W07 Study: Chapter 06 Smart Book

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 deposits in transit 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

Identify the bank reconciliation items that would require adjustments to the book balance. (Check all that apply.)

Bank charges Collection of note by bank Interest earned NSF check

Determine which of the items below would show up on a monthly bank statement. (Check all that apply.)

Beginning-of-period balance in the account End-of-period balance in the account Deposits and other credits increasing the account during the period Checks and other debits decreasing the account during the period

Explain how depositors can check for errors by completing the following sentence. Error testing includes (a) comparing deposits on the bank statement with deposits in the __________________(accounting/sales/customer) records and (b) comparing ____________________(outstanding/canceled) checks on the bank statement with ______________(checks/deposits) recorded in the accounting records.

Blank 1: accounting Blank 2: canceled Blank 3: checks

Describe the internal control principle of separating recordkeeping from custody of assets by completing the following sentence. A person who ___________________________(identifies/controls/recommends) or has access to an asset must ___________________(always/not/) keep that asset's accounting records.

Blank 1: controls Blank 2: not

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

Blank 1: error Blank 2: fraud

The electronic transfer of cash from one party to another is called electronic ____________ TRANFER

Blank 1: funds

Contrast how a depositor's account is classified by a bank compared to how it is classified by the account owner by completing the following sentence. A depositor's account is a(n) _____________________(liability/asset/expense) on the bank's records, but it is a(n) _________________________(liability/asset/expense) on the books of the account owner. Because of this, every time the account owner makes a deposit, the bank ______________________________(debits/credits) the account owner's account.

Blank 1: liability Blank 2: asset Blank 3: credits

Contrast how a depositor's account is classified by a bank compared to how it is classified by the account owner by completing the following sentence. A depositor's account is a(n) ______________________(liability/asset/expense) on the bank's records, but it is a(n) __________________(liability/asset/expense) on the books of the account owner. Because of this, every time the account owner makes a deposit, the bank ___________________(debits/credits) the account owner's account.

Blank 1: liability Blank 2: asset Blank 3: credits

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.

Blank 1: report Blank 2: checking Blank 3: bank

The internal control of ___________________ of duties means that the responsibility for a transaction should be divided between two or more individuals.

Blank 1: separation or segregation

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.

Blank 1: task Blank 2: established

An ID scanner is a type of _______________ control.

Blank 1: technological or technology

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

Cash deposits made by the account owner

Review the items below and determine which would cause a decrease in the monthly bank statement balance.

Checks written by the account owner

eview the items below and determine which would cause a decrease in the monthly bank statement balance.

Checks written by the account owner

Determine which of the items below would appear in the Checks and Debits column of a bank statement and would cause a decline in the account's balance. (Check all that apply.)

Checks written by the account owner Monthly service fees charged by the bank A customer's NSF check ATM withdrawals

What is the purpose of internal controls?

Companies create internal controls to protect assets and ensure reliable accounting.

Recall the preparation of a bank reconciliation by selecting the correct items below. (Check all that apply.)

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

Demonstrate the required adjusting entry needed to record a $1,000 note receivable collected by the bank by choosing the correct entry below

Debit Cash $1,000 and credit Notes Receivable $1,000.

Demonstrate the required adjusting entry needed to record a $1,000 note receivable collected by the bank by choosing the correct entry below.

Debit Cash $1,000 and credit Notes Receivable $1,000.

Determine which of the items below would appear in the Deposits and Credits column of a bank statement and would cause an increase in the account's balance. (Check all that apply.)

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

Determine which of the statements below accurately describe services provided by a bank. (Check all that apply.)

Each bank deposit is supported by a deposit ticket. A bank account is a record set up by a bank for a customer. To withdraw money from an account, the depositor can use a check.

Identify the principles of internal control by selecting the correct answers below. (Check all that apply.)

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

Which statement below describes the internal control procedure of insuring assets and bonding key employees?

Insuring assets against casualty and bonding employees who handle cash, reduces risk of loss.

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

Interest earned

Choose the items below that would be added to the book balance on a bank reconciliation. (Check all that apply.)

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

Determine which of the items below would appear in the Deposits and Credits column of a bank statement and would cause an increase in the account's balance. (Check all that apply.)

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

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.

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

Choose the items below that would be subtracted from the book balance on a bank reconciliation. (Check all that apply.)

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

Choose the items below that would be added to the book balance on a bank reconciliation. (Check all that apply.)

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

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

ONE PERSON

Choose the statement below which is correct regarding which bank reconciliation items require adjusting journal entries.

Only the items reconciling the book balance require adjustment.

Which of the following are principles of internal control? (Check all that apply.)

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

Which of the following are correct regarding why management uses internal controls? (Check all that apply.)

Protect assets. Promote efficient operations. Uphold company policies. Ensure reliable accounting.

The triple threat of fraud involves:

Rationalization, Opportunity, Pressure

Which of the statements below explains the internal control principle of performing regular and independent reviews?

Regular reviews of internal control systems are needed to ensure that procedures are followed.

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below. (Check all that apply.)

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.

How has the Sarbanes-Oxley Act (SOX) impacted the internal control of companies? (Check all that apply.)

SOX requires that auditors verify internal controls. SOX requires that the company have effective internal controls.

Recall the preparation of a bank reconciliation by selecting the correct items below. (Check all that apply.)

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

True or false: An owner of a small business usually knows if the business is receiving the assets and services the company paid for.

TRUE

Which of the statements below describes the internal control principle of applying technological controls?

Technological controls, such as time clocks and cash registers, improve the effectiveness of controls.

Which of the statements below explains how technology has impacted internal control systems? (Check all that apply.)

Technology has reduced the number of processing errors. Technology has encouraged the growth of e-commerce, so there is a higher risk of credit card number theft. Technology can be designed to require the use of password before access to the system is granted. Technologically advanced systems can record who made entries, the date and time of the entry and the source of the entry.

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.

Review the statements below to determine the correct definition of a debit memorandum.

The bank notifies the depositor of each deduction to the account with a debit memorandum.

Review the statements below to determine the correct definition of a credit memorandum.

The bank notifies the depositor of each increase to the account with a credit memorandum.

Determine which of the statements below is correct regarding information reflected on a monthly bank statement. Multiple choice question.

The information on the bank statement reflects the bank's records of the depositor's account.

Describe the internal control principle of dividing responsibility for related transactions by selecting the correct statements below. (Check all that apply.)

This principle is often called separation of duties. Examples of transactions with divided responsibility are placing inventory orders and paying vendors. This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction.

What is the purpose of internal controls?

To help managers know if the business is receiving the assets and services it has paid for.

True or false: An owner of a small business usually knows if the business is receiving the assets and services the company paid for.

True

Sarbanes-Oxley allows for the following penalties for violators:

Up to 25 years in prison with fines

Determine the statements below that are true regarding why a bank reconciliation is used. (Check all that apply.)

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. 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.

The formula to compute days' sales uncollected is:

accounts receivable divided by net sales times 365

An electronic funds transfer involves

an electronic (not paper) transfer of cash.

Regular and independent reviews should be done by _____.

auditors not directly involved in the activities

A more secure type of accounting ledger is called ____________ ledger.

blockchain

Bonding employees who handle cash is important because it:

discourages employee theft

A blockchain ledger is more secure because: (Check all that apply).

it is continuously updated. it is continuously verfied. it is difficult to modify the ledger without a detailed record of changes.

Good recordkeeping helps protect assets and helps managers:

monitor company activities

Each of the following are types of technological impacts related to internal control:

more extensive testing of records separation of duties new evidence of processing reduced processing errors

A person who has access to an asset must _____ access to that asset's accounting records.

not have

True or false: Bank errors must be accounted for in the bank reconciliation.

true

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 false question.

true