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Exam 7: Internal Control and Cash

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Question 1

True/False

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A backlog in recording transactions is an example of a warning sign from the accounting system.

A) True
B) False

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Question 2

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In establishing a petty cash fund, a check is written for the amount of the fund and is recorded as a debit to Accounts Payable and a credit to Petty Cash.

A) True
B) False

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Question 3

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A bank reconciliation should be prepared

A debit or credit memo describing entries in the company's bank account may be enclosed with the bank statement. An example of a credit memo is

A voucher is a written authorization to make a cash payment.

The bank reconciliation is an important part of the system of internal controls.

The last custodian of the petty cash fund was hospitalized and you have been asked to take stock of the fund and replenish it. When you receive the fund, it has $299 in cash and receipts as follows: The petty cash fund was established to have $800 in it. Based on what you have found, what journal entry should be recorded to replenish the fund? Record any missing funds in the cash short and over account.

Assign the letter to indicate whether the following items would be added to or subtracted from the company's books or the bank statement during the construction of a bank reconciliation.a.added to the company's books b.subtracted from the company's books c.added to the bank statement balance d.subtracted from the bank statement balance -a $1,000 note from one of your customers was collected by the bank

The amount of deposits in transit is included on the bank reconciliation as a(n)

Cash equivalents include

List and define each of the five elements of internal control.

You began your new job as the accountant for Morton Company. You were surprised to find that the company had a $2,000 petty cash fund, which sits in the break room. The president of the company told you: "Our petty cash system here works quite smoothly. Since everyone is honest here, everyone has access to the fund for incidentals that might pop up in the course of the business day. Most of these situations don't have any receipts tied to them, so I just put the money back in the fund when my secretary tells me that we have run out of petty cash and we debit the amount to Miscellaneous Expense." (a) Should you implement some controls on petty cash? Why? (b) If so, what controls could be used for petty cash?

The actual cash received during the week ended October 31 for cash sales was $23,447 and the amount indicated by the cash register total was $23,457. Journalize the entry to record the cash receipts and cash sales.

Assign the letter to indicate whether the following items would be added to or subtracted from the company's books or the bank statement during the construction of a bank reconciliation.a.added to the company's books b.subtracted from the company's books c.added to the bank statement balance d.subtracted from the bank statement balance -deposit in transit

The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date.

Cash equivalents

Match each item to a bank statement adjustment, a company books adjustment, or either. -Interest revenue A)bank statement adjustment B)company books adjustment C)either

Assign the letter to indicate whether the following items would be added to or subtracted from the company's books or the bank statement during the construction of a bank reconciliation.a.added to the company's books b.subtracted from the company's books c.added to the bank statement balance d.subtracted from the bank statement balance -bank service charge

Two features of internal control are presented in the following sections. Each is followed by a list of four irregularities that occurred in processing data. Identify the one irregularity from each list that would be discovered or prevented by the feature of internal control described.(a)The sum of the balances of the accounts in the customer's ledger is compared at the end of each month with the balance of the accounts receivable account in the general ledger by a person who has no responsibility for maintaining either the general ledger or the customers ledger.(1)Five hours of services were rendered but the customer was only billed for four hours.(2)A cash receipt of $750 was recorded correctly in the accounts receivable controlling account but was posted to the customer's ledger as $75.(3)A bill for services rendered to Cole Co. was erroneously posted to the account of Coleman Co. in the customer's ledger.(4)No entry was made in the accounting records for services rendered to a customer.(b)Both cash and credit charges for services rendered are recorded on prenumbered invoices. At the end of the day, all invoices are accounted for before the duplicate copies of the invoices are routed to the accounting department for entry into the accounts and the cash is sent to the cashier's department for deposit.(1)Some charge customers complained that the monthly statements of account did not add all amounts correctly.(2)Some clerks used incorrect hourly rates in preparing invoices.(3)Some clerks destroyed duplicate copies of cash invoices and misappropriated the cash.(4)Some charge customers complained that the monthly statement of account did not indicate credits for payments made.

Why would a bank require a company to maintain a compensating balance?