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Exam 8: Cash and Internal Controls

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Question 111

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Match the following terms with the appropriate definition.

Premises

Responses

Cash

The set of policies and procedures managers use to monitor and control business activities.

Cash equivalent

The supplier (seller) of goods or services.

Check protector

An expense used under the net method of accounting for purchases resulting from failure to take advantage of cash discounts offered.

Discounts lost

Currency, coins, and amounts on deposit in bank accounts.

Liquid assets

An asset such as cash that can be readily used to settle near-term obligations.

Internal control system

Regulation requiring public companies to document and certify their system of internal controls.

Sarbanes-Oxley Act

An internal document listing the goods needed by a department and requesting that the goods be purchased.

Vendor

Short-term, highly liquid investments that are readily convertible to a known cash amount and are sufficiently close to their maturity date so that the market value is not sensitive to interest rate changes.

Purchase requisition

A bill sent from the supplier to the buyer.

Invoice

A device that perforates the amount of a check into its face, making it

Premises

Cash

Cash equivalent

Check protector

Discounts lost

Liquid assets

Internal control system

Sarbanes-Oxley Act

Vendor

Purchase requisition

Invoice

Responses

The set of policies and procedures managers use to monitor and control business activities.

The supplier (seller) of goods or services.

An expense used under the net method of accounting for purchases resulting from failure to take advantage of cash discounts offered.

Currency, coins, and amounts on deposit in bank accounts.

An asset such as cash that can be readily used to settle near-term obligations.

Regulation requiring public companies to document and certify their system of internal controls.

An internal document listing the goods needed by a department and requesting that the goods be purchased.

Short-term, highly liquid investments that are readily convertible to a known cash amount and are sufficiently close to their maturity date so that the market value is not sensitive to interest rate changes.

A bill sent from the supplier to the buyer.

A device that perforates the amount of a check into its face, making it

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Correct Answer

Premises

Responses

Cash

Cash equivalent

Check protector

Discounts lost

Liquid assets

Internal control system

Sarbanes-Oxley Act

Vendor

Purchase requisition

Invoice

Premises

Cash

Cash equivalent

Check protector

Discounts lost

Liquid assets

Internal control system

Sarbanes-Oxley Act

Vendor

Purchase requisition

Invoice

Responses

Question 112

Multiple Choice

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Review Later

The internal document prepared to notify the appropriate persons that goods ordered have been received, describing the quantities and condition of the goods is the:

A) Purchase requisition.
B) Invoice.
C) Purchase order.
D) Invoice approval.
E) Receiving report.

Correct Answer

verified

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Question 113

True/False

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Basic bank services such as bank accounts, bank deposits, and checking contribute to the control of cash.

The days' sales uncollected ratio measures the liquidity of accounts receivable.

Discuss how the principles of internal control apply to cash receipts through the mail by giving several examples of good control measures that should be implemented.

The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared.

The days' sales uncollected ratio measures a company's ability to manage its debt.

The means of recording purchases under the assumption that the cash discount for prompt payment ^{will be taken is called the ________}.

Following are seven items a through g that would cause Rembrandt Company's book balance of cash to differ from its bank statement balance of cash. a. A service charge imposed by the bank. b. A check listed as outstanding on the previous period's reconciliation and still outstanding at the end of this month. c. A customer's check returned by the bank is marked "Not Sufficient Funds (NSF)". d. A deposit mailed to the bank on the last day of the current month and not recorded on this month's bank statement. e. A check paid by the bank at its correct $190 amount recorded in error in the company's check register at $109. f. An unrecorded credit memorandum indicating that bank collected a note receivable for Rembrandt Company and deposited the proceeds in the company's account. g. A check written in the current period that is not yet paid or returned by the bank. Indicate where each item, letters a-g, would appear on Rembrandt Company's bank reconciliation by placing its identifying letter in the parentheses in the proper section of the form below. $\begin{array} { | l | l | l | l | } \hline \text { Bank statement cash balance } & & \text { Book balance of cash } & \\\hline \text { Add: } & 0 & \text { Add: } & 0 \\\hline & 0 & & 0 \\\hline \text { Deduct: } & 0 & & 0 \\\hline & 0 & \text { Deduct: } & 0 \\\hline & 0 & & 0 \\\hline & 0 & & 0 \\\hline \text { Reconciled balance } & &\text { Reconciled balance } & \\ \hline\end{array}$

The following information is available for the Savvy Company for the month of June. a. On June 30, after all transactions have been recorded, the balance in the company's Cash account has a balance of $17,202. b. The company's bank statement shows a balance on June 30 of $19,279. c. Outstanding checks at June 30 total $2,984. d. A credit memo included with the bank statement indicates that the bank collected $770 on a noninterest-bearing note receivable for Savvy. e. A debit memo included with the bank statement shows a $67 NSF check from a customer, J. Maroon. f. A deposit placed in the bank's night depository on June 30 totaling $1,675 did not appear on the bank statement. g. Comparing the checks on the bank statement with the entries in the accounting records reveals that check #3445 for the payment of an account payable was correctly written for $2,450, but was recorded in the accounting records as $2,540. h. Included with the bank statement was a debit memorandum in the amount of $25 for bank service charges. It has not been recorded on the company's books. 1. Prepare the June bank reconciliation for the Savvy Company. 2. Prepare the general journal entries to bring the company's book balance of cash into conformity with the reconciled balance as of June 30.

Human fraud is driven by the triple-threat of fraud: Opportunity, collusion, and rationalization.

A credit memorandum on a bank statement indicates:

Clearly establishing responsibilities and assigning all accounting activities to one person is an important principle of internal control.

The internal document prepared by a department manager that informs the purchasing department of its merchandise needs and requests that the merchandise be purchased is the:

Outstanding checks, deposits in transit, deductions for bank fees, additions for interest, and errors are all factors that can cause the bank statement balance for a checking account to be different from the company's checking account balance.

The following information is available for the Topper Company for the month of July. a. On July 31, after all transactions have been recorded, the balance in the company's Cash account has a balance of $15,244. b. The company's bank statement shows a balance on July of $16,450. c. Outstanding checks at July total $2,063. d. A credit memo included with the bank statement indicates that the bank collected $570 on a note receivable for Topper. The $570 includes $550 principle and $20 interest. e. A debit memo included with the bank statement shows a $107 NSF check from a customer, P. Flank. f. A deposit placed in the bank's night depository on July 31 totaling $1,275 did not appear on the bank statement. h. Included with the bank statement was a debit memorandum in the amount of $45 for check printing charges that have not been recorded on the company's books. Prepare the July bank reconciliation for the Topper Company.

A company had net sales of $21,500 and ending accounts receivable of $2,700 for the current period. Its days' sales uncollected equals: (Use 365 days a year.)

Great Falls Co.'s bank reconciliation as of February 28 is shown below. $\begin{array} { | l | r | l | r | } \hline \text { Bank balance } & \$ 37,643 & \text { Book balance } & \$ 38,153 \\\hline \text { + Deposit in transit } & 2,950 & \text { Note collection } & + 745 \\\hline \text { - Outstanding checks } & - 1,730 & \text { Check printing } & - 3 5 \\\hline \text { Adjusted bank balance } & \$ 38,863 & \text { Adjusted book balance } & \$ 38,863 \\\hline\end{array}$ One of the adjusting journal entries that Great Falls must record as a result of the bank reconciliation includes:

Insuring assets and requiring all accounting personnel to have CPA licenses are two important principles of internal control.

Havermill Co. establishes a $250 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $73 for Office Supplies, $137 for merchandise inventory, and $22 for miscellaneous expenses. The fund has a balance of $18. On October 1, the accountant determines that the fund should be increased by $50. - The journal entry to record the establishment of the fund on September 1 is: