Accounting 101 (Chapter 4 Smartbook)

What requirements for corporate accountability are included in the Sarbanes-Oxley Act? (Select all that apply.) Multiple select question. Corporate executives must personally certify the financial statements Corporate management must hire the same audit and consulting firm Corporate management must select the auditor Corporate executives may be criminally liable for fraudulent financial statements

Corporate executives must personally certify the financial statements Corporate executives may be criminally liable for fraudulent financial statements

Sarbanes-Oxley Act (SOX) was passed in response to: Multiple Choice The establishment of the Securities and Exchange Commission (SEC). Increasing inflation. Increasing pressure of foreign competition for American products and services. Corporate scandals involving unethical behavior of top executives.

Corporate scandals involving unethical behavior of top executives.

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance? Multiple choice question. Deposits outstanding Charges for NSF checks Outstanding checks Collections of funds by the bank

Collections of funds by the bank

The framework for designing an internal control system is provided by the Multiple choice question. Financial Accounting Standards Board. Securities and Exchange Commission Act of 1934. Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Public Companies Accounting Oversight Board (PCAOB).

Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Select all that apply What requirements for corporate accountability are included in the Sarbanes-Oxley Act? (Select all that apply.) Multiple select question. Corporate management must select the auditor Corporate management must hire the same audit and consulting firm Corporate executives may be criminally liable for fraudulent financial statements Corporate executives must personally certify the financial statements

Corporate executives may be criminally liable for fraudulent financial statements Corporate executives must personally certify the financial statements

True or false: All companies are required to have an independent auditor assess the adequacy of their internal control procedures.

False Reason: Companies that are listed on stock exchanges must have their internal control procedures audited. Other companies may choose to have internal control audits.

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. True false question.TrueFalse

False Reason: Variability is usually associated with riskiness.

Which of the following led to the passage of the Sarbanes-Oxley Act of 2002? Multiple choice question. High profile accounting scandals during the early 2000s The increasing incidence of financial statement misstatements The likely adoption of global accounting standards in the U.S. The increasing complexity of U.S. GAAP

High profile accounting scandals during the early 2000s

This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation? Is it added or subtracted from the bank balance or the company's cash (book) balance? Multiple choice question. It would be added to the company balance. It would be deducted from the bank balance. It does not belong on the bank reconciliation. It would be added to the bank balance. It would be deducted from the company balance.

It would be deducted from the company balance. Reason: The company balance must be decreased by the amount of the NSF check noted on the bank statement. The company's balance was originally increased when the check was deposited but since the check is marked NSF, the company's balance must be reduced.

Who has final responsibility for internal controls? Multiple choice question. Auditors Management The FASB The SEC

Management

Select all that apply Which of the following items will require a journal entry following a bank reconciliation? (Select all that apply.) Multiple select question. NSF checks Deposits outstanding Notes collected by the bank Outstanding checks

NSF checks Notes collected by the bank

Rice Corp. noticed that a check written by the company for utility expense in the amount of $1,000 was incorrectly recorded by the bank as $1,100. What entry needs to be recorded to correct this error?

No entry is required on the company's books. Reason: This error was made by the bank. Therefore, no entry is required on the company's books. The bank must correct its error.

Corporate executive accountability under the Sarbanes-Oxley Act requires corporate executives to: Multiple Choice Hire an independent auditor. Work more than 40 hours per week. Personally certify the company's financial statements. Be compensated only when the company is profitable.

Personally certify the company's financial statements.

Select all that apply Which of the following steps are necessary to reconcile the bank balance and the cash account balance. Multiple select question. Record items that reconcile the company's cash balance Record items that reconcile the bank's cash balance Adjust bank's cash balance Adjust the company's cash balance

Record items that reconcile the company's cash balance Adjust bank's cash balance Adjust the company's cash balance

Select all that apply Which of the following are provisions included in the Sarbanes-Oxley Act? Multiple select question. Require that the SEC audit publicly traded companies. Require auditors to retain work papers for 7 years. Require that audit firms are hired by the audit committee of the board of directors. Require that the auditors are responsible for preparing the financial statements.

Require auditors to retain work papers for 7 years. Require that audit firms are hired by the audit committee of the board of directors.

High profile accounting scandals in the early 2000s prompted the passage of the: Multiple choice question. PCAOB Auditing Standard No. 2 SEC Act of 1933 SEC Act of 1934 Sarbanes-Oxley Act

Sarbanes-Oxley Act

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the Multiple choice question. Sarbanes-Oxley Act. CPA Investigations Act. Investor Protection Act. SEC Reforms Act.

Sarbanes-Oxley Act.

Select all that apply Which of the following are preventive controls? Multiple select question. Separation of duties Reconciliations Performance reviews Physical controls

Separation of duties Physical controls

Select all that apply When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance? (Select all that apply.) Multiple select question. Outstanding checks Service charges Deposits outstanding Charges for NSF checks

Service charges Charges for NSF checks

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? Multiple choice question. Smith both are about the same Jones

Smith

BANK RECONCILIATION DEFINITION FOR DUMMIES

So, a bank reconciliation is like a little detective work to make sure your piggy bank and the bank statement agree on how much money you have. It helps you catch any mistakes and make sure your money is safe and accounted for!

Under the Sarbanes-Oxley Act, who is responsible for the selection of a corporation's auditor? Multiple choice question. Corporate management The audit committee of the Board of Directors The American Institute of Certified Public Accountants The Securities and Exchange Commission

The audit committee of the Board of Directors

The ending balance in cash is reported in which financial statement(s)? Multiple choice question. The balance sheet only The statement of cash flows only The balance sheet and statement of cash flows The balance sheet and income statement

The balance sheet and statement of cash flows

Select all that apply What would cause a bank statement not to agree with the cash balance in the accounting records? Multiple select question. The bank paid interest that the company has not recorded. 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. The company wrote checks that have cleared the bank. The bank made an error in recording a deposit made by the company.

The bank paid interest that the company has not recorded. 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. The bank made an error in recording a deposit made by the company.

Select all that apply Which of the following are errors in accounting for cash? Multiple select question. The bank processing a check for $210 as $120. Recording a check for $168 for $186 in the cash account. The bank charges a service charge for $100 on January 10, but the retail company does not record this charge until the bank statement is received. Recording a cash collection of $4,000 but depositing $3,000 into the bank.

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? Multiple choice question. The company's auditors The CEO and CFO Audit committee SEC staff auditors

The company's auditors

At any given time, the amount of cash in the petty cash fund should equal: Multiple Choice The amount of cash withdrawn from the fund during the accounting period. The established balance of the fund less all vouchers written during the accounting period. The amount of cash used to establish the fund. All vouchers written during the accounting period.

The established balance of the fund less all vouchers written during the accounting period.

What is the primary purpose of a bank reconciliation? Multiple choice question. To ensure the bank balance per reconciliation is equal to the company balance per reconciliation To ensure that the cash receipts of the period were received To ensure that the cash disbursements of the period were properly authorized

To ensure the bank balance per reconciliation is equal to the company balance per reconciliation. A bank reconciliation is a process used to compare and reconcile the differences between the company's cash records (company balance) and the bank's cash records (bank balance). The goal is to identify any discrepancies, errors, or omissions in the records and ensure that the two balances match after adjusting for outstanding checks, deposits in transit, bank fees, and other factors. While it indirectly helps in verifying the accuracy of cash receipts and disbursements, its primary purpose is to reconcile the two balances to ensure they are in agreement.

Who must personally certify the financial statements and company disclosures or risk financial penalties and criminal prosecution for fraudulent misstatements? SEC staff auditors Corporate executives CPA firms who audit the company Board of directors of a corporation

corporate executives

Largo Corp. discovered $2,000 for an NSF check in its bank reconciliation. When the cash account is updated for items that affect the company's cash balance, the entry will include Multiple choice question. debit Cash, $2,000. credit Cash, $2,000. no entry is required

credit cash, $2000

The bank will show a customer's deposit on bank statements as a ______. Multiple choice question. credit, because a deposit is a liability from the bank's point of view debit, because a deposit is a liability from the bank's point of view credit, because cash is an asset debit, because cash is an asset

credit, because a deposit is a liability from the bank's point of view Reason: From the bank's point of view, a customer's account is a liability, not an asset. Since deposits increase the bank's liability, the entry is recorded with a debit to cash and a credit to a liability.

Select all that apply At the beginning of February, Neumann established a petty cash fund. During the month, the petty cash custodian disbursed $105 for small deliveries. At the end of the month, Neumann should: (Select all that apply.) Multiple select question. debit delivery expense debit prepaid expense credit petty cash not make any journal entry

debit delivery expense credit petty cash

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a Multiple choice question. debit to Check Receivable. debit to Accounts Receivable. debit to Cash. debit to Sales.

debit to Cash.

The bank will show a customer's withdrawal as a _____. Multiple choice question. credit, because a withdrawal increases its liability from the bank's point of view debit, because cash is an asset credit, because cash is an asset debit, because a withdrawal decreases its liability from the bank's point of view

debit, because a withdrawal decreases its liability from the bank's point of view

When a company finds out that an NSF check was written to the company, the company must ______ the balance in the cash account. Multiple choice question. increase decrease

decrease

In a bank reconciliation, an outstanding check is ______. Multiple choice question. added to the bank balance added to the book balance deducted from the book balance deducted from the bank balance

deducted from the bank balance Reason: Outstanding checks have already been subtracted from the book's balance but have not yet been subtracted from bank's balance. Thus the outstanding checks must be subtracted from the bank's balance on the reconciliation.

In a bank reconciliation, the bank's charge of $10 for checking account fees is Multiple choice question. deducted from the company's cash balance. added to the company's cash balance. deducted from the bank cash balance. added to the bank cash balance.

deducted from the company's cash balance.

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for Multiple choice question. preparing useful financial statements. designing fraud-proof accounting system. auditing internal control systems. designing an internal control system.

designing an internet control system

An audit is an example of a(n) __________ control

detective

The two types of control procedures are preventive and

detective

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational

fraud

When a person intentionally deceives another person or company for personal gain, this is referred to as

fraud (deceives...)

Which of the following adjusts the company's balance of cash in a bank reconciliation? Multiple Choice Interest earned. An error by the bank. Deposits outstanding. Checks outstanding.

interest earned

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as Multiple choice question. internal controls. protective controls. general controls. security controls. corporate regulations.

internet controls

Under the Sarbanes-Oxley Act, corporate management is responsible for (Select all that apply.) Multiple select question. internal control. the stock price. analyst's reports. retention of work papers. the financial statements.

internet controls financial statements

The statement of cash flows is useful because Multiple choice question. it provides information on the company's ability to maintain long-term success. it is more accurate in measuring net income for the period. it provides more accurate information than the balance sheet. it is prepared on an accrual basis.

it provides information on the company's ability to maintain long-term success.

A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation? Multiple choice question. It does not belong on the bank reconciliation. It would be added to the company balance. It would be deducted from the company balance. It would be added to the bank balance. It would be deducted from the bank balance.

it would be added to the bank balance

The sum of net cash flows from operating, investings, and financing activities reported in the statement of cash flows represents the: Multiple choice question. net increase or decrease in cash during the year cash balance at the end of the current year cash balance at the beginning of the current year

net increase or decrease in cash during the year

Select all that apply The three classifications on the statement of cash flows are cash flows from (Select all that apply.) Multiple select question. operating activities. discontinued activities. investing activities. business activities. financing activities.

operating investing financing

The cash flow category that is closely related to a company's profitability is cash from

operating activities

The statement of cash flows classifies items as Multiple choice question. operating, investing, and financing. current and noncurrent. recurring and nonrecurring. operating and nonoperating.

operating, investing, and financing.

Operating cash flows would include which of the following? Multiple Choice Services provided to customers on account. Payment for employee salaries. Payment for a new operating equipment. Repayment of borrowed money.

payment for employee salaries (payment for new operating equipment is an INVESTING cash flow)

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 Multiple choice question. investor and creditor controls. asset and liability controls. operating and investing controls. preventive and detective controls.

preventing and detective

Separation of duties and E-commerce controls are examples of ______ controls. Multiple choice question. detective assurance communication preventive

preventive

Internal control consists of plans to (Select all that apply.) Multiple select question. report management errors to the police. provide accurate and reliable accounting information. report misuse of company assets to investors. safeguard company assets.

provide accurate and reliable accounting information. safeguard company assets.

One of the most important internal controls for cash is the bank ___________.

reconciliation

Preparation of a bank ___________ helps maintain control of cash accounts

reconciliation

Financing cash flows would include which of the following? Multiple Choice Purchase of equipment for cash for company operations. Sale of services to customers for cash. Repayment of long-term borrowing to the bank. Payment of salaries to employees.

repayment of long-term borrowing to the bank

Select all that apply Important internal control procedures for employee purchases include: Multiple select question. separation of duties all disbursements made with top management authorization only clear rules for purchase authorization reconciliation of credit card statements

separation of duties clear rules for purchase authorization reconciliation of credit card statements

A petty cash fund is used for Multiple choice question. larger items purchased that were not in the budget. routine purchases of inventory and required necessities. small amounts of cash needed for low-cost items.

small amounts of cash needed for low-cost items.

Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's: (Select all that apply.) Multiple select question. statement of stockholders' equity income statement statement of cash flows balance sheet

statement of cash flows balance sheet

rom the retailer's perspective, the difference between a cash sale and a credit card sale is Multiple choice question. the retailer must pay a fee to the credit card company. internal control of cash is stronger for a cash sale. the retailer must pay interest on the borrowed amount. the customer pays a fee to the credit card company.

the retailer must pay a fee to the credit card company.

Short-term highly liquid investments with a maturity of ________ months or less that can be readily converted to cash with little risk of loss are classified as cash equivalents. (Enter one word per blank)

three

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

____________ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction

timing

A bank reconciliation compares the company's cash records with the bank statement and discovers differences in those amounts due to Multiple choice question. uncollected customer accounts. cash flows from operating activities. accrual revenues being different from cash revenues. timing differences and errors.

timing differences and errors.

A non-sufficient funds check requiring an adjustment to the cash balance was written: Multiple choice question. by the bank preparing the bank statement used in the reconciliation to the company preparing the bank reconciliation by the company preparing the bank reconciliation

to the company preparing the bank reconciliation

Since debit cards withdraw funds directly from the cardholder's bank account at the time of use, a sale on a debit card is most similar to a sale Multiple choice question. with a check. with a credit card. on account

with a check.

Which of the following is considered cash for financial reporting purposes? Multiple Choice All of the choices are correct. Coins and currency. Checks received from customers. Debit card sales.

all of the choices are correct

List the steps for a bank reconciliation in the correct order. (Drag the items to put them in the proper order with the first step on top.) Instructions Adjust the company's cash balance Adjust bank's cash balance Update the company's Cash account by recording items identified in the previous step

Adjust the bank's cash balance: Start by comparing the company's cash records with the bank statement and make adjustments to the bank's cash balance to account for timing differences and errors. Adjust the company's cash balance: Next, adjust the company's cash balance to reflect outstanding deposits and outstanding checks that were identified during the reconciliation process. Update the company's Cash account by recording items identified in the previous step: Finally, update the company's Cash account in its accounting records by recording the adjustments made in the previous steps. This ensures that the company's books accurately reflect the reconciled cash balance.

In a bank reconciliation, which of the following will require a journal entry by the company? Multiple choice question. Both the adjustments to the bank balance and adjustments to the cash balance in the accounting records Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books Adjustments to the bank balance for items recorded on the books but not yet on the bank statement

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

Which of the following could cause a company to have a high ratio of cash to noncash assets? Multiple Choice Highly volatile operations. All of these factors could contribute to a high ratio of cash to noncash assets. Significant foreign operations. Low dividend payments.

All of these factors could contribute to a high ratio of cash to noncash assets.

NSF CHECK DEFINITION FOR DUMMIES

An NSF (Non-Sufficient Funds) check is like a promise to pay with money, but when the promise is checked, there's not enough money in the bank account to make it happen.

Melon Corp. noticed that a check written by the company for $2,100 for advertising expense was incorrectly recorded in the accounting records as $1,200. What needs to be recorded to correct this error? Multiple choice question. No entry is required on the company's books. Debit cash $900; credit Advertising Expense $900. Debit Advertising Expense $900; credit Cash $900. Debit Advertising Expense $2,100; credit cash $2,100.

Debit Advertising Expense $900; credit Cash $900. Reason: An entry was already made debiting Advertising Expense and crediting Cash for $1,200. Therefore, an entry must be made for the additional $900 that was paid.

Joyce Inc. sells $5,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 3% fee on the sale. Recording the sale would include which of the following? Multiple select question. Debit Sales $5,000 Debit Cash $4,850 Credit Cash $5,000 Debit Service Fee Expense $150 Credit Sales $5,000

Debit Cash $4,850 Debit Service Fee Expense $150 Credit Sales $5,000

Brighton Corporation establishes a petty cash account for $200. During the month, Brighton uses petty cash to purchase postage for $50. At the end of the period when Brighton recognizes the expenditure, what entry is required? Multiple choice question. Debit Petty Cash on hand $50 Credit Cash (checking account) $50 Debit Postage Expense $50 Credit Petty Cash $150

Debit Postage Expense $50

Clem sells $1,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 4% fee on the sale. Recording the sale would include which of the following? Multiple choice question. Debit Service Fee Expense $40 Debit Cash $1,000 Debit Sales $1,000 Debit VISA Payable $40

Debit Service Fee Expense $40

Select all that apply Which of the following entries affect a company's cash flows? Multiple select question. Debit accounts receivable; credit revenue Debit rent expense; credit cash Debit equipment; credit notes payable Debit supplies; credit cash

Debit rent expense; credit cash Debit supplies; credit cash

What is the concept behind separation of duties in establishing internal control? Multiple Choice Duties of middle-level managers of the company should be clearly separated from those of top executives. The company's financial accountant should not share information with the company's tax accountant. Employee fraud is less likely to occur when access to assets and access to accounting records are separated. The external auditors of the company should have no contact with managers while the audit is taking place.

Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

Munchkin Inc. pays for promotional expenses by charging the company's credit card. Munchkin should debit an expense and credit Multiple choice question. accounts payable prepaid expense cash cash equivalents

accounts payable

A company pays for a purchase with a credit card. What is the effect of this purchase on the accounts? Multiple choice question. Inventory will decrease A revenue account will increase Accounts payable will increase An expense account will decrease

accounts payable will increase

In a bank reconciliation, a deposit outstanding is Multiple choice question. added to the bank balance. deducted from the book balance. deducted from the bank balance. added to the book balance.

added to the bank balance.

In a bank reconciliation, the electronic funds transfer (EFT) received by the bank from a customer's note receivable owed to the company is ______. deducted from the company's cash balance deducted from the bank cash balance added to the bank cash balance added to the company's cash balance

added to the company's cash balance

A journal entry that affects a company's Statement of Cash Flows will include an inflow or outflow of

cash

The asset most susceptible to fraudulent activity is

cash

Short-term, highly liquid investments such as money market funds or treasury bills are classified as Multiple choice question. cash equivalents. restricted cash. liquid securities.

cash equivalents

Operating cash flows include which of the following? Multiple Choice Cash received from a bank loan. Cash received from the issuance of common stock. Cash received from the sale of a used company truck. Cash paid for supplies.

cash paid for supplies

Select all that apply Credit card companies earn revenues from (Select all that apply.) Multiple select question. charging the credit card holder a fee for each transaction. charging the retailer interest until the purchase is paid. charging the credit card holder interest. charging the retailer a fee for each credit card sale.

charging the credit card holder interest. charging the retailer a fee for each credit card sale

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called Multiple choice question. NSF checks. deposits outstanding. electronic funds transfers. checks outstanding.

checks outstanding.

Important internal control procedures for employee purchases include: Multiple select question. clear rules for purchase authorization reconciliation of credit card statements predetermined spending limits for employees top management approval for all purchases

clear rules for purchase authorization reconciliation of credit card statements predetermined spending limits for employees

The Sarbanes-Oxley Act applies to Multiple choice question. companies that are formed as partnerships. any company organized in the United States. companies that are required to file with the SEC. companies that operate internationally.

companies that are required to file with the SEC.

A(n) ________ is a mistake in accounting, which can be intentional or unintentional. (Enter one word per blank)

error

True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check. True false question.

false Reason: The entry for a sale is the same regardless whether it is made with cash or a check. A check is a treated the same as cash.

Select all that apply The key provisions of the Sarbanes-Oxley Act include Multiple select question. requiring documentation and assessing effectiveness of internal controls. requiring that corporate executives certify financial statements. establishing the Securities and Exchange Commission. limiting the role of the FASB in accounting standard setting. restricting activities of auditors to prevent conflicts of interest.

requiring documentation and assessing effectiveness of internal controls. requiring that corporate executives certify financial statements. restricting activities of auditors to prevent conflicts of interest.