Chapter 6 Concept Questions BUSA 7

Calculate the adjusted balance per books of ABC Co.

$9455

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

- withdrawals and other decreases to the account during the period - deposits and other increases to the account during the Period - Beginning-of-period balance in the account - End-of-period balance in the account

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

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

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.

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

Which of the following are principles of internal control?

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

Review the following statements and select the ones which accurately describe a petty cash fund.

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

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

Choose the items below that would be subtracted from the book balance on a bank reconciliation.

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

Identify the bank reconciliation items that would require adjustments to the book balance.

-NSF check -Interest earned -Collection of note by bank -Bank charges

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

-Protect assets -Ensure reliable accounting -Uphold company policies -Promote efficient operations

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

-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. -Technology has reduced the number of processing errors.

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.

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

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. -Each bank deposit is supported by a deposit ticket. -A bank account is a record set up by a bank for a customer.

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

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

Which of the answers below correctly describes the cash over and short account?

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

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

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

Identify the examples of good internal controls designed to protect cash received in the mail.

-the record keeper 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.

Describe the internal control principle of dividing responsibility for related transactions by electing the correct statement below.

-this principle is often called separation of duties -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 individuals work in a related transaction

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

-use of a voucher system -all payments should be made by check -use of a petty cash system -only authorized individuals should be allowed to sign checks

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

1. A purchase requisition is filled out and placed in voucher. 2. A purchase order is completed and a copy is placed in voucher. 3. A receiving report is completed when the order arrives and placed in voucher. 4. The accounting department approves payment of the invoice and approval is placed in voucher. 5. The cashier issues a check for the amount of the invoice.

In preparing a monthly bank reconciliation, a business follows several steps. Place the selected steps below in the correct order of occurrence.

1. Enter the bank statement balance then add any deposits in transit and subtract any outstanding checks 2. Compute the adjusted bank balance 3. Enter the company's book balance 4. Add any unrecorded cash receipts, interest earned, and errors understating the book balance 5. Subtract any unrecorded bank fees, NSF checks, and errors overstating the book balance 6. Compute the adjusted book balance and compare it to the adjusted bank balance to verify equality

Identify the factors that cause the bank statement balance to differ from the depositors book balance by matching each to its definition on the right.

1. Outstanding check- a check written by the depositor that has not yet been received by the bank for payment 2. Deposit in transit- Deposit made and recorded by the depositor, but not yet recorded on the bank statement 3. NSF check- A check written by a customer who does not have enough money in his account to cover the check. 4. Bank charges- Service fees charged by the bank

Define what a voucher is by completing the following sentence. A voucher is an ____ document (or file) used to accumulate information to ____ cash disbursements and to ensure that a transaction is properly recorded.

1. internal 2. control

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

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

Determine which of the items on a bank statement and would cause a decrease in the account's balance.

A customers check that is uncollected able Monthly service fees charged by the bank

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

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.

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.

Accounting Canceled Checks

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

All them but collusion

An electronic fund transfer involves?

An electronic transfer of cash

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. A

All of the following items are deductions on a bank statement:

Bank service fee Canceled checks

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

Cash deposits made by the account owner

At the end of the month, ABC Co.'s softer cash fund contains $4 in cash and receipts for postage of $59 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 the 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. Demonstrate the journal entry to replenish the account by choosing the correct action from those given below.

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

Given the bank reconciliation below, show what the effect on the Cash balance in the general ledger will be by selecting all of the correct answers below. XYZ Co. Bank Reconciliation August 30, 2012 BANK Bank balance $2,005 Add: Deposit in transit 300 Less: Outstanding checks 185 Adjusted bank balance $2,120 BOOK Book Balance $2,250 Add: interest earned 50 Less: NSF check 180 Adjusted book balance $2,120 a. Cash will be credited by $185 for the outstanding checks. b. Cash will be debited by $50 for the interest earned. c. Cash will have an adjusted balance of $2,120 after posting the required adjustments. d. Cash will be credited by $180 for the NSF check e. Cash will have an adjusted balance of $1,250 after posting the required adjustments f. Cash will be debited for the $300 deposit in transit

Cash will be debited by $50 Cash will be credited by $180 Cash will be adjusted balance of $1250

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.

Cash will have a balance of $1,120

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

Checks written by the account owner

Review the items below and determine which would cause an decrease 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.

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.

Describe the internal control principle of separating record keeping from custody of assets by completing the following sentence. A person who _____(identifies/controls/recommended) or had access to an asset must _____ (always/not) keep that assets accounting records.

Controls Not

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

Customer checks, Money orders, Certified checks

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 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.

The bank reconciliation of ABC Co. is provided below.

Debit accounts receivable $180 and credit $180

The bank reconciliation of XYZ Co. is provided below.

Debit bank service charge expense $60 and credit cash $60 Debit cash $100 and credit note receivable $100

Match the banking term on the left with its definition on the right.

Deposit ticket - Lists currency, coins and checks deposited into an account Check - A document signed by the depositor instructing the bank to pay a specified amount of money Bank account - Used to deposit money for safekeeping and help control withdrawals. Remittance advice - Explains the reason for payment Electronic funds transfer - Electronic transfer of cash from one party to another

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.

Determine which of the items below would appear in the deposits column of a bank statement and would cause an increase in the accounts balance.

Interest Deposit A note

Identify the items below that would be added to the bank balance.

Interest earned

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.

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

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

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

Summarize the internal control procedure of maintaining adequate records by selecting the correct answer below.

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.

A depositor is a(n) (liability/asset/expense) on the banks records, but it is an (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 owners account.

Liability Asset Credit

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

Liquid assets must be available to pay current liabilities.

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

Managers are not allowed Purchase requisitions are used to inform Purchase requisitions are used for control purposes

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

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

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.

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.

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.

The document used by the purchasing department to place an indeed is called a(n) purchase _______?

Purchase order

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.

Receivables Shortened amount 31 days

How had the sarbanes-oxley act (SOX) impacted the internal control of companies?

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

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

Small

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.

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.

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

The name of vendor and account Terms of purchase Date of invoice

Cash equivalents include shirt term investments within?

Three months of their due date

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. 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.

What is the purpose of internal controls?

To help managers know if the business is receiving the assets and services it has paid for.

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: the adjusted book balance and the adjusted bank balance must equal each other on a bank reconciliations; otherwise, the cash account is not reconciled.

True

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 it condition and whether it agrees with the purchase order.

True

Sarbanes-Oxley allows for the following penalties for violators:

Up to 25 years in prison with fines

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.

Vendor

The formula to compute days sales uncollected is.

accounts receivable divided by net sales times 365

The formula to compute days sales uncollected is:

accounts receivable divided by net sales times 365

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

approval

Regular and independent reviews should be done by _____.

auditors not directly involved in the activities

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 ______ liabilities.

current

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

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

error and fraud

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

funds

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

interest earned

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

invoice

Good record keeping helps protect assets and helps managers:

monitor company activity

A person who has access to an asset must ______ access to that assets accounting records.

not have

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

one person

The triple threat of fraud involves:

opportunity, pressure, rationalization

Bonding employees who handle cash is important because it:

reduces risk of theft

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

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

separation

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

small payments made by petty cash

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.

task established

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 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

What is the purpose of internal controls?

to protect assets and ensure reliable accounting