CH 4- act 210

A bank reconciliation reconciles the bank statement with the company's

cash account in the balance sheet.

Strong internal control systems allow greater reliance by investors on:

reported financial statements

Rice Corp. noticed that a check written by the company for $1,000 was incorrectly recorded by the bank as $1,100. How should this error be handled in a bank reconciliation?

$100 should be added to the bank balance. Reason: the bank balance is deficient by $100

Melon Corp. noticed that a check written by the company for $2,100 was incorrectly recorded in the accounting records as $1,200. How should this error be handled in a bank reconciliation?

$900 should be subtracted from the cash balance in the accounting records. Reason: The company reduced cash account incorrectly by $1,200 instead of $2,100 so an additional $900 should be subtracted from the company cash account.

An audit is an example of a(n) control.

Blank 1: detective

The two types of control procedures are preventive and . (Enter one word per blank)

Blank 1: detective

A(n) is a mistake in accounting, which can be intentional or unintentional. (Enter one word per blank)

Blank 1: error

Which of the following items are not included in cash?

Accounts receivable from customers

In a bank reconciliation, which of the following will require a journal entry by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true?

An entry must be made to debit Accounts Payable and credit Cash for $45.

Amounts readily available to pay off debt or use in operations are considered cash, while highly liquid investments with a maturity date of 3 months or less are considered . (Enter one word per blank)

Blank 1: cash Blank 2: equivalents

The asset that is most easily stolen and susceptible to fraud is . (Enter one word per blank)

Blank 1: cash or money

The accounting term for a situation where two or more people act in coordination to circumvent internal controls is (Enter one word per blank).

Blank 1: collusion or colluding

When two or more persons work together to circumvent internal control procedures and commit a fraud, this is called .

Blank 1: collusion or colluding

When a person intentionally deceives another person or company for personal gain, this is referred to as . (Enter one word per blank)

Blank 1: fraud

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational .

Blank 1: fraud or fraudulence

Short-term highly liquid investments with a maturity of months or less that can be readily converted to cash with little risk of loss are classified as cash equivalents. (Enter one word per blank)

Blank 1: three or 3

A bank statement may not agree with the amount of cash recorded by the company in the cash account because of differences and errors.

Blank 1: timing or time

The three elements present in every fraud are commonly referred to as the fraud .

Blank 1: triangle

When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance? (Select all that apply.)

Charges for NSF checks Service charges

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collections of funds by the bank Reason: NSF checks are subtracted from the book balance. Reason: Deposits outstanding should be added to the bank balance. Reason: Outstanding checks are subtracted from the bank balance.

The framework for designing an internal control system is provided by the

Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Which of the following items are included in cash?

Currency and coins Balance in checking accounts Checks from customers

Melon Corp. noticed that a check written by the company for $2,100 for advertising expense was incorrectly recorded in the accounting records as $1,200. What needs to be recorded to correct this error?

Debit Advertising Expense $900; credit Cash $900.

In a bank reconciliation, which of the following items does not need to be recorded to adjust the company's cash balance?

Deposit outstanding

True or false: All companies are required to have an independent auditor assess the adequacy of their internal control procedures.

False Reason: Companies that are listed on stock exchanges must have their internal control procedures audited. Other companies may choose to have internal control audits.

True or false: Internal controls prevent and detect all errors and fraud.

False Reason: Internal controls can fail because of human error or fraud.

Who has final responsibility for internal controls?

Management

Rice Corp. noticed that a check written by the company for utility expense in the amount of $1,000 was incorrectly recorded by the bank as $1,100. What entry needs to be recorded to correct this error?

No entry is required on the company's books.

Which of the following items will require a journal entry following a bank reconciliation? (Select all that apply.)

Notes collected by the bank NSF checks

Which of the following are provisions included in the Sarbanes-Oxley Act?

Require that audit firms are hired by the audit committee of the board of directors. Require auditors to retain work papers for 7 years.

The requirement that companies must document internal controls and assess their adequacy is required by the

Sarbanes-Oxley Act, Section 404.

Which of the following allows greater reliance by investors on reported financial statements?

Strong internal control systems

What would cause a bank statement not to agree with the cash balance in the accounting records?

The bank paid interest that the company has not recorded. The bank made an error in recording a deposit made by the company. The company made an error in recording a deposit. Deposits outstanding that have been recorded on the company's records, but not on the bank's.

Which of the following are errors in accounting for cash?

The bank processing a check for $210 as $120. Recording a check for $168 for $186 in the cash account. Recording a cash collection of $4,000 but depositing $3,000 into the bank.

Who is responsible for providing an opinion on management's assessment of internal control?

The company's auditors

In a bank reconciliation, a deposit outstanding is

added to the bank balance.

In a bank reconciliation, interest revenue earned on a company's bank account is:

added to the company's cash balance

In a bank reconciliation, the electronic funds transfer (EFT) received by the bank from a customer's note receivable owed to the company is ______.

added to the company's cash balance

A check that is NSF (nonsufficient funds) is a check that

cannot be paid because the account does not contain enough funds.

Currency, coins, and checking accounts are considered cash, whereas short-term highly liquid investments of 3 months or less are considered

cash equivalents.

Short-term, highly liquid investments such as money market funds or treasury bills are classified as

cash equivalents.

The asset that is most susceptible to employee fraud is

cash.

Largo Corp. discovered $2,000 for an NSF check in its bank reconciliation. When the cash account is updated for items that affect the company's cash balance, the entry will include

credit Cash, $2,000.

Smith Company has a discrepancy of $50 at the end of the bank reconciliation. Smith has come to the conclusion that $50 of cash went missing somewhere. The journal entry to record this discrepancy includes:

debit miscellaneous expense $50 credit cash $50

In a bank reconciliation, an outstanding check is ______.

deducted from the bank balance Reason: Outstanding checks have already been subtracted from the book's balance but have not yet been subtracted from bank's balance. Thus the outstanding checks must be subtracted from the bank's balance on the reconciliation.

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for

designing an internal control system.

Which of the following effectively mitigate the natural risks of running any business without being capable of completely eliminating the risk? (Select all that apply.)

ethical employees effective internal control

An intentional error by an employee that results in theft is referred to as a ______.

fraud

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as

internal controls.

The acronym NSF stands for

nonsufficient funds.

If a bank reconciliation included a deposit outstanding of $670, the company's entry for this reconciling item would include:

nothing; the deposit has already been recorded

The three elements present in the fraud triangle are:

opportunity motive rationalization

Two types of control activities are

preventive and detective controls.

Internal control consists of plans to (Select all that apply.)

provide accurate and reliable accounting information. safeguard company assets.

Klein Company's accountant is unable to reconcile the current year bank and cash account balances. If no cause can be determined to explain this difference, the difference should be

recognized as miscellaneous expense or revenue.

The key provisions of the Sarbanes-Oxley Act include

requiring that corporate executives certify financial statements. requiring documentation and assessing effectiveness of internal controls. restricting activities of auditors to prevent conflicts of interest.

Because managers are entrusted with company resources by both lenders and owners, they are referred to as:

stewards

Managers who are entrusted with taking care of the assets of the company are referred to as ______ of the company's assets.

stewards

Independent financial statement audits are most commonly required of:

stock exchange listed companies

Section 404 of the Sarbanes Oxley Act requires management and auditors to document and assess

the company's internal control procedures.

A bank reconciliation compares the company's cash records with the bank statement and discovers differences in those amounts due to

timing differences and errors.

A non-sufficient funds check requiring an adjustment to the cash balance was written:

to the company preparing the bank reconciliation