CH 8 Accounting smartbook

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 unrecorded deposits and subtract any outstanding checks 2.Compute the adjusted bank balance 3. Enter the company's book balance 4. Add any unrecorded cash receipts,intrest 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.

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

Technologically advanced systems can record who made entries, the date and time of the entry and the source of the entry. Technology has encouraged the growth of e-commerce, which means that there is a higher risk of credit card number theft. Technology has reduced the number of processing errors.

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

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.

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

Determine which of the items below would appear in the Deposits 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 Interest paid by the bank on the bank account balance Deposits made during the month

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 payment 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.

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

Cash deposits made by the account owner

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

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

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.

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

Deposit ticket matches Choice Lists currency, coins and checks deposited into an account Check matches Choice A document signed by the depositor instructing the bank to pay a specified amount of money Bank account matches Choice Used to deposit money for safekeeping and help control withdrawals. Remittance advice matches Choice Explains the reason for payment Electronic funds transfer matches Choice 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 increases to the account during the period Beginning-of-period balance in the account Withdrawals and other decreases to the account during the period End-of-period balance in the account

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

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

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

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

Human error matches Choice Can occur from carelessness, misjudgment or confusion Human fraud matches Choice Involves intent by people to defeat internal controls for personal gain Cost-benefit principle matches Choice Dictates that the costs of internal controls must not exceed their benefits Internal control environment matches Choice Management must convey commitment to internal control policies and procedures

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

Interest earned

Choose the items below that would increase 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 an asset reported on the balance sheet. It is established to pay for small payments like low-cost supplies and shipping fees, etc.

Identify the statement below that describes what the Days' sales uncollected ratio assesses.

It measures how quickly a company can convert its accounts receivables into cash.

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

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

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.

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

Liquid assets must be available to pay current liabilities.

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

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

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

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

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 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 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.

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

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

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.

Determine which of the statements below are accurate regarding how a petty cash fund is created and used in a business. (Check all that apply.)

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

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

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

All of the following describe blockchain:

blockchain is continuously and simultaneously updated and verified blockchain makes it more difficult for the ledger to be modified without a detailed record of changes

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

checks

Define what liquidity means by completing the following sentence. Liquidity refers to a company's ability to pay for its liabilities.

current

Auditors focus more on testing the ____ of a company's blockchain processes and technology than on verifying the ___ of its output.

effectiveness/accuracy

Fill in the Blank Question Fill in the blank question. Human (error/fraud) is related to misjudgment or confusion. Human (error/fraud) involves intent to defeat internal controls for personal gain.

error;fraud

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

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

Good recordkeeping helps protect assets and helps managers:

monitor company activities

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

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

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

one person

Identify the factors that cause the bank statement balance to differ from the depositor's book balance by matching each to its definition on the right. Instructions

outstandin check-a check written by the depositor that has not yet been recieved by the bank for payment Deposit in transit- Deposit made and recorded by the depositor but not yet recorded on the bank system NSF check-A check written by a customer who does not have enough money in his account to cover the check Bank charges-Service fee charged by the bank

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

protect assets. ensure reliable accounting. promote efficient operations. uphold company policies.

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

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

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

Describe what a petty cash fund is by completing the following sentence. A petty cash fund is used for (large/small) payments.

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

What is the purpose of internal controls?

to protect assets and ensure reliable accounting