ACG2021- Ch. 7

Credit memorandum

"credit" means the bank is giving us money i.e. - collect notes receivable - interest earned

Reconciling items

1. deposits in transit 2. outstanding checks 3. bank memorandum 4. errors

Three factors that contribute to fraudulent activity

1. opportunity (to commit the fraud) 2. financial pressure (can't afford their lifestyle) 3. rationalization (mental response that justifies breaking the law) **opportunity is the only one an employer can control, so we have to try and eliminate it

Fraud

Dishonest act by an employee that results in personal benefit to the employee at a cost to the employer

Debit memorandum

Even though the name is "debit", the bank is taking our money away i.e. - bank service charge - NSF

Which one of the following is not a control procedure used for over-the-counter receipts?

Pre-numbered checks are used to buy supplies

Reconciliation procedures - Per bank statement

adjustments to the bank balance: + deposit in transit - outstanding checks +/- bank errors

An authorization form which is prepared for each expenditure in most medium and large organizations is A. invoice. B. voucher. C. receiving report. D. purchase order.

b.

Of which of the following is obtaining insurance protection against dishonest employees an example? A. Documentation procedures B. Bonding C. Establishing responsibility D. Segregation of duties

b.

Which of the following is not a principle of internal control? A. Segregation of duties B. Documentation procedures C. Collusion between employees D. Bonding of employees

c. Internal controls are established to preclude collusion between employees. It is not a principle of internal control.

Which internal control principle is most important in a control system for handling cash receipts? A. Physical controls B. Documentation procedures C. Independent internal verification D. Segregation of duties

d.

True or false: Collusion occurs when two or more people are responsible for a single task.

false

true or false: All disbursements, even incidental amounts, must be paid by check.

false

Internal control is...

methods and measure adopted to: 1. safeguard assets 2. enhance accuracy and reliability of accounting records 3. increase efficiency of operations 4. ensure compliance with laws and regulations

Principals of internal control

(Everything sucks during periods, I hate {it}) 1. establishment of responsibility 2. segregation of duties - segregation of related activities - segregation of record keeping from physical custody 3. documentation procedures 4. physical controls 5. independent internal verification 6. human resource controls

For which of the following errors should the appropriate amount be added to the cash balance per bank statement on a company's bank reconciliation? A deposit of $10,000 was incorrectly recorded by bank as a deposit of $1,000. A check written by the company for $1,200 was incorrectly recorded by bank as $120. A check written by the company for $980 was incorrectly recorded on the company's books as $890. A check written by the company for $110 was incorrectly recorded on the company's books as $101.

A deposit of $10,000 was incorrectly recorded by bank as a deposit of $1,000.

Triple Company collected the following information to prepare its September bank reconciliation: Cash balance per books, December 31, $75,750. Note receivable of $4,200 plus $300 of interest collected, $4,500. Outstanding checks, $14,500. Deposits in transit, $10,250. Triple Company erroneously recorded a $320 outflow as a $230 cash outflow. The bank erroneously subtracted $750 from Triple Company's checking account. The bank should have subtracted the money to a different customer's account. Bank service charges, $50. NSF check, $600. How much is the adjusted cash balance per books on December 31?

Beginning outstanding checks (from September), $8,400 Add: Checks issued during October, $25,700 Less: Checks that cleared the bank during October, ($22,300) Ending outstanding check, $11,800 Note: Ignore the customer's NSF check because this questions is asking about Springer Company's outstanding checks and Springer Company did not write the $500 check described as from a customer.

The control features of a bank account do not include: a. having bank auditors verify the correctness of the bank balance per books b. minimizing the amount of cash that must be kept on hand c. providing a double record of all bank transactions d. safeguarding cash by using a bank as a depository

a.

reconciliation procedures - Per books

adjustments to the book balance: + notes collected by bank - NSF checks - check printing or other service charges +/- company errors

Double Company collected the following information to prepare its September bank reconciliation: Cash balance per bank, September 30, $72,700. Note receivable of $1,700 plus $200 of interest collected, $1,900. Outstanding checks, $4,600. Deposits in transit, $2,150. Double Company erroneously recorded a $1,000 cash outflow as a $100 cash outflow. The bank erroneously deducted $300 from Double Company's checking account. The bank should have taken the money from a different customer's account. Bank service charges, $50. NSF check, $450. How much is the adjusted cash balance per bank on September 30? $70,100 $70,550 $70,250 $70,300

an: $70,550 Solution: Balance per bank on Sep. 30, $72,700 Add: Deposits in transit, $2,150 Less: Outstanding checks, ($4,600) Add: Bank error (see note below), $300 Adjusted cash balance per bank, $70,550 Note: The bank removed money from Double Company's account; the bank statement understates Double's cash balance and the bank needs to be notified and instructed to return the money to Double's bank account.

Triple Company collected the following information to prepare its September bank reconciliation: Cash balance per books, December 31, $75,750. Note receivable of $4,200 plus $300 of interest collected, $4,500. Outstanding checks, $14,500. Deposits in transit, $10,250. Triple Company erroneously recorded a $320 outflow as a $230 cash outflow. The bank erroneously subtracted $750 from Triple Company's checking account. The bank should have subtracted the money to a different customer's account. Bank service charges, $50. NSF check, $500. How much is the adjusted cash balance per books on December 31? $79,610 $79,790 $71,510 $71,410

an: $79,610 Solution: Balance per books on Sep. 30, $75,750 Add: Note collected by the bank including interest, $4,500 Less: Bank service charge, ($50) Less: NSF check, ($500) Less: Book error (see note below), ($90) Adjusted cash balance per books, $79,610 Note: Triple Company paid $320 but subtracted only $230 from its books. The company needs to subtract an additional $90.

For which of the following errors should $90 be subtracted from the cash balance per bank statement on a company's bank reconciliation? A check written by the company for $780 was incorrectly recorded on the company's books as $870. A deposit of $650 was incorrectly recorded by bank as a deposit of $560. A check written by the company for $120 was incorrectly recorded by the bank as $210. A check written by the company for $540 was incorrectly recorded by the bank as $450.

an: A check written by the company for $540 was incorrectly recorded by the bank as $450.

Which of the following statements is false with regards to record-keeping for bank reconciliations? Outstanding checks do not require a journal-entry once the bank reconciliation is completed. Bank errors do not require a journal-entry once the bank reconciliation is completed. NSF checks do require a journal-entry once the bank reconciliation is completed. Deposits in transit do require a journal-entry once the bank reconciliation is completed.

an: Deposits in transit do require a journal-entry once the bank reconciliation is completed.

For which of the following will an adjusting entry be required as the result of a bank reconciliation? Deposits in transit NSF checks Outstanding checks Bank errors

an: NSF checks NSF checks are deductions made by the bank from the company's account that must be removed from the company's accounting records with an adjusting entry that credits Cash and debits Accounts Receivable. Outstanding checks are checks written by the company that have already been recorded in the accounting records but have not yet been posted on the bank statement. They will clear the bank in future periods. No adjusting entry is needed. Deposits in transit are deposits the company presented to the bank before the end of the month that have not yet been posted to the bank account. They will clear in the future periods. No adjusting entry is needed. Bank errors are amounts for which the bank made an error. They are handled with correspondence with the bank. Upon resolution, the bank will issue a correction. No adjusting entry is needed.

Which one of the following is a primary component of an internal control system? Chain of command Physical controls Bonding Monitoring

an: monitoring

Barker Company collected the following information to prepare its November bank reconciliation: Cash balance per bank, November 30 $21,000 Note receivable plus interest collected 9,000 Outstanding checks 6,000 Deposits in transit 5,400 Bank service charges 85 NSF check 2,100 How much is the cash balance per books prior to preparing the reconciliation? A. $20,400 B. $13,585 C. $6,815 D. $27,815

b.

SOX act was a response to...

corporate scandals. It applies to publicly traded US corps aka stocks. SOX provides added assurance that the financial report is fair and adequate.