ACC EXAM 2
In a bank reconciliation, an outstanding check is ______.
Deducted from the bank balance
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?
LIFO
Total revenues less discounts, returns, and allowances are referred to as
Net revenues
The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the
Sarbanes-Oxley Act.
Which of the following are preventive controls?
Separation of duties Physical controls
Authorizing transactions, recording transactions, and maintaining control of the related assets should be separated among employees
Seperations of duties
A petty cash fund is used for
Small amounts of cash needed for low-cost items.
In a perpetual inventory system, when a company sells inventory on account, how many entries are required?
Two
FOB shipping point means title to the goods passes
When they are shipped
FOB destination means title to the goods passes
When they arrive at the destination
_____ inventory refers to the products that have been started in production, but are still incomplete
Work-in progress
A trade discount is
A percentage reduction from list price
An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)
Account receivable
A(n) ___________ ___________ is the legal right to receive cash from a credit sale and represents an asset of the company.
Account recievable
Munchkin Inc. pays for promotional expenses by charging the company's credit card. Munchkin should debit an expense and credit
Accounts payable
A company pays for a purchase with a credit card. What is the effect of this purchase on the accounts?
Accounts payable will increase
The allowance for uncollectible accounts is a contra account to
Accounts receivable
Which of the following items are not included in cash?
Accounts receivable from customers
In a bank reconciliation, a deposit outstanding is
Added to the bank balance.
Which of the following steps are necessary to reconcile the bank balance and the cash account balance.
Adjust bank's cash balance Adjust the company's cash balance Record items that reconcile the company's cash balance
In a bank reconciliation, which of the following will require a journal entry by the company?
Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ____________ method of accounts receivable
Aging
Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that
All disbursements are made by check, debit card, or credit card. Checks are signed by authorized individuals. All expenditures are authorized.
Which of the following items are readily available from an inventory account under the perpetual inventory system?
Beginning inventory balance Ending inventory balance Individual purchases Cost of units sold
A trade discount is recognized
By reducing the revenue amount recorded.
A check that is NSF (nonsufficient funds) is a check that
Cannot be paid because the account does not contain enough funds.
A journal entry that affects a company's Statement of Cash Flows will include an inflow or outflow of _______
Cash
Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?
Credit to Accounts Receivable Debit to Allowance for Uncollectible Accounts
Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a
Credit to Allowance for Uncollectible Accounts.
A trade discount is a reduction from the list price, which is used to:
Disguise real prices from competitors Change prices without publishing a new catalog Give quantity discounts to customers
The receivables turnover ratio and the average collection period provide information about a company's
Effectiveness in managing receivables
Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.
Estimated; at the end of the year
Choice, Most closely approximates the actual physical flow of inventory Most closely approximates the actual physical flow of inventory
FIFO
For internal record keeping, most companies carry their inventory using the _____ basis.
FIFO
Generally, if a company wants its inventory cost flows to be the same as the inventory's physical flows, what inventory method would it use?
FIFO
The __________ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.
FIFO
Which inventory cost flow method approximates the physical flow of inventory items?
FIFO
Net sales revenue minus cost of goods sold is
Gross profit
When the allowance method is used, the write-off of an uncollectible account:
Has no effect on net income
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income.
Have no effect
In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be __________ than cost of goods sold determined using the FIFO inventory assumption.
Higher; greater
Where is a note receivable reported in the balance sheet?
In either current or noncurrent assets, as appropriate
Freight-in is
Included as a cost of inventory
In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs
Incurred several years earlier.
A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue __________ revenue on December 31
Interest
(Face value x annual interest rate x fraction of the annual period) is the formula for
Interest on a note
The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the
LIFO reserve
An aging schedule classifies accounts receivable based on
Length of time outstanding
The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide
Lower of cost and net realizable value; greater
In times of rising prices, ending inventory determined using the LIFO inventory assumption will be __________ than ending inventory determined using the FIFO inventory assumption.
Lower; smaller
When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?
Make an adjusting entry at the end of the current period to accrue the interest earned
Who has final responsibility for internal controls?
Management
Companies that produce the inventory they sell are referred to as
Manufacturers
Receivables not expected to be collected should
Not be counted in assets of the company
A formal credit arrangement between a creditor and debtor is called a(n)
Note receivable
A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.
Note receivable
The statement of cash flows classifies items as
Operating, investing, and financing.
Strong internal control systems allow greater reliance by investors on:
Reported financial statements
The difference between LIFO and FIFO disclosed in the notes to the financial statements of a company currently utilizing the LIFO cost flow assumption is sometimes referred to as the LIFO __________
Reserve
Identifies and analyzes factors that could prevent objectives from being achieved
Risk assessment
Internal control consists of plans to
Safeguard company assets. Provide accurate and reliable accounting information.
When a customer returns a product for a refund, in which account is the entry recorded?
Sales return
The inventory turnover ratio directly measures ______.
The times per period the average inventory balance is sold
Which of the following represent reasons why managers closely monitor inventory levels?
To minimize costs of inventory write-downs due to obsolete inventory To ensure that sufficient units are available
The LIFO adjustment is used internally to convert the inventory
To the LIFO basis
The allowance method estimates
Uncollectible accounts
A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales
Allowance
A sales return occurs when a customer returns a product for a full refund, whereas a sales _________________ is when the customer keeps the product and obtains a partial refund.
Allowance
To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to
Allowance for uncollectible accounts
A company that expects that some of its customers will not pay the agreed upon sales price must utilize the
Allowance method
When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?
An entry to reinstate the account receivable and an entry to record payment
With the allowance method, bad debt expense is recorded
At the end of the period when bad debts are estimated
Two important ratios that help in understanding a company's effectiveness in managing receivables are the:
Average collection period Receivable turnover ratio
The lower of cost and net realizable value method was developed to
Avoid reporting inventory at an amount that exceeds the benefits it provides
The cost of estimated accounts receivable that will not be collected is referred to as
Bad debt expense
Where is inventory reported in the financial statements?
Balance sheet as a current asset
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to
Be more accurate
The asset that is most easily stolen and susceptible to fraud is
Cash
Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______.
Cash; Accounts Receivable
The Sales Returns and Sales Allowances accounts are __________ __________ accounts and require a debit entry to increase the account
Contra revenue accounts
Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.
Contra-asset
Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.
Cost of Goods Sold Inventory
The formula for inventory turnover is
Cost of goods sold divided by average inventory
A periodic inventory system measures cost of goods sold by
Counting inventory at the end of the period
The account "Allowance for Uncollectible Accounts" normally has a ___________ balance
Credit
Sales to customers in which the customers pay within 30 to 60 days are referred to as
Credit sales Sales on account
Adrian Corp. sells goods on account for $100,000 on May 1. The customer paid for the goods on May 10. On May 15, the customer returns $40,000 of the merchandise. The entry Adrian makes on May 15 will include the following:
Credit to Cash Debit to Sales Returns
Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?
Debit Sales Returns; credit Accounts Receivable.
The journal entry to record bad debt expense includes
Debit to bad debt expense Credit to allowance for uncollectible accounts
Notes receivable normally has a __________ balance because it is classified a a __________
Debit; asset
Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:
Decrease an asset and increase an expense Increase an asset and increase revenue
Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):
Decrease in Accounts Receivable
A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer.
Decreases; retained
The Accounts Receivable account is reduced when the seller:
Determines that a specific customer account will not be collectible
Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?
FIFO
Which inventory costing method assumes that the inventory's costs flow out in the same order the goods are received?
FIFO
The formula for calculating interest on a note is
Face value x annual rate x fraction of the annual period
True or false: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.
False
___________ __________ inventory consists of items for which the manufacturing process is complete
Finished goods
Which inventory account consists of the cost of items for which the manufacturing process is complete?
Finished goods inventory
Items held for sale in the normal course of business are referred to as
Inventories or inventory
Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:
Inventory
Cost of goods sold divided by average inventory is
Inventory turnover
The ___________ __________ ratio shows the number of times the firm sells its average inventory balance during a reporting period.
Inventory turnover
Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for
Inventory. Cost of goods sold.
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?
LIFO
What type of company purchases raw materials and makes goods to sell?
Manufacturers
The definition of inventory includes which of the following items?
Materials used currently in the production of goods to be sold Items currently in production for future sale Items held for resale
Companies that serve as intermediaries between manufacturers and end users typically are referred to as ____ companies.
Merchandising
__________ companies purchase inventory that is primarily in finished form and ready for resale to customers.
Merchandising
_____________ companies purchase inventory that is primarily in finished form and ready for resale to customers.
Merchandising
The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.
Multiple-step
Which of the following methods are not used for inventory costing?
NIFO Simple-average
Gross Profit is
Net Sales Revenue minus Cost of Goods Sold
What is the formula for the receivables turnover ratio?
Net credit sales divided by average accounts receivable (net).
The financial statement effects of recording an allowance for estimated sales returns are that:
Net income decreases Assets decrease Equity decreases
Revenues and expenses arising from activities that are not part of the company's operations are classified as ______ revenues and expenses.
Non operating
Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming
Outdated; spoiled
When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?
Outstanding checks
Kilian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statements in the following year will be:
Overstated net income
Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are Multiple choice question.
Paid by the supplier
Freight-in on inventory purchases is typically recognized as
Part of the cost of purchasing inventory
Shelly Company must first take a physical inventory to determine the cost of inventory still on hand
Periodic inventory system
Sherman Company recognizes cost of goods sold after completing a physical inventory.
Periodic inventory system
Under the __________ inventory system, the inventory account reflects purchases during the year, as well as cost of units sold.
Perpetual
Choice, Peter Company recognizes cost of goods sold each time it recognizes a sale. Peter Company recognizes cost of goods sold each time it recognizes a sale.
Perpetual inventory system
Neumann Company can determine the cost of inventory still on hand by referring to the inventory account
Perpetual inventory system
Which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs?
Perpetual inventory system
The company should maintain security over assets and accounting records
Physical controls
Separation of duties and E-commerce controls are examples of ______ controls.
Preventive
The _____ ratio shows the number of times during a year that the average receivable balance is collected.
Receivables turnover
Two entries are required when a previously written off account is collected. These two entries include:
Reinstate the account receivable Record the collection on the account receivable
A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n)
Sales discount
Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?
Sales discount
A customer returns merchandise purchased during the month and receives a refund of the full sales price.
Sales return
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)
Sales return
Net revenues is calculated as total revenues minus which of the following items?
Sales returns Sales allowances Sales discounts
The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _____ method
Specific identification
What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements? (Assume that the sales price is higher than the cost of inventory)
Stockholders' equity increases Total assets increase Net income increases
Which of the following allows greater reliance by investors on reported financial statements?
Strong internal control systems
For accounts receivable, the longer an account is outstanding,
The more likely it will prove uncollectible
The receivables turnover ratio indicates
The number of times during a year that the average accounts receivables were collected
The direct write-off method is used when
Uncollectible accounts are not anticipated or are immaterial
Kilian Company's inventory balance at the end of the year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered until the following year, the financial statement effect in the current year will be:
Understated assets, retained earnings, and net income
Which of the following accounts would be found in the balance sheet of a manufacturing company?
Work in process
Which of the following accounts are typically reported in the balance sheet of a manufacturing company?
Work in process Raw materials Finished goods
___________ inventory refers to the products that have been started in production, but are still incomplete.
Work-in process
The specific identification method
Would be beneficial to a company that makes fine jewelry Matches each unit of inventory with its actual cost
Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are
Included in Gerald's inventory
A multiple-step income statement reports multiple levels of
Income
Bad debt expense is reported on the __________ __________ and is classified as an operating expense
Income statement
Bad debt expense is reported on the:
Income statement
The direct write-off method is required for
Income tax purposes
Purchasing inventory on account:
Increases liabilities Increases assets
The list price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. Boyton sells the goods to a customer who qualifies for the trade discount. At what amount should Boyton record the sale and related account receivable?
$2,850
List the steps for a bank reconciliation in the correct order.
1. Adjust bank's cash balance 2. Adjust the company's cash balance Update the company's Cash account by recording items identified in the previous step
Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?
100,000 - 7,000 = 93,000
Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?
20,000 - 2,000 = 18,000
The estimated expense for accounts that may not be collected is referred to as
A bad debt expense
The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method.
A balance sheet
The account "Allowance for Uncollectible Accounts" is classified as
A contra asset to accounts receivable
The normal balance of notes receivable is:
A debit
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
As a non current asset
Accounts receivable should be classified as a(n)
Asset
York Inc. records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows:
Assets decrease Equity decreases
Using the perpetual inventory system, what is the effect of a sale of inventory on assets?
Assets decrease by the cost of the inventory Assets increase by the sales price of the inventory
Meller purchases inventory on account. As a results, Meller's
Assets will increase
Inventory is classified as
Current asset
When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?
Debit Accounts Receivable Credit Allowance for Uncollectible Accounts
Clark uses the perpetual inventory system. Clark sells goods to a customer on account for $1,000. The cost of the goods sold was $700. Which of the following entries are required?
Debit Accounts Receivable $1,000; credit Sales Revenue $1,000 Debit Cost of Goods Sold $700; credit Inventory $700
Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include
Debit Allowance for Uncollectible Accounts
Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold?
Debit Cost of Goods Sold $1,500; credit Inventory $1,500
Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?
Debit inventory
The company should provide employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties
Employee management
The amount of cash in the balance sheet reflects the
Ending cash on the balance sheet date.
The shipping term FOB stands for
Free on board
The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational ________
Fruad
Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.
Future; current
The allowance method is required by
GAAP
Provides better matching of current revenues with current inventory cost
LIFO
The __________ cost flow assumption more realistically matches the current cost of inventory with current sales revenue.
LIFO
When prices increase, the __________ inventory method provides the best matching of revenue and expenses.
LIFO
When prices increase, the __________ inventory method tends to decrease a company's tax liability during a particular fiscal period.
LIFO
When prices rise, which inventory method tends to result in lower income and a lower tax liability?
LIFO
Which inventory cost flow method most realistically matches the current cost of inventory with the current revenue it produces?
LIFO
Which of the following methods are available for costing inventory?
LIFO Specific identification Weighted-average FIFO
Vogel Company maintains its inventory records using the FIFO assumption, but reports its inventory consistent with LIFO. At the end of the year, Vogel converts its inventory balance from FIFO to LIFO by using the
LIFO adjustment
On a multiple step income statement, the category of revenues and expenses reported immediately after operating income is referred to as _____________ revenues and expenses
Non operating
The acronym NSF stands for
Nonsufficient funds.
_____________ _____________ inventory includes the cost of components that will become part of the finished product but have not yet been used in production
Raw materials
The Work-in-Process inventory account typically includes which costs?
Raw materials Direct labor Indirect manufacturing costs
Which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production.
Raw materials inventory
One of the most important internal controls for cash is the bank
Reconciliation
The ending balance in cash is reported in which financial statement(s)?
The balance sheet and statement of cash flows
A periodic performance review is an example of a(n) __________ control.
detective
The percentage-of-receivables method of estimating bad debt applies ____ to _____.
A single percentage; accounts receivable
A percentage reduction from list price.
A trade discount
A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:
Inventory
A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise. The customer keeps the merchandise.
Sales allowance
Accounts receivable are typically classified as current assets because
they will be converted to cash within 1 year
The Sales Returns and Sales Allowances accounts are classified as
Contra revenue accounts
Is 'balance in savings account' cash or cash equivalent?
Yes
Which of the following are detective controls?
Audits Performance reviews Reconciliations
The formula to compute the receivables turnover ratio is net credit sales divided by
Average accounts receivable
Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's:
Balance sheet Statement of cash flows
The asset that is most susceptible to employee fraud is
Cash
Internal control over cash is important because
Cash can be stolen.
When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance?
Charges for NSF checks Service charges
Which of the following are internal controls for checks?
Checks for large amounts should require two signatures. Checks should be sequentially prenumbered.
Which of the following items are included in cash?
Checks from customers Balance in checking accounts Currency and coins
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called
Checks outstanding
Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?
Collection from customers Receipt of interest
Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?
Collection of an accounts receivable Interest received on notes receivable
When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?
Collections of funds by the bank
The accounting term for a situation where two or more people act in coordination to circumvent internal controls is
Collusion
When two or more persons work together to circumvent internal control procedures and commit a fraud, this is called
Collusion
The framework for designing an internal control system is provided by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission.
Policies and procedures that help ensure management's directives are being carried out
Control activities
Formal policies related to management's philosophy, assignment of responsibilities, and organizational structure
Control environment
Which of the following are components of internal control?
Control environment Control activities Monitoring Risk assessment
When a business provides services to a customer, and the customer promises to pay later, this is referred to as
Credit sales
The bank will show a customer's deposit on bank statements as a ______.
Credit, because a deposit is a liability from the bank's point of view
Because cash is assumed to be available for spending, it is typically reported on the balance sheet as a(n)
Current asset
Which of the following entries affect a company's cash flows?
Debit rent expense; credit cash Debit supplies; credit cash
Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a
Debit to Cash.
The bank will show a customer's withdrawal as a _____.
Debit, because a withdrawal decreases its liability from the bank's point of view
Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?
Depositing checks into the bank and recording receipts in the accounting records Opening the mail and deposit of checks in the bank
When adjusting the bank balance in a bank reconciliation, which item must be added to the bank balance?
Deposits outstanding
Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are
Deposits outstanding.
The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for
Designing an internal control system.
The two types of control procedures are preventive and
Detective
Which of the following is an internal control procedure for cash disbursements?
Disbursements should be made by check, debit, or credit card
Differences between the bank statement balance and the cash account balance in the accounting records are primarily caused by timing differences and
Errors, mistakes, or fraud
True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check.
False
True or false: Variability in operating cash flows is unimportant as long as the total cash flows over a three-year period is sufficiently positive.
False
The three classifications on the statement of cash flows are cash flows from
Financing activities. Operating activities. Investing activities.
An intentional error by an employee that results in theft is referred to as a ______.
Fraud
When a person intentionally deceives another person or company for personal gain, this is referred to as
Fraud
Which of the following are common controls over cash receipts?
Having two different employees take custody of the checks and make the deposit Opening mail daily and making a detailed list of checks received
A key factor in helping safeguard cash is a well functioning
Internal control system
A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as
Internal controls
Includes formal procedures for reporting control deficiencies
Monitoring
Is 'accounts receivable' cash or cash equivalent?
No
Is 'inventory for sale to customers' cash or cash equivalent?
No
Which of the following items will require a journal entry following a bank reconciliation?
Notes collected by the bank NSF checks
Which of the following items are classified as cash outflows from operating activities on the statement of cash flows?
Payment of an accounts payable balance Payment of salaries
The actual performance of individuals or processes should be checked against their expected performance
Performance reviews
A small amount of cash on hand to pay for minor purchases is commonly referred to as a(n)
Petty cash fund
Two types of control activities are
Preventive and detective controls.
To prevent improper use of the company's resources, only certain employees are allowed to carry out certain business activities
Proper authorization
Which of the following items are classified as cash outflows from operating activities on the statement of cash flows?
Purchase of supplies with cash Payment of employee salaries Interest paid on notes
Preparation of a bank ______ helps maintain control of cash accounts.
Reconciliation
Management should periodically determine whether the amounts of physical assets of the company match the accounting records
Reconciliations
Smith's operating cash flows in millions were $100, $150, $80 during the past three years; while Jones' operating cash flows in millions were $105, $115, $110 during the same period. From the perspective of operating cash flows, which company would likely be perceived as riskier?
Smith
Companies that are required to file with the SEC
The Sarbanes-Oxley Act
What would cause a bank statement not to agree with the cash balance in the accounting records?
The bank paid interest that the company has not recorded. The bank made an error in recording a deposit made by the company. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The company made an error in recording a deposit.
Which of the following are errors in accounting for cash?
The bank processing a check for $210 as $120. Recording a check for $168 for $186 in the cash account. Recording a cash collection of $4,000 but depositing $3,000 into the bank.
Who is responsible for providing an opinion on management's assessment of internal control?
The company's auditors
A bank statement may not agree with the amount of cash recorded by the company in the cash account because of ______ differences and errors
Timing
A(n) ______ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction.
Timing
If a company records a transaction before the bank records the same transaction, this is called a/an ______ difference.
Timing
Which of the following will cause differences between the bank statement balance and the accounting balance for cash?
Timing differences Errors
A bank reconciliation compares the company's cash records with the bank statement and discovers differences in those amounts due to
Timing differences and errors.
What is the primary purpose of a bank reconciliation?
To ensure the bank balance per reconciliation is equal to the company balance per reconciliation
Is 'checks' cash or cash equivalent?
Yes
Is 'currency' cash or cash equivalent?
Yes
Is 'investments purchased with maturities of less than three months' cash or cash equivalent
Yes
A non-sufficient funds check requiring an adjustment to the cash balance was written:
to the company preparing the bank reconciliation