Chapter 6

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. 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 shortened the amount of time it takes to collect receivables from customers.

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

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

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. Cash payments are made by check. Handling cash is separate from recordkeeping of cash.

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.

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

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

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

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

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.

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

Liquid assets must be available to pay current liabilities.

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

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

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

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

Technology has encouraged the growth of e-commerce, which means that there is a higher risk of credit card number theft. Technologically advanced systems can record who made entries, the date and time of the entry and the source of the entry. Technology has reduced the number of processing errors.

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. (Check all that apply.)

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.

All of the following describe blockchain:

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

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

current liabilities

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

effectiveness/accuracy

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

error, fraud

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

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

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

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

The triple threat of fraud involves:

rationalization pressure opportunity

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.

report, checking, bank

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

small payments

What is the purpose of internal controls?

to protect assets and ensure reliable accounting