Ch. 4 accounting

_____ are fees charged by the bank for checking account services

service charges

Bank reconciliation

since the bank's accounting records and company's accounting records often disagree due to timing differences, these must be 'reconciled' to ensure that the accounting records are consistent with the bank's accounting records

What would not appear on a bank statement for a checking account?

Outstanding checks

While preparing a bank reconciliation, what item would be subtracted from the balance per the bank statement?

Outstanding checks

A ______ is the process used by an accountant to ensure consistency between the balance shown on the bank statement for a particular account and the balance shown on the accounting record.

Bank reconciliation

While preparing a bank reconciliation, what item would be subtracted from the balance per the company records?

Bank service charges

Allowing only certain employees to order goods and services on behalf of the company is an example of what internal control activity?

Establishing responsibility

Which internal control activity is followed when management authorizes the purchasing department to order goods and services for the company?

Establishing responsibility

According to the Sarbanes-Oxley Act of 2002, who is primarily responsible for establishing and maintaining a system of internal control over the company's financial reporting?

Management of the company

A check returned by a bank because the issuer's cash account balance could not cover the check is called a:

NSF check

Which internal control activity is followed when a physical count of inventory in performed under a perpetual inventory system?

Physical security

Which internal control activity is following when inventory storage areas are secured with limited access?

Physical security

What is an essential element of internal control?

Procedures for proper authorization of transactions

Under the _______ Act, management of publicly-traded corporations has increased responsibility for a system of internal controls that ensures reliability of financial statements.

Sarbanes-oxley

How are cash equivalents reported or disclosed in the financial statements?

They are included with cash as a current asset on the balance sheet

An internal control activity that separates responsibilities so that no one person handles all the tasks for a particular activity is referred to as _____.

segregation of duties

What statement best describes the term "outstanding check" from a company's point of view?

a check written by a company but not yet presented to the bank for payment

Having one employee prepare company checks and sign those checks is:

a violation of proper segregation of duties

A credit memorandum appeared on Arthur's September bank statement. How will Arthur treat this amount on the September bank reconciliation?

add it to the company's balance

In the reconciliation of a bank statement, deposits in transit should be:

added to the unadjusted bank statement balance

What best describes the act of collusion?

an intentional act of two or more employees to accomplish theft of company assets

_____ are those investments and deposits with financial institutions that are readily convertible into known amounts of cash and that have original maturities of 3 months or less.

cash equivalents

The account used to record the discrepancies that will occasionally occur between the amounts deposited and amount shown on cash register tapes is called ______.

cash over and short

The account which records the difference between the cash needed for replenishment and the amount of receipts is called:

cash over and short

What would never be considered a cash equivalent?

common stock issued by a corporation

Which component of internal control relates to the policies and procedures that management establishes to address the risks that might prevent the organization from achieving its objectives?

control activities

A ______ could result if the bank collected a note receivable for the business.

credit memo

Items that are included on a bank statement and increase the bank account balance are called ______.

credit memorandums

Suppose that a company noted a discrepancy whereby the amount of cash deposited in the bank account exceeded the amount included as cash sales on the register tapes. This overage should be recorded as a:

credit to cash over and short

A _________ might result if the bank makes a prearranged deduction from the business's account to pay a bill.

debit memo

Items that are included on a bank statement and decrease the bank account balance are called ______.

debit memorandums

A debit memorandum appeared on Mallory's bank statement for the month of May. How will Mallory treat this amount on the May bank reconciliation?

deduct it from the company's balance

An amount recorded as an increase in the company's cash account at the end of the period, but in which has not yet been reflected on the bank statement is called a ________.

deposit in transit

Cash collected and recorded by a company but not yet reflected in a bank statement are known as:

deposits in transit

While preparing a bank reconciliation, what item would be added to the bank statement balance?

deposits in transit

______ cause the bank balance to be smaller than the business's cash account balance.

deposits in transit

Which internal control activity is violated when the cashier at a cash register in a retail store also records the daily receipts in a journal?

segregation of duties

____ represents the cash flow that a company is able to generate after considering the maintenance or expansion of its assets (capital expenditures) and payment of dividends.

free cash flow

Which internal control activity is following when the work of one department acts as a check on the work of another?

independent verification

A necessary element of internal control is:

information and communication

Annual report in which management states its responsibility for internal control and provides an assessment of its internal control is called an ________.

internal control report

What is a true statement regarding a credit memorandum and its relationship to a company's bank reconciliation procedures?

it must be recorded as a debit to the balance per the company's records

A petty cash custodian should always:

maintain supporting documentation for any payment made from the petty cash fund

Cash equivalents include:

money market accounts and commercial paper

When a firm uses internal auditors, it is adhering to what internal control element?

monitoring

What is an example of a debit memorandum?

notice of a bank service charge

What is an example of a credit memorandum?

notice of interest earned on a checking account

A check written by a company but not yet presented to the bank for payment is called an _______.

outstanding check

Which of the following is a reconciling item when reconciling the bank balance to the correct balance?

outstanding checks

________ cause the bank balance to be higher than the business's cash account balance.

outstanding checks

Segregation of duties is most effective in:

preventing collusion

Monitoring

refers to the assessment of the quality of an organization's internal control can be accomplished in two ways the first is through ongoing activities the second is through a separate evaluation

Risk assessment

refers to the identification and analysis of these risks, with the goal of effectively managing them because business conditions can change throughout time, this is an ongoing organizational activity

A component of internal control is:

risk assessment

The financial statement that summarizes the operating, investing, and financing activities of a business over a period of time is the _____.

statement of cash flows

Control environment

the atmosphere in which the members of an organization conduct their activities and carry out their responsibilities often called the "tone at the top" because it reflects the overall control consciousness of an organization

The primary purpose of the statement of cash flows is to provide information about:

the cash inflows and outflows of the company

If a company erroneously records a $50 check received from a customer as $500 in its records, What must occur when reconciling its bank statement?

the company must decrease the balance per its records by $450

If a company erroneously records a $500 deposit as $50 in its records, what must occur when reconciling its bank statement?

the company must increase the balance per its records by $450

Control activities

the policies and procedures management establishes to address the risks that might prevent the organization from achieving its objectives

If the balance on the bank statement does not equal the balance per the company's records, then it can be assumed that:

there will be items reconciling the difference

In _____ analysis, cash balance is expressed as a percent of the total assets.

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