Chapter 7 Accounting

What is the name of the law that Congress passed in response to financial scandals that resulted in investors losing millions and even billions of dollars and it requires companies to maintain strong and effective internal controls over the recording of transactions and preparation of financial statements?

Sarbanes-Oxley Act of 2002

Assess the truth of this statement. Bank accounts control cash by reducing the amount of cash on hand and facilitating the transfer of cash between businesses and locations.

True

What is a special form for recording relevant data about a liability and the details of its payment called?

Voucher

The amount of cash to be reported on the balance sheet at June 30 is the

adjusted balance appearing in the bank reconciliation for June 30

The cash account in the company's ledger is a(n)

asset with a normal debit balance

What are amounts called that the bank has added to the checking account because the bank considers the account as a special type of liability to them?

bank credit memos

What are amounts called that the bank have deducted from the checking account because the bank considers these as decreases in what they owe the depositor?

bank debit memos

What is a listing of the items and amounts that cause the cash balance reported in the bank statement to be different from the balance of the cash account in the ledger?

bank reconciliation

Which of the following is a control measure for protecting cash received in over-the-counter sales?

cash register

A debit or credit memo describing entries in the company's bank account may be enclosed with the bank statement. An example of a credit memo is

collection of a note receivable for the company

Proofs and security measures is an example of which of the following?

control procedures

A $135 petty cash fund has cash of $18 and receipts of $120. The journal entry to replenish the account would include a

credit to Cash Short and Over for $3

A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. What entry is required in the company's accounts?

debit Accounts Payable; credit Cash

A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. What entry is required in the company's accounts?

debit Cash; credit Accounts Payable

Accompanying the bank statement was a debit memo for bank service charges. What entry is required in the company's accounts?

debit Miscellaneous Expense; credit Cash

Accompanying the bank statement was a debit memo for an NSF check received from a customer. This item would be included on the bank reconciliation as a(n)

deduction from the balance per company's records

A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. This item would be included in the bank reconciliation as a(n)

deduction from the balance per the company's records

What are deposits that have been made but are unrecorded by the bank on the current bank statement because of a timing difference called?

deposits in transit

Which of the following items that appeared on the bank reconciliation did not require a journal entry?

deposits in transit

Which of the following is not an element of internal control?

effective website design

Internal control does not consist of policies and procedures that

guarantee the company will earn a profit

A necessary element of internal control is

information and communication

Report of company's conformity with environmental laws and regulations is an example of which of the following?

information and communication

What are checks that have been written and recorded in the checkbook or check register but have not been paid by the bank because of a timing difference called?

outstanding checks

What is a special cash fund used to pay small amounts called?

petty cash fund

The portion of an invoice that is returned with payment is a

remittance advice

Which of the following is a control measure for protecting cash received through the mail?

remittance advice

Organizational structure is an example of which of the following?

the control environment

What is a set of procedures for authorizing and recording liabilities and cash payments called?

voucher system

Which of the following is not an element of internal control?

Compliance with laws and regulations

On September 30, 2005, Dart Co.'s bank statement showed a balance of $9,510, and the checkbook showed a balance of $8,540. When preparing the bank reconciliation it was determined that a credit memorandum for $580 that represented a note receivable that was collected by the bank for Dart Co. had not been recorded on Dart's Co.'s books. Which of the following statement correctly details what should be done with this credit memorandum when preparing the reconciliation?

Add the $580 for the note collected by the bank to the checkbook balance

The amount of deposits in transit is included on the bank reconciliation as a(n)

Addition to the balance per bank statement

A bank reconciliation should be prepared periodically because

Any differences between the company's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected

The type of account and normal balance of Petty Cash is a(n)

Asset, debit

Which of the following is not an objective on internal control as much as possible?

Company has a favorable online image

What are coins, currency (paper money), checks, money orders, and money on deposit that is available for unrestricted withdrawal from banks and other financial institutions called?

Cash

Procedures designed to protect cash from theft and misuse from the time it is received until it can be deposited in a bank are called

Cash controls

What is an amount of cash needed to start a business day in order to give change to customers called?

Change fund

When preparing a bank reconciliation, a debit memorandum for $400 was on Smythe Co.'s bank statment for a NSF check that was received from a customer. The check had been included in an earlier deposit when it was received from the customer. The NSF check had not been recorded previously by Smythe Co. Which of the following statement correctly details what should be done with this $400 NSF check when preparing the reconciliation?

Deduct $400 for the NSF check from Smythe Co.'s checkbook balance

On September 30, 2005, Dart Co.'s bank statement showed a balance of $9,510, and the checkbook showed a balance of $8,540. When preparing the bank reconciliation it was determined that a debit memorandum for $30 for service charges was included with the bank statement but had not been recorded in Dart Co.'s books. Which of the following statement correctly details what should be done with this $30 service charge when preparing the reconciliation?

Deduct the $30 service charge from the checkbook balance

What accounting term indicates a not-sufficient funds check?

NSF

What are checks called that have been paid during the time period by the bank out of the checking account?

Paid checks

Which of the following should not be considered cash by an accountant?

Postage stamps