depositing checks into the bank and recording receipts in the accounting records Accepting credit cards and accepting cash

-Opening the mail and deposit of checks in the bank -Depositing checks into the bank and recording receipts in the accounting records

Which of the following are provisions included in the Sarbanes-Oxley Act? -Require that the SEC audit publicly traded companies. -Require that the auditors are responsible for preparing the financial statements. -Require auditors to retain work papers for 7 years. -Require that audit firms are hired by the audit committee of the board of directors.

-Require auditors to retain work papers for 7 years. -Require that audit firms are hired by the audit committee of the board of directors.

Which of the following steps are necessary to reconcile the bank balance and the cash account balance. -Adjust the company's cash balance -Record items that reconcile the company's cash balance -Record items that reconcile the bank's cash balance -Adjust bank's cash balance

Adjust the company's cash balance Record items that reconcile the company's cash balance Adjust bank's cash balance

The framework for designing an internal control system is provided by the

Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

True or false: Employee purchases using cash or purchase cards must be recorded immediately as business expense.

False

Which of the following items are included in cash? -Accounts receivable from customers -Currency and coins -Checks from customers -Notes receivable from customers -Balance in checking accounts

Currency and coins Checks from customers Balance in checking accounts

True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check.

False

Which of the following entries affect a company's cash flows? -Debit rend expense; credit cash -Debit equipment; credit notes payable -Debit supplies; credit cash -Debit accounts receivable; credit revenue

Debit rend expense; credit cash Debit supplies; credit cash

Which of the following items will require a journal entry following a bank reconciliation? (Select all that apply.) -Notes collected by the bank -Outstanding checks -Deposits outstanding -NSF checks

Notes collected by the bank NSF checks

Which of the following steps are necessary to reconcile the bank balance and the cash account balance. -Record items that reconcile the company's cash balance -Adjust bank's cash balance -Record items that reconcile the bank's cash balance -Adjust the company's cash balance

Record items that reconcile the company's cash balance Adjust bank's cash balance Adjust the company's cash balance

Which of the following are provisions included in the Sarbanes-Oxley Act? Require that the SEC audit publicly traded companies. Require auditors to retain work papers for 7 years. Require that audit firms are hired by the audit committee of the board of directors. Require that the auditors are responsible for preparing the financial statements.

Require auditors to retain work papers for 7 years. Require that audit firms are hired by the audit committee of the board of directors.

Which of the following are components of internal control? Risk assessment Control activities Control environment Monitoring Accounting standards

Risk assessment Control activities Control environment Monitoring

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the

Sarbanes-Oxley Act.

Smith's operating cash flows in millions were $100, $150, $80 during the past three years; while Jones' operating cash flows in millions were $105, $115, $110 during the same period. From the perspective of operating cash flows, which company would likely be perceived as riskier?

Smith's

What would cause a bank statement not to agree with the cash balance in the accounting records? -The bank made an error in recording a deposit made by the company. -The bank paid interest that the company has not recorded. -The company wrote checks that have cleared the bank. -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 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.

Who is responsible for providing an opinion on management's assessment of internal control

The company's auditors

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

Munchkin Inc. pays for promotional expenses by charging the company's credit card. Munchkin should debit an expense and credit

accounts payable

Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's:

balance sheet statement of cash flows

The components of internal control are -required by the American institute of Certified Public Accountants. -based on the ethical tone set by management. -required by the SEC. -required by state law.

based on the ethical tone set by management

Employee purchases should be included in the accounting records

by the end of the accounting period.

Paying by check helps a business to control cash when the ______. (Select all that apply.) checks are prenumbered and written sequentially check is signed by an authorized manager checks are deposited only at the company's bank

checks are prenumbered and written sequentially check is signed by an authorized manager

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding.

The bank will show a customer's deposit on bank statements as a ______.

credit, because a deposit is a liability from the bank's point of view

The bank will show a customer's withdrawal as a _____

debit, because a withdrawal decreases its liability from the bank's point of view

The bank will show a customer's withdrawal as a _____.

debit, because a withdrawal decreases its liability from the bank's point of view

In a bank reconciliation, an outstanding check is ______.

deducted from the bank balance

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding.

Published financial statements may be incorrect because of (Select all that apply.) -lack of external verification. -errors. -fraud. -choices available under GAAP.

errors fraud

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? -sale of building -collection of an accounts receivable -borrowing from bank -issuance of common stock -interest received on notes receivable

interest received on notes receivable collection of an accounts receivable

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? -issuance of bonds -purchase of building -purchase of supplies on account -payment of an accounts payable balance -payment of salaries

payment of an accounts payable balance payment of salaries

Internal control consists of plans to (Select all that apply.) -report management errors to the police. -safeguard company assets. -report misuse of company assets to investors. -provide accurate and reliable accounting information.

safeguard company assets. provide accurate and reliable accounting information.

Internal control consists of plans to (Select all that apply.) -safeguard company assets. -report management errors to the police. -report misuse of company assets to investors. -provide accurate and reliable accounting information.

safeguard company assets. provide accurate and reliable accounting information.

A non-sufficient funds check requiring an adjustment to the cash balance was written: -by the bank preparing the bank statement used in the reconciliation -to the company preparing the bank reconciliation -by the company preparing the bank reconciliation

to the company preparing the bank reconciliation