Accounting Quiz 5 Chapter 6
Latahmer Corporation is reconciling its May bank account. For each item listed, state how it would be handled on the bank reconciliation. 1. Check written on the company's account and paid by the bank is returned with the bank statement. 2. Check written in May that does not appear on the bank statement. 3. Service charge on the May bank statement for new checks. 4. Interest earned on the checking account for May. 5. Customer's NSF check is returned with the bank statement. 6. Customer's check which was deposited on May 31 is not listed on the bank statement.
1. Would not appear on the May reconciliation 2. subtraction for the bank balance 3. subtraction from the book balance 4. addition to the book balance 5. subtraction from book balance 6. addition to the bank balance
For the following items, indicate whether each should be (a) included or (b) excluded from the line item titled Cash and cash equivalents on the balance sheet. 1. Certified check 2. Corporate bonds maturing in 30 days 3. Petty cash 4. Shares of GM stock 5. Savings account 6. Certificate of deposit maturing in six months 7. Checking account 8. Certificate of deposit maturing in 60 days
1. included. 2. excluded 3. included 4. excluded. 5. included 6. excluded 7. included 8. included
Match the action with the category of internal control procedures. 1. Proper authorization 2. Segregation of duties 3. Independent verification 4. Safeguarding assets 5. Design and use of business documents
1. specific authority is given by management for the performance of activities 2. accounting and cash collection is properly separated 3. one department should check on another 4. blank checks are locked at all times when not in use 5. origination of initial entry into accounting system
A check written by a company but not yet presented to the bank for payment is called a check in transit.
False
A company prepares adjusting entries for debit memorandums but not for credit memorandums.
False
A good system of internal controls requires that the physical custody of assets be separated from the accounting for those assets. This concept is known as safeguarding assets and records.
False
A six-month certificate of deposit would be considered to be a cash equivalent.
False
As part of good internal control, disbursements can be made either by check or cash.
False
If a company has internal auditors, it does not need to have external auditors.
False
If collection of accounts receivable is assured, then accounts receivable are considered to be cash equivalents.
False
The bank informs a customer that a service charge has been assessed on their account by including a credit memorandum in the monthly bank statement.
False
The key to the classification of an amount as cash is that it be available to pay debts within a three-month period of time.
False
Match the following terms with the best definitions.
Purchase requisition. Used to prepare a purchase order. Receiving Report. A form used for verification that the items originally requested have been received., Vendor Invoice. Form sent by the seller to the buyer as evidence of a sale., Check. Typically sent along with a remittance advice., Control procedures. Actions that company personnel take to make sure that policies set forth by management are followed., Inventory count. An example of independent verification., Segregation of duties. The practice of not combining physical custody of assets with the function of accounting for those assets., Source document control. An example of design and use of business documents control.
Petty cash typically is composed of coins and currency kept on hand in a business to make minor disbursements.
True
Accounting controls primarily concern safeguarding of assets and ensuring the reliability of the financial statements.
True
An advantage of a strong system of internal control is that less testing of the accounting system is done by the outside auditors.
True
Checks received from customers are considered to be cash in the company's books.
True
On a bank reconciliation, interest earned for the month is added to the cash balance per the books.
True
The use of customer statements as a control device will be effective only if the employees responsible for the custody of cash received through the mail, for record keeping, and for authorization of adjustments to customers' accounts are not allowed to prepare and mail statements to customers.
True
When a bank pays interest or collects an amount owed to a company by one of the bank's customers, the bank issues a credit memorandum.
True
When reconciling a bank account, the company does not have to prepare an adjusting entry for outstanding checks.
True