accounting 6

The following annual account balances are taken from ABC Co at year end. Current year Previous year Accounts Receivable $5,500 $4,000 Net Sales $58,000 $55,000 Days sales uncollected ? days ? days Calculate ABC Co.'s days sales uncollected for the current year.

34.6 days

After posting the required adjusting journal entries from the bank reconciliation below, show what the balance of the Cash account in ABC Co.'s general ledger will be by selecting the correct answer below. Bank balance $1,005 Book balance $1,250 Add: Deposit in transit 300 Add: Interest earned 50 Less: Outstanding checks 185 Less: NSF check - J. Roberts 180

750

Calculate the adjusted cash balance per books of ABC Co. given the following information. Item Amount Balance per bank statement $10,005 Balance per cash account book balance 9,500 Deposit in transit 300 Interest earned on the depositor's balance 55 NSF check 100 Outstanding checks 850

9,455

Which of the answers below correctly describe the Cash Over and Short account? (Check all that apply.)

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

The following annual account balances are taken from ABC Co at year end. Current Year 1 Year Ago Accounts Receivable $49,500 $48,000 Net Sales $580,000 $535,000 Days Sales Uncollected 31.15 days 32.74 days Select the statements below that are correct regarding ABC Co.'s ability to collect its receivables from customers.

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.

Describe what an invoice approval is by selecting the correct answer below.

An invoice approval is completed by the accounting department to approve an invoice for payment.

Contrast how a depositor's account is classified by a bank compared to how it is classified by the account owner by completing the following sentence. A depositor's account is a(n) (liability/asset/expense) on the bank's records, but it is a(n) (liability/asset/expense) on the books of the account owner. Because of this, every time the account owner makes a deposit, the bank (debits/credits) the account owner's account.

Blank 1: liability Blank 2: asset Blank 3: credits

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

Blank 1: task Blank 2: established

An invoice can be described as an itemized statement of goods prepared by the (buyer/customer/vendor) listing the customer's name, items sold, sales prices and terms of sale.

Blank 1: vendor

After posting the required adjusting journal entries from the bank reconciliation below, show what the balance of the Cash account in ABC Co.'s general ledger will be by selecting the correct answer below. Bank balance $1,005 Book balance $1,250 Add: Deposit in transit 300 Add: Interest earned 50 Less: Outstanding checks 185 Less: NSF check - J. Roberts 180

Cash will have a balance of $1,120.

Review the items below and determine which would cause a decrease in the monthly bank statement balance.

Checks written by the account owner

Identify the examples of good internal control designed to protect over-the-counter cash receipts. (Check all that apply.)

Clerks should be required to give the customer a receipt for each sale. The clerk and the cashier have access to cash, but not to the accounting records.

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below. (Check all that apply.)

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.

Which statement below explains why liquid assets are needed in a business?

Liquid assets must be available to pay current liabilities.

Which of the following are principles of internal control? (Check all that apply.)

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

Identify the principles of internal control by selecting the correct answers below. (Check all that apply.)

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

Describe the purpose of a purchase requisition by selecting the correct answer below. (Check all that apply.)

Managers are not allowed to place orders directly with vendors; instead, they fill out a purchase requisition. Purchase requisitions are used for control purposes. Purchase requisitions are used to inform the purchasing department of its needs.

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

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

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

NSF check

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

A receiving report is used for each of the following (select all answers which apply).

Notify purchasing that the goods have been received. Notify accounting that the goods have been received.

Given the choices below, choose the examples of internal controls designed to control cash payments (Check all that apply.)

Only authorized individuals should be allowed to sign checks. Use of a voucher system. Use of a petty cash system. All payments should be made by check.

Choose the statement below which is correct regarding which bank reconciliation items require adjusting journal entries.

Only the items reconciling the book balance require adjustment.

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.

Which of the statements below explains the internal control principle of performing regular and independent reviews?

Regular reviews of internal control systems are needed to ensure that procedures are followed.

How has the Sarbanes-Oxley Act (SOX) impacted the internal control of companies? (Check all that apply.)

SOX requires that companies have effective internal controls. SOX requires that auditors evaluate internal controls.

Determine which of the statements below describes a petty cash receipt. (Check all that apply.)

The petty cashier must present all paid receipts to the company cashier in order to replenish the fund. A petty cash receipt will have a signature line for the person receiving a payment from the fund. Any person wishing to withdraw funds from a petty cash fund must complete a petty cash receipt. A petty cash receipt is sometimes called a petty cash ticket.

True or false: An owner of a small business usually knows if the business is receiving the assets and services the company paid for.

True

True or false: Bank errors must be accounted for in the bank reconciliation.

True

Sarbanes-Oxley allows for the following penalties for violators:

Up to 25 years in prison with fines

All of the following describe blockchain:

blockchain makes it more difficult for the ledger to be modified without a detailed record of changes blockchain is continuously and simultaneously updated and verified

What is the purpose of internal controls?

-To help managers know if the business is receiving the assets and services it has paid for. -to protect assets and ensure reliable accounting

Determine which of the items on a bank statement and would cause a decrease in the account's balance. (Check all that apply.)

A customer's uncollectible deposit Monthly service fees charged by the bank ATM withdrawals Checks written by the account owner

Describe the purpose of a purchase order by selecting the correct statement(s) below. (Check all that apply.)

A purchase order authorizes a vendor to ship ordered merchandise at a stated price and terms. Multiple copies of the purchase order are distributed to other departments to increase internal control of company purchases. A purchase order is a document the purchasing department uses to place an order with a vendor.

Describe what a voucher system is by selecting the correct statement below.

A voucher system is a set of procedures and approvals designed to control cash payments.

Recall the preparation of a bank reconciliation by selecting the correct items below. (Check all that apply.)

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

Explain how depositors can check for errors by completing the following sentence. Error testing includes (a) comparing deposits on the bank statement with deposits in the (accounting/sales/customer) records and (b) comparing (outstanding/canceled) checks on the bank statement with (checks/deposits) recorded in the accounting records.

Blank 1: accounting Blank 2: canceled Blank 3: checks

An invoice includes a checklist of steps necessary for approving an invoice for recording and payment.

Blank 1: approval

Describe the internal control principle of separating recordkeeping from custody of assets by completing the following sentence. A person who (identifies/controls/recommends) or has access to an asset must (always/not/) keep that asset's accounting records.

Blank 1: controls Blank 2: not

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

Blank 1: current

Human (error/fraud) is related to misjudgment or confusion. Human (error/fraud) involves intent to defeat internal controls for personal gain.

Blank 1: error Blank 2: fraud

The electronic transfer of cash from one party to another is called electronic transfer.

Blank 1: funds

Define what a voucher is by completing the following sentence. A voucher is an (internal/external) document (or file) used to accumulate information to (reduce/control) cash payments and to ensure that a transaction is properly recorded.

Blank 1: internal Blank 2: control

Show your understanding of what a bank reconciliation is by completing the following sentence. 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.

Blank 1: report Blank 2: checking Blank 3: bank

The internal control of of duties means that the responsibility for a transaction should be divided between two or more individuals.

Blank 1: separation or segregation

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

Cash deposits made by the account owner

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. (Check all that apply.)

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

At the end of the month, ABC Co.'s petty cash fund contains $4 in cash and receipts for postage of $50 and delivery expenses of $44. It started out with $100 in the fund at the beginning of the month. Demonstrate the journal entry to replenish the account and recognize its shortage by choosing the correct action from those given below.

Cash is credited for $96.

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?

Cash is credited for $96.

Jackson Brothers established a petty cash fund of $200 at the beginning of the year, but it decides to reduce the amount in the fund to $130. Demonstrate the correct journal entry to reduce the amount in the account by choosing the correct action from those given below.

Cash is debited for $70 and Petty Cash is credited for $70.

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

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

Summarize the information included on the inside and the outside of a voucher by selecting the correct items below. (Check all that apply.)

Date of the invoice The name of the vendor to whom the money is owed Terms of the purchase The name of the account to debit for the payment

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

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

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. Bank Statement Balance $2,010 Book Balance $2,200 Add: Deposit in transit 600 Add: Note receivable collected by bank 100 Less: Outstanding checks 370 Less: Bank service charges 60

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

The bank reconciliation of ABC Co. is provided below. Demonstrate the required adjusting entries needed to update the Cash account in the general ledger by selecting the correct entries below. Bank balance $1,005 Book balance $1,250 Add: Deposit in transit 300 Add: Interest earned 50 Less: Outstanding checks 185 Less: NSF check - J. Roberts 180

Debit Cash $50 and credit Interest Revenue $50. Debit Accounts Receivable $180 and credit Cash $180.

Jackson Co. needs to replenish its petty cash fund. Currently, it contains $5 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 and recognize the cash shortage by choosing the correct actions from those given below. (Check all that apply.)

Delivery Expense is debited for $49. Supplies Expense is debited for $40. Cash Over and Short is debited for $6. Cash is credited for $95.

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. (Check all that apply.)

Deposits made during the month A note collected by the bank on behalf of the account owner Interest paid by the bank on the bank account balance

Describe the internal control principle of dividing responsibility for related transactions by selecting the correct statements below. (Check all that apply.)

Examples of transactions with divided responsibility are placing inventory orders and paying vendors. This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction. This principle is often called separation of duties.

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

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.

Which statement below describes the internal control procedure of insuring assets and bonding key employees?

Insuring assets against casualty and bonding employees who handle cash, reduces risk of loss.

Identify the item below that would be added to the book balance.

Interest earned

Identify the bank reconciliation items that would require adjustments to the book balance. (Check all that apply.)

Interest earned Collection of note by bank NSF check Bank charges

Review the following statements and select the ones which accurately describe a Petty Cash fund. Select all answers which apply.

It is established to pay for small payments like low-cost supplies and shipping fees, etc. It is an asset reported on the balance sheet.

Identify the statement below that describes what the Days' sales uncollected ratio assesses.

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. (Check all that apply.)

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

Choose the items below that would be subtracted from the book balance on a bank reconciliation. (Check all that apply.)

NSF customer check Monthly bank service charge Monthly check charges assessed by the bank

Choose the items below that would increase the book balance on a bank reconciliation. (Check all that apply.)

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

Which of the statements below describes the internal control principle of applying technological controls?

Technological controls, such as time clocks and cash registers, improve the effectiveness of controls.

Which of the statements below explains how technology has impacted internal control systems? (Check all that apply.)

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 has encouraged the growth of e-commerce, which means that there is a higher risk of credit card number theft.

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

The adjusted bank balance must equal the adjusted cash balance per books.

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. (Check all that apply.)

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

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.

Explain how a voucher system strengthens the control over cash disbursements by selecting the correct statements below. (Check all that apply.)

The invoice approval form in a voucher system verifies that the invoice has been checked for errors. The purchase requisition in a voucher system and its purchase order confirm the purchase was authorized. The person issuing a check to pay the voucher has proof that an obligation has been incurred. The receiving report in a voucher system shows that items have been received.

There are several reasons why the petty cash fund would experience a shortage or an overage. Determine which of the actions below would result in a shortage or an overage in the petty cash fund.

The petty cashier failed to get a receipt for payment.

Identify the examples of good internal controls designed to protect cash received in the mail. (Check all that apply.)

The recordkeeper and the person who reconciles the bank balance do not have access to cash. Two people are assigned the task of, and are present for, opening the mail.

Determine the statements below that are true regarding why a bank reconciliation is used. (Check all that apply.)

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.

Determine which of the statements below accurately describe services provided by a bank. (Check all that apply.)

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.

True or False: A receiving report is a document that describes when goods have been received. It contains information about the quantity received as well as its condition and whether it agrees with the purchase order.

True

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

The formula to compute days' sales uncollected is:

accounts receivable divided by net sales times 365

An electronic funds transfer involves

an electronic (not paper) transfer of cash.

Regular and independent reviews should be done by _____.

auditors not directly involved in the activities

All of the following items are deductions on a bank statement: (Check all that apply).

canceled checks bank service fees

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

checks

Choose the list below that contains only cash or cash equivalents.

customer checks, money orders, certified checks

Brown Co. decides to increase the amount in its petty cash fund from 100 to $150. To show this increase in the petty cash account, you would:

debit Petty Cash for $50.

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

effectiveness/accuracy

The document which includes an itemized statement of goods prepared by the vendor is called a(n) _____.

invoice

Good recordkeeping helps protect assets and helps managers:

monitor company activities

Each of the following are types of technological impacts related to internal control:

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

A person who has access to an asset must _____ access to that asset's accounting records.

not have

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

one person

The document used by the purchasing department to place an order is called a(n) purchase _____.

order

Which of the following are correct regarding why management uses internal controls? (Check all that apply.)

protect assets. ensure reliable accounting. uphold company policies. promote efficient operations.

Bonding employees who handle cash is important because it:

reduces risk of theft

Describe what a petty cash fund is by completing the following sentence. A petty cash fund is used for (large/small) payments.

small

To maintain control of cash payments, all payments should be made by check except

small payments made by petty cash

An ID scanner is a type of control.

technological

When cash is received by mail, a list should be prepared with copies sent to all of the following:

the person who opened the mail with the money to the cashier recordkeeper

In addition to the cashier and clerk who have access to the cash a third employee should have access to

the records for cash, but not the actual cash