Chapter 4 ACCT (Extra credit/Concept videos)

An appropriate use of a petty cash fund is for the purchase of:

Postage

Which of the following occurs when petty cash is used to pay for an item?

The receipt or a voucher is placed in the petty cash fund.

What is the primary purpose of a bank reconciliation?

To ensure the bank balance per reconciliation is equal to the company balance per reconciliation

Which of the following are provisions included in the Sarbanes-Oxley Act?

-Require auditors to retain work papers for 7 years. -Require that audit firms are hired by the audit committee of the board of directors.

What would cause a bank statement not to agree with the cash balance in the accounting records?

-The bank paid interest that the company has not recorded. -Deposits outstanding that have been recorded on the company's records, but not on the bank's. -The company made an error in recording a deposit. -The bank made an error in recording a deposit made by the company.

At the beginning of February, Neumann established a petty cash fund. During the month, the petty cash custodian disbursed $105 for small deliveries. At the end of the month, Neumann should: (Select all that apply.)

-credit petty cash -debit delivery expense

Important internal control procedures for employee purchases include:

-predetermined spending limits for employees -reconciliation of credit card statements -clear rules for purchase authorization

Internal control consists of plans to

-provide accurate and reliable accounting information. -safeguard company assets.

The key provisions of the Sarbanes-Oxley Act include

-requiring that corporate executives certify financial statements. -restricting activities of auditors to prevent conflicts of interest. -requiring documentation and assessing effectiveness of internal controls.

Important internal control procedures for employee purchases include:

-separation of duties -reconciliation of credit card statements -clear rules for purchase authorization

1) On May 1, the company pays salaries to employees. 2)On May 8, the company purchases supplies worth $4,000, on account. 3)On May 21, the company borrows $10,000 from the bank to finance its short-term capital requirements. 4)On May 24, the company receives $1,000 cash from customers for services performed in April. 5)On May 28, the company pays $9,000 to purchase equipment.

1) operating 2) operating 3) financing 4) operating 5) investing

Some transactions of Blue River Company are given below. Indicate whether the transaction will be reported in the statement of cash flows. 1)On May 1, the company pays salaries to employees. 2)On May 8, the company purchases supplies worth $4,000, on account. 3)On May 21, the company borrows $10,000 from the bank to finance its short-term capital requirements. 4)On May 24, the company receives $1,000 cash from customers for services performed in April. 5)On May 28, the company pays $9,000 to purchase equipment.

1)yes 2)no 3)yes 4)yes 5)yes

Which of the following is not one of the categories of business activities reported in the statement of cash flows?

Accounting

Which of the following is an example of a detective control in a company?

Accounting personnel routinely reconciles the company's cash records with those of its bank to identify discrepancies.

Which account would be credited when a firm pays for supplies using a credit card?

Accounts Payable

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true?

An entry must be made to debit Accounts Payable and credit Cash for $45.

The framework for designing an internal control system is provided by the

Committee of Sponsoring Organizations (COSO) of the Tread-way Commission.

A customer paid $250 using a check for purchases made in the first week of January. The bank statement received at the end of the month showed that this was an NSF check. The entry needed to adjust the company's cash balance for this reconciling item will include a:

Credit to Cash for $250

In examining its monthly bank statement, a company discovers that that its account was credited $30 for interest earned. The entry needed to adjust the company's cash balance for this reconciling item will include a:

Credit to Interest Revenue for $30

Recording the establishment of a petty cash account will include a _________.

Credit to cash

A landscaping company accepts MasterCard as payment for $1,000 worth of services. MasterCard charges a service fee of 2 percent. Which of the following would be recorded by the store?

Debit $20 to Service Fee Expense

Melon Corp. noticed that a check written by the company for $2,100 for advertising expense was incorrectly recorded in the accounting records as $1,200. What needs to be recorded to correct this error?

Debit Advertising Expense $900; credit Cash $900.

Which of the following can be used to assess the adequacy of a company's level of cash at the end of the period?

Dividing the sum of cash and cash equivalents by noncash assets

Which of the following is an example of a preventive control in a company?

Employees responsible for making cash disbursements are not in charge of cash receipts.

A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?

It would be added to the bank balance.

This month's bank statement shows that the bank incorrectly credited ABC Corp.'s account for a $600 deposit that should have been credited to XYZ Corp.'s account. How would this item be treated on ABC's bank reconciliation?

It would be deducted from the bank balance.

This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation? Is it added or subtracted from the bank balance or the company's cash (book) balance?

It would be deducted from the company balance.

Which of the following is a good internal control mechanism for cash disbursements?

Maximum purchase limits set on debit and credit cards.

Rice Corp. noticed that a check written by the company for utility expense in the amount of $1,000 was incorrectly recorded by the bank as $1,100. What entry needs to be recorded to correct this error?

No entry is required on the company's books.

Which of the following is not an element of the fraud triangle?

education

Cash dividends paid to stockholders is an example of a financing activity.

True

Which of the following is not a step in preparing a bank reconciliation?

Which of the following is not a step in preparing a bank reconciliation?

In a bank reconciliation, a deposit outstanding is

added to the bank balance.

Beaver's accountant made an error in recording check #354; the check was written for $670, but was recorded incorrectly as $760

addition

Northern Bank collects $2,200 for a note owed to Beaver ($2,100 principal and $100 interest)

addition

Northern Bank credited Beaver's account for $15 of interest earned during April

addition

Small expenditures from a petty cash fund are normally recorded:

at the end of a specific time period

A check that is NSF (nonsufficient funds) is a check that

cannot be paid because the account does not contain enough funds.

The asset that is most susceptible to employee fraud is

cash

A bank reconciliation reconciles the bank statement with the company's

cash account in the balance sheet.

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding.

When two or more persons work together to circumvent internal control procedures and commit a fraud, this is called _____________

collusion

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

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a

debit to cash

The bank will show a customer's withdrawal as a _____.

debit, because a withdrawal decreases its liability from the bank's point of view

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding.

The two types of control procedures are preventive and __________________

detective

True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check.

false

When a person intentionally deceives another person or company for personal gain, this is referred to as _________

fraud

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as

internal controls.

Two types of control activities are

preventive and detective controls.

An employee of Beaver Company used a company debit card to purchase office supplies, $80

subtraction

Beaver paid $280 for utilities by EFT

subtraction

Northern Bank charges service fees of $40 to Beaver

subtraction

Northern Bank notifies Beaver of an NSF check in the amount of $420

subtraction

A bank reconciliation is a procedure used to determine if the cash balance in the bank statement equals

the ending balance of cash in the accounting records.

A bank statement may not agree with the amount of cash recorded by the company in the cash account because of ______________ differences and errors.

timing

A bank reconciliation compares the company's cash records with the bank statement and discovers differences in those amounts due to

timing differences and errors.

Revenue and expense events involving cash are classified as operating activities.

true