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Questions
Q:
A voucher system establishes procedures for verifying, approving, and recording obligations for eventual cash disbursement.
Q:
The clerk who has access to the cash in the cash register should not have access to the cash register tape or file.
Q:
If the Cash Over and Short account has a debit balance at the end of the period, the amount is reported as miscellaneous revenue.
Q:
Controls of cash disbursements are important for companies as most large thefts occur from payment of fictitious invoices.
Q:
A good voucher system includes a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.
Q:
A company had $12,000 in accounts receivable and $320,000 in net sales for the current period. Its days' sales uncollected is equal to 13.7 days.
Q:
When evaluating the days' sales uncollected ratio, generally the less time that money is tied up in receivables often translates into increased profitability.
Q:
The days' sales uncollected ratio is calculated by dividing accounts receivable by net sales and multiplying this quotient by 365.
Q:
The days' sales uncollected ratio reflects the liquidity of accounts receivable.
Q:
The days' sales uncollected ratio measures a company's ability to manage its debt.
Q:
On a bank statement, deposits are listed as debits because the bank increases its cash account when the deposit is made.
Q:
Internal control devices for banking activities include signature cards, deposit tickets, checks, and bank statements.
Q:
A check involves three parties: the maker who signs the check, the payee who is the recipient, and the bank on which the check is drawn.
Q:
Canceled checks are a way to confirm what the bank has paid and deducted from the customer's account during the period.
Q:
Electronic funds transfer (EFT) is the use of electronic communication transfer of cash from one party to another.
Q:
The payee is the person who signs a check and authorizes payment.
Q:
Basic bank services such as bank accounts, bank deposits, and checking contribute to the control and safeguarding of cash.
Q:
Money orders, cashier's checks, and certified checks are examples of cash equivalents.
Q:
Liquidity refers to a company's ability to pay its short-term obligations.
Q:
Separation of duties divides responsibility for a transaction or a series of transactions between two or more individuals or departments. Separation of duties reduces the risk of error and fraud.
Q:
Collusion is when a person embezzles money from a company and tries to hide the evidence.
Q:
Two important limitations of internal control systems are (1) human error or human fraud and (2) cost-benefit.
Q:
Internal control in technologically advanced accounting systems depends more on the design and operation of the information system and less on the analysis of its resulting documents.
Q:
Technologically advanced accounting systems do not need monitoring for errors because computers always process transactions correctly.
Q:
Once a good system of internal control is in place, it rarely needs review.
Q:
Good internal control dictates that a person who controls an asset should also maintain the accounting records for that asset.
Q:
Bonding does not discourage employees from stealing from the company as employees know that bonding is an insurance policy against loss from theft.
Q:
Internal control systems used to monitor and control operations are a low priority for managers within the company.
Q:
Technology such as cash registers, check protectors, time clocks, and personal identification scanners can increase the strength of internal controls.
Q:
Proper internal control means that the responsibility for a task is clearly established and assigned to one person.
Q:
Maintaining adequate business records is an important internal control principle.
Q:
Internal control policies and procedures are the same for all companies.
Q:
The use of internal controls provides guaranteed protection against losses due to operating activities.
Q:
A properly designed internal control system is a key part of accounting information systems design, analysis, and performance.
Q:
Cash and Internal Controls
Q:
The internal document that is used to notify the appropriate person that ordered goods have been received and to describe the quantities and condition of the goods is the____________________.
Q:
The document that is an itemized statement of goods prepared by the vendor listing the customer's name, items sold, sales prices, and terms of the sale is the __________________________.
Q:
The document the purchasing department sends to the vendor that is used to place an order is the __________________________.
Q:
The internal document that is prepared by a department manager to inform the purchasing department of its needs is called the ________________________.
Q:
A customer's check is deposited by a company. The check is uncollectible because the balance in the customer's account is not large enough to cover the check. This check is referred to as a __________ check.
Q:
After preparing a bank reconciliation, a company must prepare journal entries to adjust the book balance to the correct balance. Only the items reconciling the _____________ balance require adjustment.
Q:
A ____________ is a report explaining any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement.
Q:
_______________________ are deposits made and recorded by the depositor but not yet recorded on the bank statement.
Q:
________________________ are checks written (or drawn) by the depositor, deducted on the depositor's records and sent to the payee, but not yet recorded by the bank for payment at the bank statement date.
Q:
A _____________________________ fund is used for the control of small amounts of cash disbursements.
Q:
A ________ is an internal document (or file) that is used to accumulate information to control cash disbursements.
Q:
The _________________ account is used to record the effects of cash overages and shortages from errors in making change.
Q:
The ________________ ratio reflects the liquidity of a company's accounts receivable.
Q:
On a bank statement, deposits are shown as __________________, because the depositor's account is a liability on the bank's records.
Q:
_________________________ is the electronic transfer of cash from one party to another.
Q:
A ________ is a document signed by the depositor instructing the bank to pay a specified amount of money to a designated recipient.
Q:
________________________ refers to a company's ability to pay for its short-term obligations.
Q:
________________ includes currency, coins, and amounts on deposit in checking accounts and many savings accounts.
Q:
____________ are short-term, highly liquid investment assets that are readily convertible to a known amount of cash.
Q:
Having external auditors test the company's financial records and evaluate the effectiveness of the internal control system is part of the internal control principle of ________________________.
Q:
A person who controls or has access to an asset must not keep that asset's accounting records. This refers to the internal control principle of ________________________.
Q:
A sales system with prenumbered, controlled sales slips is an example of the internal control principle of _______________________.
Q:
Two sales clerks should not share the same cash register. This refers to the internal control principle of _______________________.
Q:
An employee is __________ when a company purchases an insurance policy against losses from theft by that employee.
Q:
An internal control system refers to the policies and procedures managers use to __________, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.
Q:
A company established a petty cash fund in May of the current year and experienced the following transactions affecting the fund during May:
May 1 Establish petty cash account in the amount of $300.
May 5 Paid for miscellaneous office supplies in the amount of $53.22.
May 9 Reimbursed Human Resource Manager for business lunch, $45.09.
May 15 Paid for minor landscaping services, $75.
May 22 Paid $65.00 for postage.
May 31 Counted remaining cash and discovered that $56.34 remained.
The company decided to increase the petty cash balance to $450. Prepare the journal entry to increase the fund on May 31.
Q:
A company established a petty cash fund in May of the current year and experienced the following transactions affecting the fund during May:
May 1 Establish petty cash account in the amount of $300.
May 5 Paid for miscellaneous office supplies in the amount of $53.22.
May 9 Reimbursed human resource manager for business lunch, $45.09.
May 15 Paid for minor landscaping services, $75.
May 22 Paid $65.00 for postage.
May 31 Counted remaining cash and discovered that $56.34 remained.
Prepare the journal entry to reimburse the fund on May 31.
Q:
A company established a petty cash fund in May of the current year and experienced the following transactions affecting the fund during May:
May 1 Establish petty cash account in the amount of $300.
May 5 Paid for miscellaneous office supplies in the amount of $53.22.
May 9 Reimbursed human resource manager for business lunch, $45.09.
May 15 Paid for minor landscaping services, $75.00.
May 22 Paid $65.00 for postage.
May 31 Counted remaining cash and discovered that $56.34 remained.
Prepare the journal entry to establish the fund on May 1.
Q:
Highlight Hotel deposits all cash receipts on the day when they are received and it makes all cash payments by check. At the close of business on December 31, its Cash account shows a $18,393, debit balance. Highlight Hotel's June 30 bank statement shows $15,921 on deposit in the bank. Prepare the necessary adjusting journal entries using the following information: Outstanding checks as of December 31 total $2,261. The December 31 bank statement included a $35 debit memorandum for bank services. Check No. 2519, listed with the canceled checks, was correctly drawn for $850 in payment of a utility bill on December 16. Highlight Hotel mistakenly recorded it with a debit to Utilities Expense and a credit to Cash in the amount of $805. The December 31 cash receipts of $3,425 were placed in the banku2019s night depository after banking hours and were not recorded on the December 31 bank statement. The bank statement included a check from a customeru2019s payment of an account receivable that had been returned NSF in the amount of $1,228. Prepare the necessary adjusting journal entries.
Q:
The following information is available for the Edwards Company for its March 31 bank reconciliation:
From the March 31 bank statement: Previous Balance
Total Checks and Debits
Total Deposits and Credits
Current Balance $10,908
$7,805
$11,905
$15,008 Checks and Debits
Deposits and Credits
Daily Balance Date
No.
Amount Date
Amount Date
Amount 03/03
2874
1,210 03/02
4,340 03/01
10,908 03/11
2906
3,850 03/27
7,270 03/02
15,248 03/15
2905
170 03/31
295
IN
03/03
14,038 03/25
2910
725 03/11
10,188 03/29
2908
1,350 03/15
10,018 03/30 500
NSF 03/25
9,293 03/27
16,563 03/29
15,213 03/30
14,713 03/31
15,008 NSF: A check from a customer, Cook Co. in payment of their account.
IN: Interest earned on the account.
From the Edwards Company's accounting records: Cash Receipts Deposited
Cash Disbursements Date Cash Debit
Check No.
Cash Credit March
7
4,340
2905
170 27
7,270
2906
3,850 31
2,090
2907
460 13,700
2908
1,350 2910
725 2911
340 6,895 Cash
Acct. No. 101 Date
Explanation
PR
Debit
Credit February
28
Balance 9,698 March
31
Total receipts
R4
13,700 23,398 31
Total disbursements
D5 6,895
16,503 a. Based on the above information, prepare a bank reconciliation for the Edwards Company.
b. Prepare the necessary general journal entries to adjust cash to the reconciled balance.
Q:
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 customer's check for $100 marked NSF was returned to Brown Company by the bank. In addition, the bank charged the company's account 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 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.
(a) Prepare a bank reconciliation as of September 30.
(b) Prepare any necessary adjusting journal entries necessary as a result of the bank reconciliation.
Q:
Based on the following information, prepare the general journal entries Avisa must make at November 30.
The following information is available for the Avisa Company for the month of November:
a. On November 30, after all transactions have been recorded, the balance in the company's Cash account has a balance of $27,202.
b. The company's bank statement shows a balance on November 30 of $29,279.
c. Outstanding checks at November 30 include check #3030 in the amount of $1,525 and check #3556 in the amount of $1,459.
d. A credit memo included with the bank statement indicates that the bank collected $780 on a noninterest-bearing note receivable for Avisa. The bank deducted a $10 collection fee and credited the remainder of $770 to Avisa's account.
e. A debit memo included with the bank statement shows a $67 NSF check from a customer, J. Brown.
f. A deposit placed in the bank's night depository on November 30 totaled $1,675 and did not appear on the bank statement.
g. Examination of 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.
Q:
Based on the following information, prepare the November bank reconciliation for the Avisa Company.
The following information is available for the Avisa Company for the month of November:
a. On November 30, after all transactions have been recorded, the balance in the company's Cash account has a balance of $27,202.
b. The company's bank statement shows a balance on November 30 of $29,279.
c. Outstanding checks at November 30 include check #3030 in the amount of $1,525 and check #3556 in the amount of $1,459.
d. A credit memo included with the bank statement indicates that the bank collected $780 on a noninterest-bearing note receivable for Avisa. The bank deducted a $10 collection fee and credited the remainder of $770 to Avisa's account.
e. A debit memo included with the bank statement shows a $67 NSF check from a customer, J. Brown.
f. A deposit placed in the bank's night depository on November 30 totaled $1,675 and did not appear on the bank statement.
g. Examination of 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.
Q:
Following are seven items (a) through (g) that would cause Xavier 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 that was mailed to the bank on the last day of the current month and is unrecorded on this month's bank statement.
e. A check paid by the bank at its correct $190 amount was recorded in error in the company's Check Register at $109.
f. An unrecorded credit memorandum indicated that bank had collected a note receivable for Xavier Company and deposited the proceeds in the company's account.
g. A check was written in the current period that is not yet paid or returned by the bank. Indicate where each item (a) through (g) would appear on Xavier Company's bank reconciliation by placing its identifying letter in the parentheses in the proper section of the form below. Bank Statement Cash Balance Book Balance of Cash Add:
( ) Add:
( ) ( ) ( ) ( ) ( ) ( ) ( ) Deduct:
( ) Deduct:
( ) ( ) ( ) ( ) ( ) ( ) ( ) Reconciled balance Reconciled balance
Q:
A company established a petty cash fund in February of the current year and experienced the following transactions affecting the fund during February: Feb.
1
Established a $250 petty cash fund. 5
Paid $55 to acquire office supplies. 8
Reimbursed the company controller for $30 spent on beverages for recruits. 18
Paid $45 for postage. 20
Paid $65 for C.O.D. charges on merchandise inventory. 25
Paid $50 for janitorial services. 28
When sorting the petty cash receipts to replenish the fund, the custodian noted that there was $245 in receipts and $10 cash remaining. Also, a decision was made to reduce the fund to $200 in total. Prepare the journal entry to reimburse the fund and to reduce its amount on February 28.
Q:
A company established a $400 petty cash fund by issuing a check to the custodian on October 1. On October 15, the petty cash fund was replenished and increased to $1,000 in total. The contents of the petty cash fund at the time of the October 15 replenishment were: Currency and coins $ 12 Petty cash receipts for: Transportation-in for inventory
$ 39 Delivery expense
138 Repairs to office equipment
47 Postage
114 Entertainment of customers
53
391 Total $ 403 Prepare the general journal entry to record both the reimbursement and the increase of the petty cash fund on October 15.
Q:
A company established a petty cash fund of $100 on September 1. On September 10, the petty cash fund was replenished when there was $16 remaining and there were petty cash receipts for: office supplies, $27; courier, $32; and postage, $22. On September 15, the petty cash fund was increased to $125 in total. Record the above transactions in general journal form.
Q:
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.
Q:
A company reported net sales for Year 1 of $285,000 and $575,000 for Year 2. The year-end balances of accounts receivable were $49,000 for Year 1 and $85,000 for Year 2. Calculate the days' sales uncollected at the end of each year for this company and describe any changes in the apparent liquidity of the company's receivables.
Q:
Hasbro had $2,816 million in sales and $555 million in ending accounts receivable for the current period. For the same period, Mattel reported $4,885 million in sales and $491 million in ending accounts receivable. Calculate the days' sales uncollected for both companies as of the end of the current period. Which company is doing a better job in managing the collection of its receivables?
Q:
At the end of the current period, a company reported $475,000 in net credit sales and $75,000 in ending accounts receivable. Calculate this company's days' sales uncollected at the end of the current period.
Q:
Michael Inwald of CHEESEBOY maintains a system of internal controls and managing cash. Identify some of these internal controls and explain how they contribute to the success of the company.
Q:
What are the checks that must be completed prior to the completion of invoice approval and voucher preparation?
Q:
Discuss the purpose of a bank reconciliation.
Q:
What is the purpose of the petty cash account?