ACCT 211 Chapter 6 SmartBook

Human error

can occur from carelessness, misjudgment or confusion

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

cash deposits made by the account owner

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

checks

What is the purpose of internal controls?

companies create internal controls to protect assets and ensure reliable accounting

In preparing a monthly bank reconciliation, a business follows several steps. Step 2

compute the adjusted bank balance

Bank account

used to deposit money for safekeeping and help control withdrawals

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

vendor

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

interest earned

In preparing a monthly bank reconciliation, a business follows several steps. Step 5

subtract any unrecorded bank fees, NSF checks, and errors overstating the book balance

Summarize the document flow, or steps, in a voucher system by placing the following actions in their correct order of occurrence Step 4

the accounting department approves payment of the invoice and approval is placed in voucher

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

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

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 -deposits made during the month -interest paid by the bank on the bank account balance

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

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

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

-apply technological controls -perform regular and independent reviews -insure assets -separate recordkeeping from custody of assets -establish responsibilities -maintain adequate records

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

-end-of-period balance in the account -beginning-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

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

-error -fraud

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

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

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

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

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

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

-it is used to avoid the time and cost of writing checks for small amounts -it is an asset reported on the balance sheet -it is established to pay for small payments like postage, shipping fees, etc

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

-it records the effects of cash overages and cash shortages -a debit balance reflects an expense -it is an income statement account

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

-keep a minimum level of cash necessary to operate -plan cash receipts to meet cash payments when due

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

-keep a minimum level of cash necessary to operate -plan cash receipts to meet cash payments when due

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

-money should be spent only when it is available -keep a minimum level of cash necessary to operate -encourage quick collection of receivables -plan cash receipts to meet cash payments when due

A receiving report is used for each of the following:

-notify accounting that the goods have been received -notify purchasing that the goods have been received

Which of the following are principles or internal control?

-perform regular and independent reviews -maintain adequate records -divide responsibility for related transactions -establish responsibilities

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

-protect assets -promote efficient operations -ensure reliable operations -uphold company policies

Describe the purpose of a purchase requisition by selecting the correct answer below.

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

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

Describe what a petty cash fund is by completing the following sentence. A petty cash fund is used for _____ payments in order to _____ the time and cost of writing checks for _____ amounts.

-small -avoid -small

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

-subtract any outstanding checks from the balance per bank -add deposits in transit to the balance per bank -compute the adjusted book balance -compute the adjusted bank 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

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

-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

Explain how a voucher system strengthens the control over cash disbursements by selecting the correct statements below.

-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

Summarize the information included on the inside and the outside of a voucher by selecting the correct items below.

-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 -date of the invoice

Determine which of the following statements below are accurate regarding how a petty cash fund is created and used in a business.

-the petty cashier is responsible for keeping the cash in the fund safe -the petty cashier is responsible for making payments from the petty cash fund -a check is drawn by the company cashier to establish the petty cash fund -the sum of all petty cash receipts plus the remaining cash should equal the total of the fund amount at any given time

Identify when the Petty Cash fund is debited or credited by selecting the correct answer below.

-when the account is reduced -when the account is created -when the account is increased

The following annual account balances are taken from ABC Co at year end. 2015 2014 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 2015

34.6 days

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

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

NSF check

a check written by a customer who does not have enough money in his account to cover the check

Outstanding check

a check written by the depositor that has not yet been received by the bank for payment

Check

a document signed by the depositor instructing the bank to pay a specified amount of money

Summarize the document flow, or steps, in a voucher system by placing the following actions in their correct order of occurrence Step 2

a purchase order is completed and a copy is placed in voucher

Summarize the document flow, or steps, in a voucher system by placing the following actions in their correct order of occurrence Step 1

a purchase requisition is filled out and placed in voucher

Summarize the document flow, or steps, in a voucher system by placing the following actions in their correct order of occurrence Step 3

a receiving report is completed when the order arrives and placed in voucher

The formula to compute days' sales uncollected is:

accounts receivable divided by net sales time 365

In preparing a monthly bank reconciliation, a business follows several steps. Step 4

add any unrecorded cash receipts, interest earned, and errors understating the book balance

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

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

approval

In preparing a monthly bank reconciliation, a business follows several steps. Step 6

compute the adjusted 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

Deposit in transit

deposit made and recorded by the depositor, but not yet recorded on the bank statement

Cost-benefit principle

dictates that the costs of internal controls must not exceed their benefits

Electronic funds transfer

electronic transfer of cash from one party to another

In preparing a monthly bank reconciliation, a business follows several steps. Step 1:

enter the bank statement balance then add any deposits in transit and subtract any outstanding checks

In preparing a monthly bank reconciliation, a business follows several steps. Step 3

enter the company's book balance

Remittance advice

explains the reason for payment

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

invoice

Human fraud

involves intent by people to defeat internal controls for personal gain

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

Deposit ticket

lists currency, coins and checks deposited into an account

Internal control environment

management must convey commitment to internal control policies and procedures

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

Review the following statements regarding a petty cash fund used in a business.

only the petty cashier is responsible for paying cash from the fund

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

order

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

Bank charges

service fees charged by the bank

Summarize the document flow, or steps, in a voucher system by placing the following actions in their correct order of occurrence Step 5

the cashier issues a check for the amount of the invoice

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