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Exam 8: Internal Control and Cash

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Question 31

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 32

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The bank reconciliation

A) should be prepared by an employee who records cash transactions
B) is part of the internal control system
C) is for information purposes only
D) is sent to the bank for verification

E) A) and B)
F) All of the above

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Question 33

Multiple Choice

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Internal control does not consist of policies and procedures that

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

The control environment in an internal control structure is the overall attitude of management and employees about the importance of internal control.

Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300.This item would be included on the bank reconciliation as a (n)

The amount of the outstanding checks is included on the bank reconciliation as a (n)

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

Which of the following reflects a weak internal control system?

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.

During a bank reconciliation process,

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

Using the following information,prepare a bank reconciliation for Miller Co.for August 31:

For each of the following,explain whether the issue would require you to prepare a journal entry for your company,assuming any original entry is correct.If an entry is required,please include it as part of your answer. (1) The bank recorded your deposit as $91 rather than the actual amount of $191. (2) Two outstanding checks amounted to $450. (3) Company Check No.538 for postage was recorded incorrectly by the company bookkeeper as $50 instead of $59. (4)The bank paid a check for $500 after the company had issued a stop payment and voided the check. (5)An EFT deposit was made by one of the company's customers,Atlas Design,for merchandise received.Thesale had previously been recorded when shipped and was equal to the payment amount of $125.

Groceries R Us,Inc.reported the following data in its annual report.​Cash and cash equivalents $2,280,000Cash flow from operations (240,000)​Required (a)What is the company's "cash burn" per month? (b)What is the company's ratio of cash to monthly cash expenses? (c)Interpret the ratio you computed in part b. What are the implications for Groceries R Us, Inc.?

A compensating balance occurs when a bank may require a company to maintain a maximum cash balance.

When the petty cash fund is replenished,the petty cash account is credited for the total of all expenditures made since the fund was last replenished.

Which of the following is not an element of internal control?

Consider the following information from the cash account.Assume cash payments were 84% of collections.How much was the beginning balance of the cash account?

You began your new job as the accountant at Bolivar Industries during the month of December.During your first month,you found several interesting issues.1)While looking through the invoices,you found Invoices 213-242,245-271,and 275-290.It appears that invoices243,244,272,273,and 274 are missing.2)During the month,Clerk # 3 issued $250 in refunds as compared to Clerks #1,#2,and #4 who issued less than$50 each.3)The daily cash receipts and bank deposits reconcile,except on Tuesdays during the month.4)Business is generally brisk during the holiday season,but two weeks before Christmas there was a suddenincrease in slow payments.Required (a)What kind of warning signs could be associated with these issues? (b)What control could you put in place regarding cash refunds mentioned in (a) (2)?