Accounting Test 2

Which of the following are true regarding a bank statement

It may include NSF checks; It lists all checks that have cleared the bank; It includes interest earned; It may include service charges

This month's bank statement shows that the bank incorrectly credited ABC Corp's account for a $600 deposit that should have been credited to XYZ Corp's account. How would this item be treated on ABC's bank reconciliation?

It would be be deducted from the bank balance

Which of these are cash equivalents?

Money market funds; investments within 3 months to maturity

Gross profit equals

Net sales minus cost of goods sold

Control environment

Refers to the attitude of the people in the organization and their commitment to integrity

__ Cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific purpose

Restricted

Put in order: Sales revenue; cost of goods sold; sales returns, allowances, and discounts; net sales; gross profit

Sales Revenue; Sales returns, allowances, and discounts; net sales; cost of goods sold; gross profit

Sales revenue

Selling price times the quantity sold

In which of these situations would a merchandiser record revenue

The obligation has been fulfilled and control of the goods has been transferred to the customer; goods were delivered FOB shipping point but have not yet arrived at the buyer's place of business

Which of the following are reported on the income statement?

cost of goods sold, gross profit, sales revenue

A loan ____ specifies term of a loan agreement that, if broken, can allow the lender to renegotiate the terms of the loan or force repayment

covenants

the entries to record putting money into a petty cash fund includes

credit cash; debit petty cash

Inventory is reported as a

current asset on the balance sheet

In a perpetual system, the entry to record a purchase of merchandise on account includes a

debit to inventory; credit to accounts payable

The bank will show a customer's withdrawal as a

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

A ___ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts

direct

a ___ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts

direct

Each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of

establishing responsibility

The quality of financial reporting for publicly traded companies is improved through

evaluating and reporting on the effectiveness of internal controls; obtaining an external audit

The entry to record to replenishment of the petty cash fund involves debiting ___ and crediting ___

expense accounts; cash

The 3 components of the ___ ____ are incentive, opportunity, and rationalization

fraud triangle

An ___ system controls the amount paid to others by limiting the total amount of money available for making payments

imprest

Sales returns and allowances are reported on the

income statement

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting inventory and crediting accounts payable. As a result of this entry

liabilities will be overstated; assets will be overstated

Cost of goods sold=

net sales revenue-gross profit

If the bank makes an error by depositing your check into another depositor's account, then you should ___ and contact the bank

not change your records

To avoid duplicate payment, the voucher should be marked ___ as the final step in the voucher system

paid

Which inventory system requires that the inventory account be updated at the time merchandise is sold

perpetual system

A __ cash system involves putting money into a fund, paying money out to reimburse others and putting money back into to replenish the fund

petty

Deposits in _____ are added to the _____ side of the bank reconcilliation

transit; bank

Mandatory ____ is a policy that is established to make it difficult for fraudsters to cover up their theft while they are away

vacation

If the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown on the bank's reconciliation as a

$27 deduction from the book balance

Which are the reasons internal controls can never completely prevent and detect errors and fraud?

Collusion, human error, cost exceed benefits

Walmart sells a bike that cost $100 to a customer for $250 cash. The entry to record the sale includes a debit to ___ and a credit to ____ ____ for $250. The entry to record the cost of the sale includes a debit to Cost of Goods Sold and a credit to ___ for $100.

Cash; Sales revenue; inventory

Provisions of the Sarbanes-Oxley (SOX) Act aim to encourage honesty and the reporting of dishonest acts?

Code of ethics, anonymous tip lines, whistle-blower protection

In which of the following ways does a periodic system differ from a perpetual system?

Cost of goods sold is not updated until the end of the accounting period in a periodic system; inventory is not updated until the end of the accounting period in a periodic system

Every merchandise sale has 2 components which require an entry in a perpetual inventory system. Select these two components given the sale was made on account to a customer

Debit cost of goods sold and credit inventory in the amount of the cost times the quantity sold; debit accounts receivable and credit sales revenue in the amount of the selling price times the quantity sold

Monitoring activities

Evaluating the internal control system to see if working as intended

An advantage of direct deposits is they

are convenient and efficient

Gross profit

a subtotal on the income statement and is the amount earned from adding value to the inventory sold

Good internal controls for cash receipts that should be performed by a supervisor include

comparing cash in registers with cash count sheets, completing bank deposits, restricting access to cash by locking it up

Good internal controls for cash receipts that should be performed by a supervisor include ____

completing bank deposits; restricting access to cash by locking it up; comparing cash in registers with cash count sheets

Which of the following control components are part of the framework used when analyzing an internal control system?

control enviroment, rick assessment, monitoring activities, information and communication, control activities

Cost of good sold equals beginning inventory plus ____ minus ending inventory

purchases

Cost of goods sold equals beginning inventory plus ____ minus ending inventory

purchases

Which of the following are the steps involved in a petty cash system?

putting money into petty cash to establish a fund, paying money out to reimburse others, replenishing the petty cash fund

This document is compared to the internally generated documents of the voucher system to ensure the quantity and cost agree with what has been ordered and received. If all reconciles, the accounting department will record the purchase in the accounting records

receiving report

information and communication

refers to the documentation of activities that promote effective internal controls

Increasingly, the basic steps of the voucher system are performed using ___ process automation, which combines automation and artificial intelligence

robotic

Which would be found on a merchandiser's income sheet and not on a service firm's?

sales revenue; cost of goods sold

A ____ system is a process for approving and documenting all purchases and payments made on account

voucher

A multistep income statement is useful to financial statement users because it

separates income statement items into meaningful components; separates cost of goods sold from other operating expenses, which allows the calculation of gross profit

A cash ___ occurs when the total of the cash receipts for petty cash expenditures plus the remaining cash is less than the original amount in the petty cash

shortage

Segregation of duties

the supervisor forwards the verified deposit slip to the accounting record to record the cash receipts

Restrict access

the supervisor is responsible for keeping the cash safe and getting the cash to the bank

document procedures

the supervisor prepares a deposit slip

independent verification

the supervisor reconciles the cashier's count sheet to the cash collected

Control Activities

work esponsibilities and duties completed to reduce risks to an acceptable level

An _____ system controls the amount paid to others by limiting the total amount of money available for making payments

imprest

In a perpetual system, the entry to record the sales of merchandise to a customer on account would include a

credit ti inventory; debit to cost of goods sold

risk assessment

evaluates the potential for fraud

SOX reduces opportunities for fraud by requiring publicly-traded companies to ___

have external auditors evaluate the companies' internal controls; evaluate and report on its internal controls; establish an audit committee of independent directors