AC 210 Chapter 5

In a bank reconciliation, interest revenue earned on the bank account balance is

added to the book balance

On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of time lags?

deposits in transit and outstanding checks

SOX reduces opportunities for fraud by requiring publicly-traded companies to

evaluate and report on its internal controls, have external auditors evaluate the companies' internal controls. and establish an audit committee of independent directors

outstanding checks are checks that

have been written but have not yet cleared the bank

receiving report

indicates date, quantity, and condition of goods, it is then sent to accounting department to notify so purchase can be recorded

The " " system consists of actions taken to promote efficient and effective operations, protect assets, enhance accounting information and adhere to laws and regulations

internal control

voucher system

involves processing of purchases and payments made on account

Which are steps involved in a petty cash system?

putting money into petty cash to establish a fund, paying money out to reimburse others, and replenishing the petty cash fund

risk assessment

refers to continuous evaluation of potential for fraud

information and communication

refers to documentation of activities that promote effective internal controls

monitoring activities

refers to evaluation of internal controls to determine if they are working as intended

control environment

refers to helping people in organization understand importance of internal control

control activities

refers to work responsibilities and duties completed to reduce risks to an acceptable lebel

sales revenue

selling price times quantity sold

restricted cash is reported

separately as an asset on the balance sheet

loan covenant

specifies terms of a loan agreement that, if broken, can allow the lender to renegotiate the terms of the loan or force repayment

This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation?

it would be added to the book balance

Some managers commit fraud because they are under great pressure to report a high net income to meet

loan covenant requirements, financial analysts' earning forecasts, and shareholders' expectations

NSF stands for

non-sufficient funds

Which is subtracted from the bank balance on a bank reconciliation?

outstanding checks

Violating loan covenants could lead to

repaying the loan balance right away, being forced to put up extra collateral, and paying higher interest rates

If the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown as

$27 deduction from book balance

Which reconciling items on a bank reconciliation need to be recorded in company's record to adjust its cash balance so its up to date?

EFT received from customers discovered on bank statement, interest revenue, and customer's check rejected by bank as NSF

An advantage of direct deposits is they

are convenient and efficient

Deposits in transit are added to the bank or book side of the reconciliation?

bank

imprest system

controls amount paid to others by limiting the total amount of money available for making payments

cost of goods sold

cost time quantity sold

The Sarbanes-Oxley Act aims to reduce fraud by

counteract incentives, reducing opportunities, and encouraging honesty in employees

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

inventory

curent asset on balance sheet available for sale

In a bank reconciliation, an outstanding check is

deducted from the bank balance

gross profit

subtotal on income statement and is amount earning from adding value to inventory sold

petty cash

used to avoid the time and cost of writing checks for business expenses that are small in amount and is controlled by limiting the amount in it and subjecting it to surprise audits

bank reconciliation

internal report prepared to compare the company's cash records with the bank statement

In bank reconciliation, the EFT received by bank from customer's note receivable owed to the company is

added to book balance

A bank service charge should be a " " on a bank reconciliation

deduction from the book balance

A " " deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts.

direct