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Exam 8: Cash and Internal Controls

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Question 61

True/False

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The Petty Cash account is a separate bank account used for small amounts.

A) True
B) False

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Question 62

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A bank reconciliation explains any differences between the balance of a checking account on the depositor's records and the balance reported on the bank statement.

A) True
B) False

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Question 63

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Two clerks sharing the same cash register is a violation of which internal control principle?

The entry to establish a petty cash fund includes:

When evaluating the days' sales uncollected ratio, generally the higher the receivables balance, the better the ratio.

Akron Company purchased merchandise inventory costing $10,000 with credit terms of 2/10, n/30 on March 7. On March 15, the company paid 1/2 of the amount due. The remaining balance was paid on April 7. Required: a. Record the journal entries related to this transaction using the gross method of recording purchases. b. Record the journal entries related to this transaction using the net method of recording purchases.

A bank does not issue a debit memorandum to notify the depositor of which of the following?

A voucher system is a set of procedures and approvals:

Liquidity refers to a company's ability to pay its long-term obligations.

A voucher is an internal document or file:

Match each of the followin internal control principle with the applicable transactions that is being violated listed.

If a check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period, in preparing this period's reconciliation, the amount of this check should be:

The following information is available to reconcile Dibble Co.'s book balance of cash with its bank statement cash balance as of April 30. The April 30 cash balance according to the accounting records is $68,356, and the bank statement cash balance for that date is $73,525. a. The bank erroneously cleared a $480 check against the account in April that was not issued by Dibble. The check documentation included with the bank statement indicates the check was actually issued by Flushing Co. b. On April 30, the bank issued a credit memorandum for $53 interest earned on Dibble's account. c. When the April checks are compared with entries in the accounting records, it is found that Check No. 1828 had been correctly drawn for $1,530 to pay for advertising but was erroneously entered in the accounting records as $1,350. 105 d. A credit memorandum indicates that the bank collected $10,000 cash on a note receivable for Dibble, deducted a $30 collection fee, and credited the balance to the company's Cash account. Dibble did not record this transaction before receiving the statement. e. A debit memorandum of $895 is enclosed with the bank statement for an NSF check for $870 received from a customer. The bank assessed a $25 fee for processing it. f. Dibble's April 30 daily cash receipts of $5,102 were placed in the bank's night depository on that date, but do not appear on the April 30 bank statement. g. Dibble's April 30 cash disbursements journal indicates that Check No. 1837 for $584 and Check No. 1840 for $1,219 were both written and entered in the accounting records, but are not among the canceled checks. 1. Prepare the bank reconciliation for this company as of April 30. 2. Prepare the journal entries necessary to bring the company's book balance of cash into conformity with the reconciled cash balance as of April 30.

A company records purchase invoices at net amounts. On March 5, the company recorded merchandise purchased, invoice price $17,000, terms 2/15, n/60. On March 24, this company discovered that the invoice had been incorrectly filed and the discount had been lost. The invoice was paid on April 1. Prepare journal entries to record these events.

The impact of technology on internal controls includes:

Clayborn Company' bank reconciliation as of May 31 is shown below. $\begin{array} { | l | r | l | r | } \hline \text { Bank balanee } & \$ 15,800 & \text { Book balance } & \$ 17,025 \\\hline \text { + Deposit in transit } & 5,200 & \text { Bank service fees } & - 25 \\\hline \text { - Outstanding checks } & - 4,600 & \text { NSF returned } & \underline { - 600 } \\\hline \text { Adjusted bank balanes } & \$ 16,400 & \text { Adjusted book balance } & \$ 16,400 \\\hline\end{array}$ One of the adjusting journal entries that Clayborn must record as a result of the bank reconciliation includes:

Cash equivalents meet all of the following criteria except:

Outstanding checks, deposits in transit, and bank service charges are added to the beginning balance of the bank statement to determine the adjusted bank balance.

All of the following are considered effective cash management principles except:

Internal control in technologically advanced accounting systems depends less on the design and operation of the information system and more on the analysis of its resulting documents.