Financial Accounting Chapter 4

Neumann, Inc.'s books show an ending cash balance of $20,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $2,000; deposits outstanding of $3,000; NSF check of $200; and interest earned on the bank account of $30, the company's up-to-date ending cash balance equals: -$21,000 -$18,000 -$19,830 -$20,200

$19,830

Which of the following items are not included in cash? -Balance in checking accounts -Accounts receivable from customers -Currency and coins -Cash in savings account

Accounts receivable from customers

Which of the following items are included in cash? -Notes receivable from customers -Checks from customers -Currency and coins -Accounts receivable from customers -Balance in checking accounts

Checks from customers Currency and coins Balance in checking accounts

Which of the following entries affect a company's cash flows? -Debit equipment; credit notes payable -Debit supplies; credit cash -Debit rent expense; credit cash -Debit accounts receivable; credit revenue

Debit supplies; credit cash Debit rent expense; credit cash

Includes formal procedures for reporting control deficiencies -Monitoring -Control activities -Risk assessment -Control environment

Monitoring

Math: Purchasing inventory from vendors Financing Activity Selling equipment Investing Activity Signing a long-term promissory note Operating Activity

Purchasing inventory from vendors, Operating Activity Signing a long-term promissory note, Financing Activity Selling equipment, Investing Activity

Which of the following are detective controls? -Physical controls -Reconciliations -Audits -Proper authorization -Performance reviews

Reconciliations Audits Performance reviews

Which of the following allows greater reliance by investors on reported financial statements? -Increasing profitability of a company -Strong internal control systems -High liquidity reported on the balance sheet

Strong internal control systems

The ending balance in cash is reported in which financial statement(s)? -The balance sheet only -The balance sheet and income statement -The statement of cash flows only -The balance sheet and statement of cash flows

The balance sheet and statement of cash flows

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

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

In a bank reconciliation, a deposit outstanding is -added to the book balance. -deducted from the bank balance. -deducted from the book balance. -added to the bank balance.

added to the bank balance.

The Sarbanes-Oxley Act applies to -any company organized in the United States. -companies that are required to file with the SEC. -companies that operate internationally. -companies that are formed as partnerships.

companies that are required to file with the SEC.

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for -preparing useful financial statements. -auditing internal control systems. -designing fraud-proof accounting system. -designing an internal control system.

designing an internal control system.

The three classifications on the statement of cash flows are cash flows from (Select all that apply.) -business activities. -discontinued activities. -financing activities. -operating activities. -investing activities.

financing activities. operating activities. investing activities.

Who has final responsibility for internal controls? -Management -Auditors -The FASB -The SEC

management

The key provisions of the Sarbanes-Oxley Act include -limiting the role of the FASB in accounting standard setting. -restricting activities of auditors to prevent conflicts of interest. -requiring documentation and assessing effectiveness of internal controls. -establishing the Securities and Exchange Commission. -requiring that corporate executives certify financial statements.

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

If a company records a transaction before the bank records the same transaction, this is called a/an ______ difference. -internal control -reconciliation -timing

timing

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. -uncollected customer accounts. -accrual revenues being different from cash revenues. -cash flows from operating activities.

timing differences and errors.

Since debit cards withdraw funds directly from the cardholder's bank account at the time of use, a sale on a debit card is most similar to a sale -with a check. -on account. -with a credit card.

with a check

Arcelia Corp.'s bank statement has an end balance of $40,000. The deposits outstanding were $7,000. A note was collected by the bank for $2,000. Checks outstanding at the end of the month were $1,000. Using the bank statement, what is the corrected cash balance? -$37,000 -$46,000 -$44,000 -$48,000

$46,000

Malik Corp.'s bank statement has an end balance of $50,000. The deposits outstanding were $6,000. NSF checks were $1,000. Checks outstanding at the end of the month were $3,000. Using the bank statement, what is the corrected cash balance? -$52,000 -$54,000 -$46,000 -$53,000

$53,000

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance? -Collections of funds by the bank -Outstanding checks -Deposits outstanding -Charges for NSF checks

Collections of funds by the bank

The framework for designing an internal control system is provided by the -Committee of Sponsoring Organizations (COSO) of the Treadway Commission. -Securities and Exchange Commission Act of 1934. -Public Companies Accounting Oversight Board (PCAOB). -Financial Accounting Standards Board.

Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Policies and procedures that help ensure management's directives are being carried out -Monitoring -Control activities -Risk assessment -Control environment

Control activities

Formal policies related to management's philosophy, assignment of responsibilities, and organizational structure -Monitoring -Control activities -Risk assessment -Control environment

Control environment

Which of the following are components of internal control? -Control environment -Accounting standards -Monitoring -Control activities -Risk assessment

Control environment Monitoring Control activities Risk assessment

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 deducted from the bank balance. -It does not belong on the bank reconciliation. -It would be added to the company balance. -It would be deducted from the company balance. -It would be added to the bank balance.

It would be added to the bank balance.

This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation? -It would be deducted from the bank balance. -It does not belong on the bank reconciliation. -It would be added to the company balance. -It would be deducted from the company balance. -It would be added to the bank balance.

It would be added to the company 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. -It does not belong on the bank reconciliation. -It would be added to the company balance. -It would be deducted from the company balance. -It would be added to the bank balance.

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 bank balance. -It does not belong on the bank reconciliation. -It would be added to the company balance. -It would be deducted from the company balance. -It would be added to the bank balance.

It would be deducted from the company balance.

Which of the following are errors in accounting for cash? -The bank charges a service charge for $100 on January 10, but the retail company does not record this charge until the bank statement is received. -Recording a check for $168 for $186 in the cash account. -Recording a cash collection of $4,000 but depositing $3,000 into the bank. -The bank processing a check for $210 as $120.

Recording a check for $168 for $186 in the cash account. Recording a cash collection of $4,000 but depositing $3,000 into the bank. The bank processing a check for $210 as $120.

Identifies and analyzes factors that could prevent objectives from being achieved -Monitoring -Control activities -Risk assessment -Control environment

Risk assessment

Match: Sell goods to customers Sell stock to investors Purchase equipment Operating Activity Financing Activity Investing Activity

Sell goods to customers, Operating Activity Sell stock to investors, Financing Activity Purchase equipment, Investing Activity

Which of the following are preventive controls? -Separation of duties -Physical controls -Performance reviews -Reconciliations

Separation of duties Physical controls

Which of the following are preventive controls? -Separation of duties -Reconciliations -Performance reviews -Physical controls

Separation of duties Physical controls

When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance? -Service charges -Charges for NSF checks -Deposits outstanding -Outstanding checks

Service charges Charges for NSF checks

A journal entry that affects a company's Statement of Cash Flows will include an inflow or outflow of _____

cash

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called -deposits outstanding. -checks outstanding. -NSF checks. -electronic funds transfers.

checks outstanding.

The bank will show a customer's deposit on bank statements as a ______. -debit, because cash is an asset -debit, because a deposit is a liability from the bank's point of view -credit, because a deposit is a liability from the bank's point of view -credit, because cash is an asset

credit, because a deposit is a liability from the bank's point of view

Because cash is assumed to be available for spending, it is typically reported on the balance sheet as a(n) _________ ________

current asset

The bank will show a customer's withdrawal as a _____. -credit, because a withdrawal increases its liability from the bank's point of view -debit, because cash is an asset -credit, because cash is an asset -debit, because a withdrawal decreases its liability from the bank's point of view

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

In a bank reconciliation, an outstanding check is ______. -deducted from the bank balance -deducted from the book balance -added to the book balance -added to the bank balance

deducted from the bank balance

In a bank reconciliation, the bank's charge of $10 for checking account fees is -deducted from the bank cash balance. -added to the bank cash balance. -deducted from the company's cash balance. -added to the company's cash balance.

deducted from the company's cash balance.

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are -deposits outstanding. -checks outstanding. -electronic funds transfers. -NSF checks.

deposits outstanding.

A periodic performance review is an example of a(n) ______ control

detective

Differences between the bank statement balance and the cash account balance in the accounting records are primarily caused by timing differences and ________

errors

Published financial statements may be incorrect because of choices available under GAAP. -errors. -fraud. -lack of external verification.

errors. fraud.

The two most common sources of occupational fraud are: -personal tax evasion -financial statement manipulation -employee misrepresentation to outside stakeholders -misuse of company resources

financial statement manipulation misuse of company resources

An intentional error by an employee that results in theft is referred to as a ______. -reconciliation -mistake -fraud

fraud

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational ________.

fraud

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? -interest paid on notes -retirement of common stock -payment of employee salaries -purchase of supplies with cash -purchase of a building

interest paid on notes payment of employee salaries purchase of supplies with cash

Because most companies receive payments for the sale of products and services either in the form of cash or as a check received through the mail, -internal control over cash receipts is important. -cash should be audited weekly. -accounting systems must be audited annually.

internal control over cash receipts is important.

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as -corporate regulations. -general controls. -internal controls. -protective controls. -security controls.

internal controls.

The acronym NSF stands for -nonsufficient funds. -no such financing. -negative savings funds. -non sourced funds.

nonsufficient funds.

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows? -payment of salaries -issuance of bonds -payment of an accounts payable balance -purchase of supplies on account -purchase of building

payment of salaries payment of an accounts payable balance

A small amount of cash on hand to pay for minor purchases is commonly referred to as a(n) ____ _____ fund

petty cash

Separation of duties and E-commerce controls are examples of ______ controls. -detective -communication -preventive -assurance

preventive

Two types of control activities are -asset and liability controls. -investor and creditor controls. -operating and investing controls. -preventive and detective controls.

preventive and detective controls.

Preparation of a bank _______ helps maintain control of cash accounts.

reconciliation

Internal control consists of plans to (Select all that apply.) -safeguard company assets. -report misuse of company assets to investors. -provide accurate and reliable accounting information. -report management errors to the police.

safeguard company assets. provide accurate and reliable accounting information.

Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's: -statement of stockholders' equity -income statement -statement of cash flows -balance sheet

statement of cash flows balance sheet

A good internal control system for cash would require that those who handle cash should not be involved with -the accounting records. -management decisions. -employee evaluations. -reconciliation of bank balances.

the accounting records. reconciliation of bank balances.