ACG CH 6 Smartbook

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

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

Add deposits in transit to the bank balance. Compute the adjusted (depositor's) book balance. Subtract any outstanding checks from the bank balance. Compute the adjusted bank balance.

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

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

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

Bank charges

Choice Service fees charged by the bank

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

Determine which of the items below would show up on a monthly bank statement. (Check all that apply.)

Deposits and other increases to the depositor's account during the period Beginning period balance in the depositor's account Withdrawals and other decreases to the account during the period Ending period balance in the account

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

Which of the following are principles of internal control?

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

Remittance advice

Explains the reason for payment

Human (error/fraud) errorField 1Field 1 error , Correct Unavailable is related to misjudgment or confusion. Human (error/fraud) fraudField 2Field 2 fraud , Correct Unavailable involves intent to defeat internal controls for personal gain.

Field 1: error Field 2: fraud

Show your understanding of what a bank reconciliation is by completing the following sentence. A bank reconciliation is a(n) entryField 1Field 1 entry , Incorrect Unavailable(entry/charge/report) explaining any differences between the checkingField 2Field 2 checking , Correct Unavailable (checking/subsidiary/sales) account balance according to the depositor's records and the balance reported on the incomeField 3Field 3 income , Incorrect Unavailable (income/financial/bank) statement.

Field 1: report Field 2: checking Field 3: bank

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

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

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

Interest earned

Choose the items below that would increase the depositor's book balance on a bank reconciliation.

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

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.

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

Human fraud

Involves intent by people to defeat internal controls for personal gain

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

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.

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

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

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

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

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

Liquid assets must be available to pay current liabilities.

Deposit ticket

Lists currency, coins and checks deposited into an account

Internal control environment

Management must convey commitment to internal control policies and procedures

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

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

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

Which of the statements below explains how technology has impacted internal control systems?

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.

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.

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.

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.

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 deposit ticket.

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

Bank account

Used to deposit money for safekeeping and help control withdrawals

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

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

checks

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

current

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

effectiveness/accuracy

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

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

The triple threat of fraud involves:

pressure opportunity rationalization

Describe what a petty cash fund is by completing the following sentence. A petty cash fund is used for-----payments.

small

What is the purpose of internal controls?

to protect assets and ensure reliable accounting

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

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