Principle Accounting 7, 8, 9, 10, 11

Which of the following statements about Visa credit card sales is incorrect?

Two parties are involved

Control account

account in the general ledger that summarizes subsidiary ledger data.

Depreciation is a process of:

cost allocation

general ledger account

credited when the account is not shown in a special column

subsidiary ledger account

credited when the entry involves a collection of accounts receivable

If a customer returns goods for credit, the selling company normally makes an entry in the:

general journal

To expedite journalizing and posting, most companies use special journals

in addition to the general journal.

The department that should pay the payroll is the

treasurer's department

correcting, adjusting, and closing entries are recorded in the general journal

use a special journal to record these transactions

Which of the following is not an advantage of computerized accounting systems?

Computerized accounting systems eliminate entering of transaction information

Physical controls do not include:

Independent bank reconciliations are not a physical control.

Which of the following is incorrect concerning subsidiary ledgers?

The purchases ledger is a common subsidiary ledger for creditor accounts

Which of the following statements is correct?

The sales discount column is included in the cash receipts journal.

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:

bank service charges. an adjusting entry must be made when the statement is received

In exchanges of assets in which the exchange has commercial substance

both gains and losses are recognized immediately

RS Company borrowed $70,000 on December 1 on a 6-month, 6% note. At December 31:

both the note payable and the interest payable are current liabilities

Two common Subsidiary Ledgers are

accounts receivable and accounts payable

Receivables are frequently classified as:

accounts receivable, notes receivable, and other receivables

At the beginning of the month, the accounts receivable subsidiary ledger showed balances for Apple Company $5,000 and Berry Company $7,000. During the month, credit sales were made to Apple $6,000, Berry $4,500, and Cantaloupe $8,500. Cash was collected on account from Berry $11,500 and Cantaloupe $3,000. At the end of the month, the control account Accounts Receivable in the general ledger should have a balance of:

$16,500

Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales Revenue is

$4,300

Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is:

$55,000

Use the same information as in Question 9.3, except that Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. In this situation, the amount of bad debt expense that should be reported for the year is:

$65,000

Buehler Company on June 15 sells merchandise on account to Chaz Co. for $1,000, terms 2/10, n/30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler Company. On June 24, payment is received from Chaz Co. for the balance due. What is the amount of cash received?

$686

Special journal to record sales on account has a number of advantages

(1) Not necessary to write out the four account titles for each transaction. (2) Totals only are posted to the general ledger. (3) One individual take responsibility sales journal.

Prove the ledgers

(1) The total of the general ledger debit balances must equal the total of the general ledger credit balances. (2) The sum of the subsidiary ledger balances must equal the balance in the control account.

2 steps in petty cash fund

(1) appointing a petty cash custodian who will be responsible for the fund (2) determining the size of the fund.

Imprest system for petty cash involves

1) establishing the fund 2) making payments from the fund 3) replenishing the fund

Determining the payroll involves computing three amounts

(1) gross earnings (2) payroll deductions (3) net pay

Gross earnings

Total compensation earned by an employee.

Salaries

Employee pay based on a specified amount rather than an hourly rate

The current ratio is computed as:

current assets divided by total liabilities

Working capital is calculated as:

current assets minus current liabilities

Postings from the purchases journal to the subsidiary ledger are generally made:

daily

Employer payroll taxes do not include

federal income taxes

A purchase of equipment on account is recorded in the:

general journal

A contingent liability should be recorded in the accounts when

it is probable the contingency will happen, and the amount can be reasonably estimated.

If a transaction cannot be recorded in a special journal, the company records it in the general journal.

it would record purchase returns and allowances that do not affect cash in the general journal

Mandatory deductions are required by

law, consist of FICA taxes and income taxes

The time period for classifying a liability as current is one year or the operating cycle, whichever is:

longer

To be classified as a current liability, a debt must be expected to be paid within:

one year, the operating cycle, whichever is longer

When recording payroll

payroll deductions are recorded as liabilities

The basic principles of an accounting information system include all of the following except

periodicity

Internal control

provide reasonable assurance regarding the achievement of company objectives related to operations, reporting, and compliance.

Postings are also made daily to individual ledger accounts in the inventory subsidiary ledger to maintain a perpetual inventory.

some accounts monthly instead of daily

Cash payments (cash disbursements) journal

special journal that records all disbursements of cash.

Purchases journal

special journal that records all purchases of merchandise on account.

Sales journal

special journal that records all sales of merchandise on account.

Manual accounting system

system in which someone performs each of the steps in the accounting cycle by hand.

When companies use special journals:

they record all cash disbursements in the cash payments journal

Promissory note

written promise to pay a specified amount of money on demand or at a definite time.

The petty cash receipt satisfies 2 internal control principles

1) establishment of responsibility (signature of custodian) (2) documentation procedures.

Fraud

1)Asset misappropriation 2)Corruption 3)Financial statement fraud

Special Journals 1)Collected cash on account from Oakland Company. 2)Purchased equipment by signing a note payable. 3)Sold merchandise on account. 4)Purchased merchandise on account. 5)Paid $2,400 for a 2-year insurance policy. Identify the journal in which each of the transactions above is recorded.

1)Collected cash on account from Oakland Company, Cash receipts journal 2)Purchased equipment by signing a note payable, General journal 3)Sold merchandise on account, Sales journal 4)Purchased merchandise on account, Purchases journal 5)Paid $2,400 for a 2-year insurance policy, Cash payments journal

Special journals 1)Received credit for merchandise purchased on credit. 2)Payment of employee wages. 3)Sales discount taken on goods sold. 4)Income summary closed to owner's capital. 5)Purchase of office supplies for cash. 6)Depreciation on building. 7)Purchase of merchandise on account. 8)Return of merchandise sold for credit. 9)Payment of creditors on account. 10)Collection on account from customers. 11)Sale of merchandise on account. 12)Sale of land for cash. 13)Sale of merchandise for cash.

1)General journal 2)Cash payments journal 3)Cash receipts journal 4)General journal 5)Cash payments journal 6)General journal 7)Purchases journal 8)General journal 9)Cash payments journal 10)Cash receipts journal 11)Sales journal 12)Cash receipts journal 13)Cash receipts journal

Replenishing the petty cash fund involves 3 internal control procedures

1)segregation of duties, 2)documentation procedures, 3)independent internal verification.

Listed five procedures by Viel Company. 1. Total cash receipts are compared to bank deposits daily by Vonda Marshall, who receives cash over the counter. 2. Employees write down hours worked and turn in the sheet to the cashier's office. 3. As a cost-saving measure, employees do not take vacations. 4. Only the sales manager can approve credit sales. 5. Three different employees are assigned one task each related to inventory: ship goods to customers, bill customers, and receive payment from customers.

1. Weak Independent internal verification 2. Weak Physical controls 3. Weak Human resource controls 4. Good Establishment of responsibility 5. Good Segregation of duties

6 principles of control activities

1. establishment of responsibility 2. segregation of duties 3. documentation procedures 4. physical controls 5. independent internal verification 6. human resource controls

Oliveras Company had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in accounts receivable at the beginning of the year was $100,000, and the end of the year it was $150,000. What were the accounts receivable turnover and the average collection period in days?

6.4 and 57 days. The accounts receivable turnover is 6.4 [$800,000/($100,000 + $150,000)/2)]. The average collection period in days is 57 days (365/6.4).

perpetual inventory system

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.

Dishonored (defaulted) note

A note that is not paid in full at maturity

One of the following statements about promissory notes is incorrect. The incorrect statement is:

A promissory note is not a negotiable instrument

Cash receipts journal

A special journal that records all cash received.

Cash receipts journal includes an Accounts Receivable column and an Other Accounts column. At the end of the month, these columns are posted to the general ledger as:

Accounts Receivable -a column total, Other Accounts-individual amounts; The Accounts Receivable column would be posted to the general ledger as a column total, and the Other Accounts column would be posted as individual amounts.

Wages

Amounts paid to employees based on a rate per hour or on a piecework basis

Which of the following items in a cash drawer at November 30 is not cash?

An NSF check should not be considered cash.

At August 31, Saladino Company has the following bank information: cash balance per bank $5,200, outstanding checks $1,462, deposits in transit $1,211, and a bank debit memo $110. Determine the adjusted cash balance per bank at July 31.

Cash balance per bank $5,200, Add: Deposits in transit 1,211 Total 6,411 Less: Outstanding checks 1,462, Adjusted cash balance per bank $4,949

Which of the following statements correctly describes the reporting of cash?

Cash is listed first in the current assets section

Which of the following was not a result of the Sarbanes-Oxley Act?

Companies must file financial statements with the Internal Revenue Service. Filing financial statements with the IRS is not a result of the Sarbanes-Oxley Act (SOX); SOX focuses on the prevention or detection of fraud.

Bonus

Compensation to management and other personnel, based on factors such as increased sales or the amount of net income

A sales journal will be used for:

Credit Sales-yes ,Cash Sales-no, Sales Discounts-no. The cash receipts journal is used for cash sales and sales discounts.

A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $4 in cash. In recording the check, the company should

Debit Cash Over and Short for $2. When this check is recorded, the company should debit Cash Over and Short for the shortage of $2 (total of the receipts plus cash in the drawer ($98) versus $100

Cash receipts journal includes

Debit columns for Cash & Sales Discounts Credit columns for Accounts Receivable, Sales Revenue & Other Accounts.

A single-column purchases journal needs only to be footed to prove the equality of debits and credits.

Debit to Inventory and a Credit to Accounts Payable

Under the perpetual inventory system

Debits Cost of Goods Sold Credits Inventory for the cost of the merchandise sold

Payroll deductions

Deductions from gross earnings to determine the amount of a paycheck

In a bank reconciliation, deposits in transit are

Deposits in transit are added to the bank balance on a bank reconciliation

The use of prenumbered checks in disbursing cash is an application of the principle of

Documentation procedures. The use of prenumbered checks in disbursing cash is an application of the principle of documentation procedures.

Which statement is incorrect regarding the general journal?

Dual postings are always required in the general journal

Which of the following control activities is not relevant when a company uses a computerized (rather than manual) accounting system?

Establishment of responsibility, segregation of duties, and independent internal verification are all relevant to a computerized system.

Permitting only designated personnel to handle cash receipts is an application of the principle of

Establishment of responsibility. Permitting only designated personnel to handle cash receipts is an application of the principle of establishment of responsibility

The control features of a bank account do not include:

Having bank auditors verify the correctness of the bank balance per books is not one of the control features of a bank account.

Special journals

Journals that record similar types of transactions, such as all credit sales.

The principles of internal control do not include

Management responsibility is not one of the principles of internal control.

On May 31, Tyler's petty cash fund of $200 is replenished when the fund contains $7 in cash and receipts for postage $105, freight-out $49, and miscellaneous expense $40. Prepare the journal entry to record the replenishment of the petty cash fund.

Mar. 20 Postage Expense 105, Freight-Out 49, Miscellaneous Expense 40, CR Cash 193, CR Cash Over and Short 1

Fees

Payments made for the services of professionals.

Daily postings Accounts payable ledger

Postings to subsidiary ledger accounts are done daily to know current balance

Sarbanes-Oxley Act (SOX)

Regulations passed by Congress to try to reduce unethical corporate behavior.

hich of the following statements is false?

Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent

An organization uses internal control to enhance the accuracy and reliability of accounting records and to:

Safeguarding assets is one of the purposes of using internal control.

Which of the following is not an additional fringe benefit?

Salaries

Which of the following is not an element of the fraud triangle

Segregation of duties is not an element of the fraud triangle

FICA taxes

Taxes designed to provide workers with supplemental retirement, employment disability, and medical benefits

Maker

The party in a promissory note who is making the promise to pay

Which of the following is incorrect concerning the posting of the cash receipts journal?

The totals of all columns are posted daily to the accounts specified in the column heading

Indicate which of the following statements is true

Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements.

Zian Company has the following cash balances: Cash in Bank $18,762, Payroll Bank Account $8,000, Petty Cash $150, and Plant Expansion Fund Cash $30,000 to be used 2 years from now. Explain how each balance should be reported on the balance sheet.

Zian Company should report Cash in Bank, Payroll Bank Account, and Petty Cash as current assets (usually combined as one Cash amount). Plant Expansion Fund Cash should be reported as a noncurrent asset, assuming the fund is not expected to be used during the next year.

Additions to plant assets are:

capital expenditures

Accounts and notes receivable are reported in the current assets section of the balance sheet at:

cash (net) realizable value

Petty cash fund

cash fund used to pay relatively small amounts.

A purchase of equipment using cash is recorded in the

cash payments journal