ACCT CH 6

Jane Company had an unadjusted book balance of $900. The bank reported $200 of accounts receivable collections and a $100 NSF check. The bank had erroneously charged Jane a $100 service charge. Based on this information, Jane's true cash balance is ______.

$1,000

Karen Company had an unadjusted bank balance of $1,200. There were $200 of deposits in transit and $400 outstanding checks. The bank erroneously charged Karen a $100 service charge. Based on this information, the Karen's true cash balance is ______.

$1,100

The bank statement for Boston Company showed a beginning balance of $1,100 and an ending balance of $1,600. There were $400 of accounts receivable collections, $100 of deposits in transit and $300 outstanding checks. An NSF check amounted to $200. Based on this information, the company's true cash balance is ______.

$1,400

The accounting records for Butler Company showed an unadjusted book balance of $1,500. Butler determined there were $300 of deposits in transit, $200 NSF checks, and a bank service charges of $100. The bank statement also reported $400 of accounts receivable collections. Based on this information, the company's true cash balance is ______.

$1,600

Ben Company had an unadjusted bank balance of $1,200. There were $200 of deposits in transit and $350 in outstanding checks. Bank service charges amounted to $100. Based on this information, the company's true cash balance is ______.

$1.050

Which of the following items is not included in the definition of cash?

Accounts receivable

Which of the following items are added to the unadjusted book balance to determine the true cash balance?

Accounts receivable collections Earned interest

Which of the following statements is true?

At any specific point in time, there is only one true cash balance.

Which of the following items are subtracted from the unadjusted book balance when determining the true cash balance?

Bank service charges NSF checks

Which of the following are internal control procedures specifically designed for the safekeeping of cash receipts?

Deposit cash receipts in a bank in a timely manner. Cash collected late in the day should be deposited in a night depository. Minimize the amount of cash held on the business premises.

Which of the following is not a primary role of an independent auditor (CPA)?

Determining if financial statements are absolutely correct.

Which of the following statements about authority and responsibility are true?

Employees are more likely to exercise reasonable caution when they are held responsible for their actions. Employees are motivated to work harder when they have the authority to use their own judgment.

True or false: Cash is most susceptible to embezzlement when it is received and least susceptible to embezzlement when it is disbursed.

False: Cash is most susceptible to embezzlement when it is received or disbursed.

True or false: The ERM framework replaces the internal control framework.

False: The ERM framework does not replace the internal control framework, but instead incorporates the internal control framework within ERM framework.

Which of the following is not an internal control procedure commonly used to safeguard cash?

Keep all cash in one central location.

Which of the following are internal control procedures specifically designed for the safekeeping of cash payments?

Prenumber checks. Keep unused checks under lock and key. Use checks to make cash payment.

Public companies are registered with the ______.

SEC

Which of the following provides regulatory authority for internal control requirements?

Sarbanes-Oxley Act

Which of the following statements are true?

The SEC regulates audit standards as well as financial reporting. Although the SEC can overrule GAAP, it rarely does so.

Which of the following statements about a procedures manual are true?

The procedures manual should be updated regularly. Periodic reviews should be conducted to ensure that employees are following the procedures outlined in the manual.

Which of the following statements regarding cash are true?

Too little cash can lead to bankruptcy. A company can have too much cash.

True or false: Requiring employees to take a two week vacation is an effective internal control procedure because it is more difficult to hide fraud or deceptive activities if an employee is absent from work for an extended period of time.

True

True or false: Periodic reviews should be conducted to ensure that employees are following the procedures outlined in the manual.

True: Having a procedures manual does not ensure that employees are following the procedures. Actual behavior must be tested periodically.

True or false: Ongoing training programs are essential to the maintenance of high quality personnel.

True: Quality personnel require training that supports the continuing growth and development of their skill sets.

True or false: Holding too much cash can thwart profit maximization.

True: To maximize profitability, excess cash should be invested in assets that produce income.

A checking account bank statement normally includes ______.

a list of checks drawn on the account during the period a list of customer deposits made during the period the beginning bank account balance

Materiality is ______.

a subjective measure that may fluctuate in the amount of dollars and/or the size of percentages

When starting with the unadjusted bank balance, to calculate the true cash balance _____ outstanding checks.

add deposits in transit and subtract

A bank failed to give a customer credit for a $350 deposit. To calculate the true cash balance, the $350 must be ______ balance.

added to the unadjusted bank

When a company receives a credit memo notifying them of an account receivable collection, the amount must be ______ balance to determine the true cash balance.

added to the unadjusted book

When a company decides to recognize petty cash expenses and the replenishment of the petty cash fund as a single event, ______.

all financial statements are affected

To reduce errors, prenumbered forms should ______.

allow for authorized signatures

A checking account deposit ticket normally includes the ______.

amount of currency being deposited account number name of the account

Hiring quality employees enhances internal controls because quality employees ______.

are able to perform tasks as expected are able to rotate jobs

Cash overages and shortages ______.

are treated as miscellaneous revenues and expenses

The establishment of a petty cash fund is a(n) ______ transaction.

asset exchange

An unqualified audit opinion is issued because the ______.

auditor believes the financial statements are in compliance with GAAP without material qualifications.

When possible, which of the following functions should be performed by separate individuals?

authorization custody of assets recording

To explain the differences between the cash balance reported on the bank statement and the cash balance recorded in the depositor's accounting records, companies prepare a(n) _____ _____.

bank reconciliation

Performance evaluations are necessary ______.

because few people can evaluate their own performance objectively

Deposits in transit are deposits that have ______ balance.

been added to the book but not to the bank

Outstanding checks are checks that have ______ balance.

been subtracted from the book but not the bank

A good system of internal controls ______

can still be compromised by management override is still subject to collusion increases the likelihood of early fraud deduction

When employees make mistakes when collecting cash or making change for customers, any difference between actual cash and what it should be is recored in an account called ______.

cash short and over

A(n) check is guaranteed for payment by a bank.

certified

Cash includes ______.

checking accounts money orders

The practice where two or more employees work together to thwart internal controls by covering for each other is called _____.

collusion

Features of a strong internal control system include ______.

compliance with applicable laws and regulations safeguarding assets reliable financial reporting

Auditors are prohibited from voluntarily disclosing information they have acquired as a result of their accountant-client relationships under the _____ rules in the AICPA's code of ethics for CPAs.

confidentiality

The integrity and ethical values of the company, including its code of conduct, involvement of the board of directors, and other actions that set the tone of the organization are features of the _____ _____ component of internal controls.

control envrionment

Transactions that increase a customer's checking account balance are described on a bank statement _____ memo.

credit

The bank notifies a depositor about the interest earned on their checking account through a(n) _____ _____.

credit memo

Transactions that reduce a customer's checking account balance are described on bank statement _____ memos.

debit

A company is advised of a NSF checks through a(n) _____ _____ that appears on the bank statement.

debit memo

Depositors are advised of service charges through a(n) _____ _____ that is included on the bank statement.

debit memo

Company ING wrote a check to pay for utilities in the amount of $240 but the accountant transposed the numbers and recorded it as $420. To correct the error, the accountant will ______.

decrease expenses by $180 increase cash by $180

Alta Company received a non-sufficient-funds (NSF) check from a customer. The adjustment to recognize the NSF check would include a(n) ______ account.

decrease to the cash increase to the accounts receivable

Individual amounts of currency, coins, and checks being put into the bank are listed on the _____ _____.

deposit ticket

When determining the true cash balance, ______ the unadjusted bank balance.

deposits in transit are added to outstanding checks are subtracted from

Amounts that have been recorded in the depositor's accounting records, but not added to the depositor's account by the bank are called _____ in _____.

deposits, transit

If an auditor is unable to perform the audit procedures necessary to determine whether the statements are prepared in accordance with GAAP, the auditor must issue a(n) ______ opinion.

disclaimer of

To discourage employees from creating phony documents for a disbursement, ______.

documents should be matched with proper authorization

Notes to the financial statements explain ______.

estimates that were made in the financial statements reporting options chosen when preparing financial statements

Administrative internal controls are concerned with ______.

evaluating performance compliance with company policies compliance with public laws

Insurance that protects a company from losses caused by employee dishonesty is provided by a(n) _____ bond.

fidelity

The major sections of an annual reports are ______.

financial statements notes to the financial statements auditors' report management's discussion and analysis

A policy that "employees at all levels are required to fly coach" is an example of _____ authority.

general

Certified checks are ______.

guaranteed for payment by a bank always included in the unadjusted bank balance

The times when an auditor may be required to disclose information they have acquired as a result of their accountant-client relationships are ______.

if a relationship was terminated for ethical or legal disagreements if required to testify in a court of law

Companies may decide to look to the ERM framework both to satisfy their _____ control needs and to move toward a fuller _____ management process.

internal, risk

Savings accounts with substantial withdrawal penalties should be classified as _____.

investments

Requiring employees to take extended vacations enhances internal controls because it ______.

is more difficult to hide irregularities if an employee is absent from work for a period of time

When a company decides to recognize petty cash expenses and the replenishment of the petty cash fund as a single event, the petty cash fund ______.

is not affected

Cash must be subject to strict internal controls because ______.

it has universal appeal rightful ownership of cash is difficult to prove small quantities of cash can represent significant value

Examples of physical controls include ______.

keeping accounting records in a fireproof vault Unannounced random counts to verify the presence of company-owned equipment

Internal control procedures designed for cash payments include ______.

keeping unused checks under lock and key making payments with prenumbered checks

The amount of cash in the petty cash fund should be ______.

large enough to handle disbursements for several weeks

An annual report includes all the following sections except ______.

list of employees

If a company is planning to discontinue part of the existing business, information regarding this plan should be included in the ______ section of the annual report.

management's discussion and analysis

An error, or other reporting problem, is considered _____ if knowing about it would influence the decisions of an average prudent investor.

material

The goal of a financial audit is to determine if financial statements are ______ correct.

materially

Assessing the quality of a company's internal control over time and taking actions as necessary to ensure it continues to address the risks of the organization are identified as ______ in the COSO framework.

monitoring

Some of the estimates that were made and which reporting options were used are explained in the ______ section of the annual report.

notes to the financial statements

An example of separation of duties is ______.

one person approves a sales return and a different person issues credit to the customer

Disbursements that have been properly recorded as cash deductions on the depositor's books but not yet presented by the payee to the bank for payment are called _____ _____.

outstanding checks

To prevent fraudulent payments, ______.

payees should be verified as valid vendors supporting documents should be marked "Paid" when the check is signed

The three parties that are directly affected by a written check are the ______.

payor bank on which the check is drawn payee

Employing a public accounting firm to conduct an audit is an example of ______.

performance evaluation

Businesses frequently establish a(n) _____ _____ fund to maintain effective control over small cash disbursements.

petty cash

Keeping a record of the serial number on a computer and the name of the individual who is responsible for the equipment is an example of a(n) ______ control.

physical

Certified public accountants (CPAs) who conduct financial audits are primarily responsible to the ______.

public

The Securities and Exchange Commission (SEC) has jurisdiction over _____ companies.

public

Prenumbered forms are used for ______.

purchase orders invoices checks

In the annual report, Management's discussion and analysis generally includes ______.

reasons for significant changes past performance and future expectations

Expenses are recognized when a petty cash fund ______,

runs low and needs to be replenished

Accounting internal controls are concerned with ______.

safeguarding company assets ensuring reliable accounting records

To promote the hiring of employees with high levels of personal integrity, employers should ______.

screen job applicants using feedback from job interviews perform background checks on job applicants seek recommendations from prior employers or educators

When a bank assesses a fee for services performed or a penalty for failure to maintain a minimum cash balance, the fee is called a(n) ______.

service charge

The bank account number and the signatures of the people authorized to sign checks is shown on a bank ______ card.

signature

People authorized to sign checks can be verified by referring to the bank _____ _____.

signature card

The items that normally appear on a written check include the ______.

signature of the payor amount of the check

A policy that states "investment decisions are authorized at the division level, while hiring decisions are authorized at the departmental level" is an example of _____ authority.

specific

The financial statements affected by a NSF check are the ______.

statement of cash flows balance sheet

A company failed to record a $1,000 check that cleared the bank. To calculate the true cash balance, ______ balance.

subtract $1,000 from the unadjusted book

The bank recorded a $2,300 deposit as a $3,200 deposit. To determine the true cash balance, ______ balance.

subtract $900 from the unadjusted bank

A deposited check that is returned because there was not enough money available to pay the check are referred to as non -_____-_____ checks.

sufficient funds

A financial statement audit includes ______.

tests of the reliability of the accounting system used to produce the financial reports a detailed examination of a company's financial statements and the documents that support those statements

To adjust the records to the true cash balance, each of the adjustments made to ______ balance(s) must be recorded in the company's financial records.

the book

Certified public accountants (CPAs) who conduct financial audits are paid by ______.

the companies they audit

When duties are separated ______.

the work of one employee acts as a check on the work of another employee collusion is necessary to commit fraud or theft

When petty cash funds are disbursed, ______.

there is no effect on the financial statements

When a bank pays interest on a checking account, the depositor is notified ______.

through a credit memo

When companies have their customers send payments directly to the bank, the company is notified ______.

through a credit memo

The discrepancy between the ending balance on the bank statement and the balance in the depositor's Cash account at the same date are normally attributable to ______.

timing differences

Confidentiality rules prohibit accountants from voluntarily disclosing information they have discovered in a financial audit ______.

to competitors to newspaper reporters to the general public

When a company uses the two step method and replenishes a petty cash fund, ______.

total assets are unchanged net income is not affected

When a company establishes a petty cash fund, the amount of ______.

total assets is not affected

A bank reconciliation normally begins with the ______ balance.

unadjusted bank