Principles of Accounting - 6

Jackson Brothers established a petty cash fund of $200 at the beginning of the year, but it decides to reduce the amount in the fund to $130. Demonstrate the correct journal entry to reduce the amount in the account by choosing the correct action from those given below.

Cash is debited for $70 and Petty Cash is credited for $70.

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 by choosing the correct actions from those below.

- Supplies Expense is debited for $40 - Cash is credited for $89 - Delivery Expense is debited for $49

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

Cash deposits made by the account owner

At the end of the month, Brown Co.'s petty cash fund contains $4 in cash and receipts for postage of $50 and delivery expenses of $46. It started out with $100 in the fund at the beginning of the month. Demonstrate the journal entry to replenish the account by choosing the correct action from those given below.

Cash is credited for $96.

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.)

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

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.

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.)

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

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

-more extensive testing of records -reduced processing errors -new evidence of processing -separation of duties

Identify the bank reconciliation items that would require adjustments to the book balance. (Check all that apply.)

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

Which of the statements below explains how technology has impacted internal control systems? (Check all that apply.)

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

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. (Check all that apply.)

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

Contrast how a depositor's account is classified by a bank compared to how it is classified by the account owner by completing the following sentence. 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.

1.Liability 2. Asset 3. Credits

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

Blank 1: separation or segregation

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.

Checks written by the account owner ATM withdrawals Monthly service fees charged by the bank A customer's NSF check

What is the purpose of internal controls?

Companies create internal controls to protect assets and ensure reliable accounting.

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.

Match the banking term on the left with its definition on the right.

Deposit Ticket- Lists currency, coins and checks deposited into an account Check- A document signed by the depositor instructing the bank to pay a specified amount of money Bank Account- Used to deposit money for safekeeping and help control withdrawals. Remittance advice- Explains the reason for payment Electronic Funds transfer- Electronic transfer of cash from one party to another

Determine which of the items below would show up on a monthly bank statement. (Check all that apply.)

Deposits and other credits increasing the account during the period End-of-period balance in the account Beginning-of-period balance in the account Checks and other debits decreasing the account during the period

Determine which of the statements below accurately describe services provided by a bank. (Check all that apply.)

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

Identify the principles of internal control by selecting the correct answers below. (Check all that apply.)

Establish responsibilities. Apply technological controls. Perform regular and independent reviews. Insure assets. Separate recordkeeping from custody of assets. Maintain adequate records.

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.

Review the following statements and select the ones which accurately describe a Petty Cash fund. Select all answers which apply.

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

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below. (Check all that apply.)

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

Identify the item 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 items below that would be subtracted to the book balance on a bank reconciliation. (Check all that apply.)

NSF customer check Monthly bank service charge Monthly check charges assessed by the bank

Select all that apply Each of the following are types of technological impacts related to internal control:

New evidence of processing Reduced processing errors Maintaining adequate records Separation of duties More extensive testing of records

Which of the following are principles of internal control? (Check all that apply.)

Perform regular and independent reviews. Divide responsibility for related transactions. Establish responsibilities. Maintain adequate records.

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.

Jackson Brothers decided to create a petty cash fund. They estimated that $200 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 $200; Cash is credited for $200.

Show your understanding of what a bank reconciliation is by completing the following sentence. 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

Determine which of the statements below is true regarding the adjusted bank balance and the adjusted book balance on a bank reconciliation.

The adjusted bank balance must equal the adjusted cash balance per books.

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.

Identify the examples of good internal control designed to protect over-the-counter cash receipts. (Check all that apply.)

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

Describe the internal control principle of dividing responsibility for related transactions by selecting the correct statements below. (Check all that apply.)

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. Examples of transactions with divided responsibility are placing inventory orders and paying vendors. This principle is often called separation of duties.

Determine the statements below that are true regarding why a bank reconciliation is used. (Check all that apply.)

Timing differences between the bank statement and the depositor's records are reflected in the bank reconciliation. The bank reconciliation is useful in proving the accuracy of the Cash account in the general ledger. 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.

What is the purpose of internal controls?

To help managers know if the business is receiving the assets and services it has paid for.

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

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

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 (identifies/controls/recommends) or has access to an asset must (always/not/) keep that asset's accounting records.

controls; not

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.

Bonding employees who handle cash is important because it:

discourages employee theft

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

interest earned

Good recordkeeping helps protect assets and helps managers:

monitor company activities

Identify which of the items below are goals of good cash management. (Check all that apply.)

plan cash receipts to meet cash payments when due keep a minimum level of cash necessary to operate

Determine which of the items below would appear in the Deposits and Credits column of a bank statement and would cause a increase in the account's balance. (Check all that apply.)

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

Jackson Co. needs to replenish its petty cash fund. Currently, it contains $5 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 and recognize the cash shortage by choosing the correct actions from those given below. (Check all that apply.)

Cash Over and Short is debited for $6. Cash is credited for $95. Delivery Expense is debited for $49. Supplies Expense is debited for $40.

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

Checks written by the account owner

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.

A person who has access to an asset must _____ access to that asset's accounting records.

Not have

Choose the items below that would be added to the book balance on a bank reconciliation. (Check all that apply.)

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

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.

Which of the statements below describe the goals and principles of cash management? (Check all that apply.)

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

Which of the following are correct regarding why management uses internal controls? (Check all that apply.)

Protect assets. Promote efficient operations. Ensure reliable accounting. Uphold company policies.

Determine which of the following 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.

There are several reasons why the petty cash fund would experience a shortage or an overage. Determine which of the actions below would result in a shortage or an overage in the petty cash fund.

The petty cashier failed to get a receipt for payment.

Given the choices below, choose the examples of internal controls designed to control cash payments (Check all that apply.)

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

Internal control policies and procedures have limitations that arise from many elements. Match the limitation on the left with its definition on the right.

1. Human error- Can occur from negligence, fatigue, misjudgment or confusion 2. Human fraud- involves intent by people to defeat internal controls for personal gain 3. Cost-benefit principle- Dictates that the costs of internal controls must not exceed their benefits 4. Internal control environment- Management must convey commitment to internal control policies and procedures

Describe what a petty cash fund is by completing the following sentence. A petty cash fund is used for (large/small) payments in order to (increase/avoid) the time and cost of writing checks for (large/small) amounts.

small avoid small

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

small payments made by petty cash

In addition to the cashier and clerk who have access to the cash a third employee should have access to

the records for cash, but not the actual cash