ACCT 211 Ch6 - Cash, Fraud and Internal Controls

Check

A document signed by the depositor instructing the bank to pay a specified amount of money

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.

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

Liquid assets must be available to pay current liabilities.

Deposit ticket

Lists currency, coins and checks deposited into an account

A good internal control to protect cash is to make cash payments using

checks

What is the purpose of internal controls?

to protect assets and ensure reliable accounting

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

interest earned

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

Recall the preparation of a bank reconciliation by selecting the correct items below.

- Add deposits in transit to the balance per bank. - Subtract any outstanding checks from the balance per bank. - Compute the adjusted bank balance. - Compute the adjusted book balance.

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

- Deposits and other other increases to the account during the period - Withdrawals and other decreases to the account during the period - Beginning-of-period balance in the account - End-of-period balance in the account

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

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

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

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

Determine the statements below that are true regarding why a bank reconciliation is used.

- The bank reconciliation is useful in proving the accuracy of the Cash account in the general ledger - Timing differences between the bank statement and the depositor's records are reflected in the bank reconciliation - 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

Determine which of the items below would appear in the Deposits column of a bank statement and would cause an increase in the account's balance.

-A note collected by the bank on behalf of the account owner -Deposits made during the month -Interest paid by the bank on the bank account balance

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.

-ABC Co. is shortening the amount of time that money is tied up in receivables. -ABC Co. has shortened the amount of time it takes to collect receivables from customers. -ABC Co. took approximately 31 days to collect cash from its credit customers in the current year.

Which of the following are principles of internal control?

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

Determine which of the statement(s) are correct if a Petty Cash account is not replenished at the end of the accounting period.

-Expenses would not be recorded in the period in which they were incurred -The balance sheet would show an overstated cash asset -The income statement would reflect a net income amount that was too high

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

-Handling cash is separate from recordkeeping of cash. -Cash receipts are promptly deposited in a bank. -Cash payments are made by check.

Choose the items below that would be added to the book balance on a bank reconciliation.

-Interest earned on the depositor's account -Note collected by the bank for the depositor

Which of the answers below correctly describe the Cash Over and Short account?

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

Review the following statements and select the ones which accurately describe a Petty Cash fund. Select all answers which apply.

-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 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 answers below.

-Reliable records are a source of information that managers use to monitor activities. -Keeping detailed records makes it unlikely that assets are lost or stolen without detection.

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.

Determine which of the statements below describes a petty cash receipt.

-The petty cashier must present all paid receipts to the company cashier in order to replenish the fund. -Any person wishing to withdraw funds from a petty cash fund must complete a petty cash receipt. -A petty cash receipt will have a signature line for the person receiving a payment from the fund. -A petty cash receipt is sometimes called a petty cash ticket.

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.

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

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

-ensure reliable accounting. -promote efficient operations. -uphold company policies. -protect assets.

Identify which of the items below are goals of good cash management.

-plan cash receipts to meet cash payments when due -keep a minimum level of cash necessary to operate

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

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 unrecorded deposits 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.

NSF check

A check written by a customer who does not have enough money in his account to cover the check

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

Cash deposits made by the account owner

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.

Deposit in transit

Deposit made and recorded by the depositor, but not yet recorded on the bank statement

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

Error; fraud

remittance advice

Explains the reason for payment

Identify the item below that would be subtracted from the book balance on a bank reconciliation.

NSF check

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

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.

Bank charges

Service fees charged by the bank

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

Small

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.

True or false: The adjusted book balance and the adjusted bank balance must equal each other on a bank reconciliation; otherwise, the cash account is not reconciled.

True

Bank account

Used to deposit money for safekeeping and help control withdrawals.

Outstanding check

a check written by the depositor that has not yet been received by the bank for payment

Define what liquidity means by completing the following sentence. Liquidity refers to a company's ability to pay for its ______ liabilities.

current

Auditors focus more on testing the ____ of a company's blockchain processes and technology than on verifying the ___ of its output.

effectiveness/accuracy

Electronic funds transfer

electronic transfer of cash from one party to another

Good recordkeeping helps protect assets and helps managers:

monitor company activities

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

one person

The triple threat of fraud involves:

pressure, opportunity, rationalization

Show your understanding of what a bank reconciliation is by completing the following sentence. A bank reconciliation is a(n) (entry/charge/report) explaining any differences between the (checking/subsidiary/sales) account balance according to the depositor's records and the balance reported on the (income/financial/bank) statement.

report; checking; bank