Smart Book-Chapter 6 Cash, Fraud, and Internal Control

Good recordkeeping helps protect assets and helps managers: P. 246 Maintain Adequate Records

monitor company activities apply technological controls divide responsibility establish responsibilities

Responsibility for a task should be clearly established and assigned to: P. 246 Establish Responsibilities

one person

What is the purpose of internal controls? or Which of the following are correct regarding why management uses internal controls? P.245 Purpose of Internal Control

protect assets ensure reliable accounting promote efficient operations uphold company policies

Calculate the adjusted cash balance per the books of XYZ Co. given the following information. P. 258 Exhibit 6.7

$750=710-40+80

Calculate the adjusted cash balance per books of ABC Co. given the following information. P. 258

$9,455=9500+55-100

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. P. 257 Bank Balance Adjustment

-A note collected by the bank on behalf of the account owner -Deposits made during the month -Interest paid by the bank on the bank account balance -Checks written by the account owner -A returned uncollectible customer check

The following annual account balances are taken from ABC Co at year end. P. 260 Day's Sales Uncollected

-ABC Co. has shortened the amount of time it takes to collect receivables from customers. -ABC Co. is shortening the amount of time that money is tied up in receivables. -ABC Co. took approximately 31 days to collect cash from its credit customers in the current year. -ABC Co. has increased the amount of time it takes to collect receivables from customers.

Review the items below and determine which would cause an increase in the monthly bank statement balance. P. 257 Bank Reconciliation

-Cash deposits made by the account owner -A customer's uncollectible check -Service fees charged by the bank -Checks written during the month

Determine which of the items below would show up on a monthly bank statement. P. 256 Bank Statement

-Deposits and other increases to the account during the period -Withdrawals and other decreases to the account during the period -End-of-period balance in the account -Beginning-of-period balance in the account

Determine which of the statements below accurately describe services provided by a bank. P. 255 Bank Account, Deposit, and Check

-Each bank deposit is supported by a deposit ticket. -To withdraw money from an account, the depositor can use a check. -A bank account is a record set up by a bank for a customer. -Each bank deposit is supported by a check. -To limit access to a bank account, all persons authorized to write checks on the account must sign a deposit slip.

Which of the statements below describe the goals and principles of cash management? (Check all that apply.) P. 249 Cash Management

-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. -Excess cash should be kept on hand to pay bills. -Encourage quick payment of liabilities.

Choose the items below that would be subtracted from the book balance on a bank reconciliation. P. 257 Bank Reconciliation

-Monthly bank service charge -Monthly check charges assessed by the bank -NSF customer check -Outstanding checks -Cleared checks -Note collected by the bank for the depositor -Interest earned on the depositor's account

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. P. 257 Bank Reconciliation

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

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. P. 257 Bank Reconciliation

-Report -Checking -Bank

Recall the preparation of a bank reconciliation by selecting the correct items below. P. 257 Adjustments Summary

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

Determine the statements below that are true regarding why a bank reconciliation is used. P. 257 Bank Reconciliation

-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. -The bank reconciliation is useful in proving the accuracy of the Cash account in the general ledger. -The Cash account balance in the general ledger is accurate, but the bank statement balance is not.

Each of the following are types of technological impacts related to internal control: P. 247 Technology, Fraud, and Internal Control

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

Which of the answers below correctly describe the Cash Over and Short account? P. 250 Cash Over and Short

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

At the end of the month, Brown Co.'s petty cash fund contains $4 in cash and receipts for postage of $50 and delivery expenses of $46. It started out with $100 in the fund at the beginning of the month. Brown Co.'s journal entry to replenish the fund would include which of the following? P. 253 IIIustrating a Petty Cash Fund

Cash is credited for $96.

Identify the basic internal control guidelines which should be in place to protect a business's cash by selecting the correct answers below. P. 248 Control of Cash

Cash payments are made by check. Cash receipts are promptly deposited in a bank. Handling cash is separate from recordkeeping of cash. Bills should be paid immediately. Excess cash should be left in the bank to maintain liquidity.

The bank reconciliation of XYZ Co. is provided below. Demonstrate the entries needed to update the Cash account in the general ledger by selecting the correct answers below. P. 258 Entries from a Bank Reconciliation

Debit Bank Service Charge Expense $60 and credit Cash $60. Debit Cash $100 and credit Note Receivable $100.

Demonstrate the required adjusting entry needed to record a $1,000 note receivable collected by the bank by choosing the correct entry below. P. 258 Collection of Note

Debit Cash $1,000 and credit Notes Receivable $1,000.

Match the banking term on the left with its definition on the right. P. 255 Bank Account, Deposit, and Check

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

Which of the statements below describe the goals and principles of cash management? P. 249 Cash Management

Encourage quick collection of receivables. Money should be spent only when it is available. Plan cash receipts to meet cash payments when due. Keep a minimum level of cash necessary to operate. Encourage quick payment of liabilities. Excess cash should be kept on hand to pay bills.

Which of the following are principles of internal control? P. 246 Principles of Internal Control

Establish responsibilities. Maintain adequate records. Insure assets and bond key employee. Separate recordkeeping from custody of assets. Divide responsibility for related transactions. Apply technological controls. Perform regular and independent reviews.

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

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

Human (error/fraud) is related to misjudgment or confusion. Human (error/fraud) involves intent to defeat internal controls for personal gain. P. 247 Limitations of Internal Control

Human error occurs from carelessness, misjudgment, or confusion. Human fraud is intentionally defeating internal controls, such as management override, for personal gain.

Which statement below describes the internal control procedure of insuring assets and bonding key employees? P. 246 Insure Assets and Bond key Employees

Insuring assets against casualty and bonding employees who handle cash, reduces risk of loss. Insuring assets and bonding employees makes it unlikely that a theft is uncovered. Bonding employees and insuring assets increases the risk of loss. Insuring assets has a cost that outweighs the risk of loss.

Identify the item below that would be added to the book balance. Multiple choice question. P. 257 Adjustments Summary

Interest earned Outstanding checks NSF check Bank service charge

Choose the items below that would increase the book balance on a bank reconciliation. P. 257 Book Balance Adjustments

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. P. 252 Petty Cash System of Control

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. It is an expense reported on the income statement. It is an account used to record small sales amounts.

Identify the statement below that describes what the Days' sales uncollected ratio assesses. P. 260 Day's Sales Uncollected

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

Identify which of the items below are goals of good cash management. P. 249 Cash Management

Keep a minimum level of cash necessary to operate. Plan cash receipts to meet cash payments when due. Pay all bills immediately when received. Keep a maximum level of cash available to pay for emergencies that develop

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below. P. 246 Maintain Adequate Records

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. Bonding employees reduces the risk of loss. Dividing responsibility for related transactions reduces the occurrence of recordkeeping errors.

Which statement below explains why liquid assets are needed in a business? P. 248 Cash, Cash Equivalents, and Liquidity Liquidity refers to a company's ability to pay for its current liabilities.

Liquid assets must be available to pay current liabilities.

Identify the item below that would be subtracted from the book balance on a bank reconciliation. P. 257 Adjustments Summary

NSF check

Select the items below that would cause the bank statement balance to differ from the depositor's book balance. P. 257 Adjustments Summary

NSF check, Deposit in transit, interest paid by bank

Review the following statements regarding a petty cash fund used in a business. Select the one that is correct. P. 252 Operating a Petty Cash Fund

Only the petty cashier is responsible for paying cash from the fund. The cashier of a fund will write checks for small payments like postage, supplies and deliveries. A petty cash fund is controlled by top management. A check written against the fund is cashed when the fund is replenished.

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. P. 257 Bank Reconciliation

Outstanding check: A check written by the depositor that has not yet been received by the bank for payment Deposit in transit: Deposit made and recorded by the depositor, but not yet recorded on the bank statement NSF check: A check written by a customer who does not have enough money in his account to cover the check Bank charges: Service fees charged by the 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. P. 253 IIIustrating a Petty Cash Fund

Petty Cash is debited for $100. Miscellaneous Expense is debited for $100. Cash is debited for $100. Petty Cash is credited for $100.

Jackson Co. needs to replenish its petty cash fund. Currently, it contains $11 in cash and receipts for supplies of $40 and delivery expenses of $49. The fund was initially established with $100. Demonstrate the journal entry to replenish the account by choosing the correct actions from those below.

Supplies Expense is debited for $40. Cash is credited for $89. Delivery Expense is debited for $49. Petty Cash is debited for $89. Petty Cash is credited for $89.

Which of the sterm-11tatements below explains how technology has impacted internal control systems? Which of the statements below explains how technology has impacted internal control systems? P. 247 Technology, Fraud, and Internal Control

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. Technologically advanced systems can record who made entries, the date and time of the entry and the source of the entry. Technology can be designed to require the use of password before access to the system is granted. Technology increases job creation and fewer job consolidations.

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. P. 250 Cash Over and Short

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

Determine which of the statements below is true regarding the adjusted bank balance and the adjusted book balance on a bank reconciliation. P.257

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. P. 257 Bank Reconciliation

The bank reconciliation is useful in proving the accuracy of the Cash account in the general ledger. 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. Timing differences between the bank statement and the depositor's records are reflected in the bank reconciliation. The Cash account balance in the general ledger is accurate, but the bank statement balance is not.

Determine which of the statements below is correct regarding information reflected on a monthly bank statement. P. 256 Bank Statement

The information on the bank statement reflects the bank's records of the depositor's account. Deposits that the company makes will be listed as debits to the bank account on the bank statement. Withdrawals by the company will be listed as increases to the bank account on the bank statement. The information on the bank statement reflects the customer's records.

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. P. 253

When the account is reduced When the account is created When the account is increased When the account is replenished

All of the following describe blockchain: P. 247 Blockchain as a Control

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 blockchain is a less secure type of accounting ledger. (more) blockchain cannot verify and facilitate Bitcoin transactions. (can)

A good internal control to protect cash is to make cash payments using P. 248 The third guideline uses payments by check to develop an independent record of cash payments.

checks

Auditors focus more on testing the ____ of a company's blockchain processes and technology than on verifying the ___ of its output. P. 247 Blockchain as a Control

effectiveness/accuracy

Each of the following are types of technological impacts related to internal control: P. 247 Technology, Fraud, and Internal Control P. 246 Principles of Internal Control

reduced processing errors more extensive testing of records new evidence of processing separation of duties Increased E-Commerce maintaining adequate records reduced processing errors

Bonding employees who handle cash is important because it: P. 246 Insure Assets and Bond Key Employees

reduces risk of theft

Summarize the internal control principle of establishing responsibility by completing the following sentence. Proper internal control means that responsibility for a task (task/shortage/sale) is clearly established (posted/established/compensated) and assigned to one person. P. 246 Establish Responsibilities

task, established