Chapter 6 accounting

Identify the examples of good internal control designed to protect over-the-counter cash receipts

1. Clerks should be required to give the customer a receipt for each sale. 2. The clerk and the cashier have access to cash, but not to the accounting records.

Identify the bank reconciliation items that would require adjustments to the book balance.

1. Collection of note by bank 2. NSF check 3. Interest earned 4. Bank charges

What is the purpose of internal controls?

1. Companies create internal controls to protect assets and ensure reliable accounting. 2. To help managers know if the business is receiving the assets and services it has paid for.

Determine which of the items below would show up on a monthly bank statement

1. Deposits and other credits increasing the account during the period 2. Beginning-of-period balance in the account 3. Checks and other debits decreasing the account during the period 4. End-of-period balance in the account

Determine which of the statements below accurately describe services provided by a bank.

1. Each bank deposit is supported by a deposit ticket. 2. A bank account is a record set up by a bank for a customer. 3. To withdraw money from an account, the depositor can use a check.

In preparing a monthly bank reconciliation, a business follows several steps. Place the selected steps below in the correct order of occurrence.

1. Enter the bank statement balance then add any deposits in transit and subtract any outstanding checks 2. Compute the adjusted bank balance 3. Enter the company's book balance 4. Add any unrecorded cash receipts, interest earned, and errors understating the book balance 5. Subtract any unrecorded bank fees, NSF checks, and errors overstating the book balance 6. Compute the adjusted book balance and compare it to the adjusted bank balance to verify equality

Describe the internal control principle of dividing responsibility for related transactions

1. Examples of transactions with divided responsibility are placing inventory orders and paying vendors. 2. This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction. 3. This principle is often called separation of duties.

What are the limitations to Internal control policies and procedures ?

1. Human error 2. Human fraud 3. Cost-benefit principle 4. Internal control environment

Identify the principles of internal control

1. Insure assets. 2. Establish responsibilities. 3. Apply technological controls. 4. Maintain adequate records. 5. Perform regular and independent reviews. 6.Separate recordkeeping from custody of assets.

Review the following statements and select the ones which accurately describe a Petty Cash fund.

1. It is an asset reported on the balance sheet. 2. It is established to pay for small payments like postage, shipping fees, etc. 3. It is used to avoid the time and cost of writing checks for small amounts.

Which of the answers below correctly describe the Cash Over and Short account?

1. It is an income statement account. 2. It records the effects of cash overages and cash shortages. 3. A debit balance reflects an expense.

Which of the statements below describe the goals and principles of cash management?

1. Money should be spent only when it is available. 2. Keep a minimum level of cash necessary to operate. 3. Encourage quick collection of receivables. 4. Plan cash receipts to meet cash payments when due.

Choose the items below that would be subtracted from the book balance on a bank reconciliation.

1. NSF customer check 2. Monthly bank service charge 3. Monthly check charges assessed by the bank

Choose the items below that would be added to the book balance on a bank reconciliation.

1. Note collected by the bank for the depositor 2. Interest earned on the depositor's account

Which of the following are correct regarding why management uses internal controls?

1. Promote efficient operations. 2. Protect assets. 3. Ensure reliable accounting. 4. Uphold company policies.

Which of the following are correct regarding why management uses internal controls?

1. Promote efficient operations. 2. Uphold company policies. 3. Protect assets. 4. Ensure reliable accounting.

Summarize the internal control procedure of maintaining adequate records

1. Reliable records are a source of information that managers use to monitor activities. 2. Keeping detailed records makes it unlikely that assets are lost or stolen without detection.

How has the Sarbanes-Oxley Act (SOX) impacted the internal control of companies?

1. SOX requires that the company have effective internal controls. 2. SOX requires that auditors verify internal controls.

An electronic funds transfer involves paper documents sent after the cash. an electronic (not paper) transfer of cash. paying a high fee. writing a check.

an electronic (not paper) transfer of cash.

Insuring ____________ against casualty and bonding ___________________ who handle cash, reduces _______________.

assets, employees, risk of loss

Regular and independent reviews should be done by ___________________.

auditors not directly involved in the activities

Identify the item below that would be added to the book balance.

interest earned

A voucher is an ___________________ document (or file) used to accumulate information to ___________________ cash disbursements and to ensure that a transaction is properly recorded.

internal, control

A depositor's account is a(n) ______________ on the bank's records, but it is a(n) _______________ on the books of the account owner. Because of this, every time the account owner makes a deposit, the bank ________________ the account owner's account.

liability, asset, credits

Good recordkeeping helps protect assets and helps managers do what?

monitor company activities

Responsibility for a task should be clearly established and assigned to:

one person

A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

receiving report

The recordkeeper and the person who ________________ the bank balance do not have access to cash.

reconciles

Which statement below describes the internal control procedure of insuring assets and bonding key employees?

Insuring assets against casualty and bonding employees who handle cash, reduces risk of loss.

Determine which of the items below would appear in the Deposits and Credits column of a bank statement and would cause an increase in the account's balance.

1. A note collected by the bank on behalf of the account owner 2. Interest paid by the bank on the bank account balance 3. Deposits made during the month

Determine which of the items below would appear in the Checks and Debits column of a bank statement and would cause a decline in the account's balance.

1. ATM withdrawals 2. Checks written by the account owner 3. Monthly service fees charged by the bank 4. A customer's NSF check

Recall the preparation of a bank reconciliation by selecting the correct items below.

1. Add deposits in transit to the balance per bank. 2. Subtract any outstanding checks from the balance per bank. 3. Compute the adjusted book balance. 4. Compute the adjusted bank balance.

Determine which of the statements below describes a petty cash receipt.

1. Any person wishing to withdraw funds from a petty cash fund must complete a petty cash receipt. 2. Any person wishing to withdraw funds from a petty cash fund must complete a petty cash receipt. 3. A petty cash receipt is sometimes called a petty cash ticket. 4. The petty cashier must present all paid receipts to the company cashier in order to replenish the fund.

Jackson Co. needs to replenish its petty cash fund. Currently, it contains $11 in cash and receipts for supplies of $40 and delivery expenses of $49. The fund was initially established with $100. Demonstrate the journal entry to replenish the account

1. Cash is credited for $89. 2. Delivery Expense is debited for $49. 3. Supplies Expense is debited for $40.

Identify the basic internal control guidelines which should be in place to protect a business's cash by selecting the correct answers below. (Check all that apply.)

1. Cash receipts are promptly deposited in a bank. 2. Cash payments are made by check. 3. Handling cash is separate from recordkeeping of cash.

Which of the statements below explains how technology has impacted internal control systems?

1. Technologically advanced systems can record who made entries, the date and time of the entry and the source of the entry. 2. Technology has encouraged the growth of e-commerce, so there is a higher risk of credit card number theft. 3. Technology has reduced the number of processing errors 4. Technology can be designed to require the use of password before access to the system is granted.

A cash register tape reflected total sales equaling $100, but the cash in the cash register drawer equaled $105. Review the statements below and determine which is correct regarding this discrepancy.

1. The Cash Over and Short account will be credited for $5. 2. The Sales account will be credited for $100. 3. The extra $5 collected will be treated as a miscellaneous revenue. 4. The Cash account will be debited for $105.

Determine which of the statement(s) are correct if a Petty Cash account is not replenished at the end of the accounting period. (Check all that apply.) Multiple select question.

1. The income statement would reflect a net income amount that was too high. 2. The balance sheet would show an overstated cash asset. 3. Expenses would not be recorded in the period in which they were incurred.

Determine which of the statements below are accurate regarding how a petty cash fund is created and used in a business.

1. The petty cashier is responsible for making payments from the petty cash fund. 2. The sum of all petty cash receipts plus the remaining cash should equal the total of the fund amount at any given time. 3. The petty cashier is responsible for keeping the cash in the fund safe. 4. A check is drawn by the company cashier to establish the petty cash fund.

Identify the examples of good internal controls designed to protect cash received in the mail.

1. Two people are assigned the task of, and are present for, opening the mail. 2. The recordkeeper and the person who reconciles the bank balance do not have access to cash.

Given the choices below, choose the examples of internal controls designed to control cash payments (

1. Use of a voucher system. 2. Use of a petty cash system. 3. All payments should be made by check. 4. Only authorized individuals should be allowed to sign checks.

Determine the statements below that are true regarding why a bank reconciliation is used.

1. We must reconcile the balance of the bank's records and the Cash account in the general ledger and explain or account for any differences in the two. 2. Timing differences between the bank statement and the depositor's records are reflected in the bank reconciliation. 3. The bank reconciliation is useful in proving the accuracy of the Cash account in the general ledger.

Identify when the Petty Cash fund is debited or credited

1. When the account is created 2. When the account is increased 3. When the account is reduced

A blockchain ledger is more secure because

1. it is continuously updated. 2. it is difficult to modify the ledger without a detailed record of changes. 3. it is continuously verified.

The triple threat of fraud involves

1. rationalization 2. pressure 3. opportunity

When cash is received by mail, a list should be prepared with copies sent to all of the following

1. recordkeeper 2. the person who opened the mail 3. with the money to the cashier

Each of the following are types of technological impacts related to internal control:

1. separation of duties 2. new evidence of processing 3. reduced processing errors 4. more extensive testing of records

Used to deposit money for safekeeping and help control withdrawals.

Bank account

Service fees charged by the bank Service fees charged by the bank

Bank charges

Review the items below and determine which would cause an increase in the monthly bank statement balance.

Cash deposits made by the account owner

Review the items below and determine which would cause an increase in the monthly bank statement balance. A customer's NSF check Service fees charged by the bank Checks written during the month Cash deposits made by the account owner

Cash deposits made by the account owner

At the end of the month, ABC Co.'s petty cash fund contains $4 in cash and receipts for postage of $50 and delivery expenses of $44. It started out with $100 in the fund at the beginning of the month. Demonstrate the journal entry to replenish the account and recognize its shortage by choosing the correct action from those given below.

Cash is credited for $96

A document signed by the depositor instructing the bank to pay a specified amount of money

Check

Review the items below and determine which would cause a decrease in the monthly bank statement balance.

Checks written by the account owner

Dictates that the costs of internal controls must not exceed their benefits

Cost-benefit principle

Choose the list below that contains only cash or cash equivalents.

Customer checks, Money orders, Certified checks

Demonstrate the required adjusting entry needed to record a $1,000 note receivable collected by the bank by choosing the correct entry below.

Debit Cash $1,000 and credit Notes Receivable $1,000.

The cash in a cash register equaled $100, but the record of cash receipts/sales equaled $102. Determine which of the following entries is correct to record cash sales and the shortage.

Debit Cash $100, debit Cash Over and Short $2, and credit Sales $102.

Deposit made and recorded by the depositor, but not yet recorded on the bank statement Deposit made and recorded by the depositor, but not yet recorded on the bank statement

Deposit in transit

Lists currency, coins and checks deposited into an account

Deposit ticket

Electronic transfer of cash from one party to another

Electronic funds transfer

Sarbanes-Oxley allows for the following penalties for violators:

Up to 25 years in prison with fines

Can occur from carelessness, misjudgment or confusion

Human error

Involves intent by people to defeat internal controls for personal gain

Human fraud

Management must convey commitment to internal control policies and procedures

Internal control environment

An itemized statement of goods prepared by the vendor listing the customer's name, items sold, sales prices, and terms of sale.

Invoice

A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.

Invoice approval

An internal file used to store documents and information to control cash payments and to ensure that a transaction is properly authorized and recorded.

Voucher

A check written by a customer who does not have enough money in his account to cover the check A check written by a customer who does not have enough money in his account to cover the check

NSF check

Identify the item below that would be subtracted from the book balance on a bank reconciliation.

NSF check

Select the items below that would cause the bank statement balance to differ from the depositor's book balance.

NSF check, Deposit in transit, interest paid by bank

Choose the statement below which is correct regarding which bank reconciliation items require adjusting journal entries.

Only the items reconciling the book balance require adjustment.

Review the following statements regarding a petty cash fund used in a business. Select the one that is correct.

Only the petty cashier is responsible for paying cash from the fund.

Choice, A check written by the depositor that has not yet been received by the bank for payment A check written by the depositor that has not yet been received by the bank for payment

Outstanding check

XYZ Co. decided to create a petty cash fund. They estimated that $100 would be needed in the fund. Demonstrate the correct journal entry to create the account by choosing the correct action from those below.

Petty Cash is debited for $100.

A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms

Purchase order

A document used by department managers to inform the purchasing department to place an order with a vendor.

Purchase requisition

Explains the reason for payment

Remittance advice

Which of the statements below describes the internal control principle of applying technological controls?

Technological controls, such as time clocks and cash registers, improve the effectiveness of controls.

Review the statements below to determine the correct definition of a credit memorandum.

The bank notifies the depositor of each increase to the account with a credit memorandum.

Determine which of the statements below is correct regarding information reflected on a monthly bank statement.

The information on the bank statement reflects the bank's records of the depositor's account.

An owner of a small business usually knows if the business is receiving the assets and services the company paid for. True false question.

True

True or false: Bank errors must be accounted for in the bank reconciliation.

True

True or false: The adjusted book balance and the adjusted bank balance must equal each other on a bank reconciliation; otherwise, the cash account is not reconciled.

True

Explain how depositors can check for errors by completing the following sentence. Error testing includes (a) comparing deposits on the bank statement with deposits in the _______________ records and comparing _________________ checks on the bank statement with ______________ recorded in the accounting records.

accounting, canceled, checks

A more secure type of accounting ledger is called _________________ ledger

blockchain

A good internal control to protect cash is to make cash payments using

checks

Describe the internal control principle of separating recordkeeping from custody of assets by completing the following sentence. A person who __________________ or has access to an asset must ______________ keep that asset's accounting records.

controls, not

Cash is ________________ when the petty cash account is replenished. The expenses are _______________ when the fund is replenished.

credited, debited

Petty Cash is _______________ when the fund is ______.

credited, decreased

Brown Co. decides to increase the amount in its petty cash fund from 100 to $150. To show this increase in the petty cash account, you would:

debit Petty Cash for $50.

Petty Cash is ________________ when the fund is initially established and when it is ________________.

debited, increased

Bonding employees who handle cash is important because it

discourages employee theft

Human ______________ is related to misjudgment or confusion. Human _____________ involves intent to defeat internal controls for personal gain.

error, fraud

The electronic transfer of cash from one party to another is called electronic ____________ transfer

fund

A bank reconciliation is a(n) _______________ explaining any differences between the ________________ account balance according to the depositor's records and the balance reported on the _______________ statement

report, checking, bank

The internal control of ____________________ of duties means that the responsibility for a transaction should be divided between two or more individuals.

seperation

To maintain control of cash payments, all payments should be made by check except

small payments made by petty cash

A petty cash fund is used for _______________ payments in order to ______________ the time and cost of writing checks for _____________ amounts.

small, avoid, small

Proper internal control means that responsibility for a ____________ is clearly ______________ and assigned to one person.

task, established

An ID scanner is a type of ______________ control.

technological

Cash equivalents include short term investments within?

three months of their due date