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Exam 8: Cash and Internal Controls

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Question 91

True/False

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A voucher is an internal document or file used to accumulate information to control cash disbursements and to ensure that a transaction is properly recorded.

A) True
B) False

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Question 92

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

A) Added to the book balance of cash.
B) Deducted from the book balance of cash.
C) Added to the bank balance of cash.
D) Deducted from the bank balance of cash.
E) Ignored in preparing the period's bank reconciliation.

F) B) and C)
G) B) and D)

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Question 93

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A voucher system's control over cash disbursements begins when a company incurs an obligation that will result in eventual payment of cash.

On August 17, at the end of the day, the cash register's record shows $957, but the count of cash in the register is $965. Prepare the general journal entry to record the day's cash sales.

The _________________ account is used to record the effects of cash overages and shortages from errors in making change.

Brown Company's bank statement for September 30 showed a cash balance of $1,350. The company's Cash account in its general ledger showed a $995 debit balance. The following information was also available as of September 30. a. A $125 debit memoranda is included with the bank statement and dealt with a customer's check for $100 marked NSF and returned to Brown Company by the bank. In addition, the bank charged the company's a $25 processing fee. b. The September 30 cash receipts, $1,250, were placed in the bank's night depository after banking hours on that date and this amount did not appear on the September 30 bank statement. c. A $15 debit memorandum for checks printed by the September 30 bank was included with the canceled checks. d. Outstanding checks amounted to $1,145. e. A customer's note for $900 was collected by the bank. A collection fee of $25 was deducted by the bank and the difference was deposited in the account. f. Included with the canceled checks was a check for $275, drawn on another company, Browne Inc. 1. Prepare a bank reconciliation as of September 30. 2. Prepare any necessary adjusting journal entries necessary as a result of the bank reconciliation.

The voucher system of control:

Vouchers should be used only for purchases. Other expenditures do not need to go through the voucher system.

When two clerks share the same cash register it is a violation of which internal control principle?

The number of days' sales uncollected:

The voucher register is a journal that is used to record approved vouchers.

When evaluating the days' sales uncollected ratio, generally the less time that money is tied up in receivables the better.

For each of the independent cases below, identify the principle of internal control that is violated, and recommend what should be done to remedy the violation. 1. In order to save money, Regal Company has decided to drop its property insurance on assets; and stop bonding the cashiers who handle about $10,000 in cash each day. 2. Halton Company records each sale on a preprinted invoice. Since sometimes invoices are damaged in the process of being prepared, the invoices are not prenumbered, but the sales clerk writes the next number onto each invoice. 3. Marion Company is a very small business. Bob Lepley, one of the two office clerks, opens the mail each day and removes the cash receipts that come in the mail. Bob then records the receipts in the cash records and the customer's account and deposits the cash in the bank. 4. Gerald McNichols, the owner of McNichols Company prides himself on hiring only the most competent employees. McNichols believes that since these employees are highly competent and to show that he trusts them completely, he feels there is no need for anyone to check up on the employees' performance. 5. Service Products is a small business with only 3 accounting employees. Each employee is well-trained and so can perform any of the accounting tasks, including handling cash receipts and cash disbursements, and preparing the bank reconciliation.

A bank statement includes:

The journal entry for petty cash reimbursement involves a debit to the appropriate expenses and a credit to Petty Cash.

Fraud does not include collusion, which is necessary to thwart separation of duties.

Which of the following procedures would weaken control over cash receipts that arrive through the mail?

A company records 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 following information is taken from Hogan Company's December 31 balance sheet: If net credit sales and cost of goods sold for the current year were $612,000 and $367,200, respectively, the firm's days' sales uncollected for the year is:

A purchase requisition is a document the purchasing department sends to the vendor to place an order.