Chapter 6 Homework

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. -Outstanding check -Deposit in transit -NSF check -Bank charges

-A check written by the depositor that has not yet been received by the bank for payment -Deposit made and recorded by the depositor, but not yet recorded on the bank statement -A check written by a customer who does not have enough money in his account to cover the check -Service fees charged by the bank

Human _____ is related to misjudgment or confusion. Human ______ involves intent to defeat internal controls for personal gain.

-Error -Fraud

Review the following statements and select the ones which accurately describe a Petty Cash fund.

-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.

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

A petty cash fund is used for _____ payments in order to _____ the time and cost of writing checks for _____ amounts.

-small -avoid -small

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

Cash deposits made by the account owner

What is the purpose of internal controls?

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

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.

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.

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.

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.

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

checks

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.

-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.

-A petty cash receipt is sometimes called a petty cash ticket. -The petty cashier must present all paid receipts to the company cashier in order to replenish the fund. -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.

Internal control policies and procedures have limitations that arise from many elements. Match the limitation on the left with its definition on the right. -Human Error -Human Fraud -Cost-benefit principle -Internal control environment

-Can occur from carelessness, misjudgment or confusion -Involves intent by people to defeat internal controls for personal gain -Dictates that the costs of internal controls must not exceed their benefits -Management must convey commitment to internal control policies and procedures

Identify the basic internal control guidelines which should be in place to protect a business's cash by selecting the correct answers below.

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

Determine which of the items below would show up on a monthly bank statement.

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

Which of the following are principles of internal control?

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

Choose the items below that would be added to the book balance on a bank reconciliation.

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

Which of the answers below correctly describe the Cash Over and Short account?

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

Match the banking term on the left with its definition on the right. -Deposit ticket -Check -Bank Account -Remittance -Electronic funds transfer

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

Identify the principles of internal control by selecting the correct answers below.

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

Identify which of the items below are goals of good cash management.

-Plan cash receipts to meet cash payments when due. -Keep a minimum level of cash necessary to operate.

Which of the statements below describe the goals and principles of cash management?

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

Which of the following are correct regarding why management uses internal controls?

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

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below.

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

Recall the preparation of a bank reconciliation by selecting the correct items below.

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

Summarize the internal control principle of establishing responsibility by completing the following sentence. Proper internal control means that responsibility for a ______ is clearly _____ and assigned to one person.

-Task -Established

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.

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

Determine which of the statement(s) are correct if a Petty Cash account is not replenished at the end of the accounting period.

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

Determine which of the statements below accurately describe services provided by a bank.

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

Determine the statements below that are true regarding why a bank reconciliation is used.

-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. -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.

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 understanding the book balance 5) Subtract any unrecorded bank fees, NSF checks, and errors overstating the book balance 6)Compute the adjusting book balance and compare it to the adjusted bank balance to verify equality

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.

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

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

near

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

one person