Smartbook: Chapter 6 Cash, Fraud, and Internal Control

Calculate the adjusted cash balance per the books of XYZ Co. given the following information. Balance per bank statement----$600 Balance per general ledger cash account-----710 Deposit in transit------200 Note collected by the bank on behalf of the depositor-----80 Monthly bank charges-----40 Outstanding checks-------50

$750 Beg bal. $710 + Note $80 -bank charges $40.

Calculate the adjusted cash balance per books of ABC Co. given the following information. Balance per bank statement-$10,005 Balance per general ledger cash account-9,500 Deposit in transit-300 Interest earned on the depositor's balance-55 NSF check-100 Outstanding checks-850

$9,455 Beg bal $9,500 +Interest $55 - NSF $100.

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.

The following annual account balances are taken from ABC Co at year end. 2015 2014 Accounts Receivable $5,500 $4,000 Net Sales $58,000 $55,000 Days sales uncollected ? days ? days Calculate ABC Co.'s days sales uncollected for 2015.

34.6 Days

Which of the answers below correctly describe the Cash Over and Short account? (Check all that apply.)

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

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. (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

Determine which of the statements below describes a petty cash receipt. (Check all that apply.)

Any person wishing to withdraw funds from a petty cash fund must complete a petty cash receipt. A petty cash receipt will have a signature line for the person receiving a disbursement from the fund. The petty cashier must present all paid receipts to the company cashier in order to replenish the fund. A petty cash receipt is sometimes called a petty cash ticket.

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 an increase in the monthly bank statement balance.

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.

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.

What is the purpose of internal controls?

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

Recall the preparation of a bank reconciliation by selecting the correct items below. (Check all that apply.)

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

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.

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.

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.)

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

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.

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

Interest earned

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

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

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.

Define what liquidity means by completing the following sentence. Liquidity refers to an asset which can be readily used to pay for current __________.

Liabilities

Which statement below explains why liquid assets are needed in a business?

Liquid assets must be readily available to settle near-term debt or obligations.

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

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

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

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.

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.

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.

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.

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.

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. (Check all that apply.)

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

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.)

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

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.

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.

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.

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.

Identify when the Petty Cash fund is debited or credited by selecting the correct answer below. (Check all that apply.)

When the account is reduced When the account is created When the account is increased

The formula to compute days' sales uncollected is:

accounts receivable divided by net sales times 365

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

checks

Bonding employees who handle cash is important because it:

discourages employee theft

Good recordkeeping helps protect assets and helps managers:

monitor company activities

Define what liquidity means by completing the following sentence. Liquidity refers to a company's ability to pay for its________________(near/long) -term obligations.

near

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

one person

The triple threat of fraud involves:

pressure opportunity rationalization

Show your understanding of what a bank reconciliation is by completing the following sentence. A bank reconciliation is a(n) ______________(entry/charge/report) explaining any differences between the__________(checking/subsidiary/sales) account balance according to the depositor's records and the balance reported on the_____________ (income/financial/bank) statement.

report checking bank

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

Summarize the internal control principle of establishing responsibility by completing the following sentence. Proper internal control means that responsibility for a ______________(task/shortage/sale) is clearly ________________(posted/established/compensated) and assigned to one person.

task established