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Exam 7: Sarbanes-Oxley, Internal Control, and Cash

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Question 41

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For strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees.

A) True
B) False

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Question 42

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In preparing a bank reconciliation, the amount indicated by a credit memo for a note receivable collected by the bank is added to the balance per company's records.

A) True
B) False

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Question 43

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A payment system that uses computerized electronic impulses to effect a cash transaction is called electronic funds transfer (EFT).

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

The cash account in the company's ledger is a(n)

The following procedures were recently implemented at the Health Station, Inc. For each procedure, indicate whether the internal control over cash represents (1) a strength or (2) a weakness. If it is a weakness, please explain why. (a) All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts. (b) The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer's office for approval. (c) At the end of each day, all cash receipts are placed in the bank's night depository. (d) The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.

A voucher is usually supported by

Groceries R Us, Inc. reported the following date in it's December 31, 2011 annual report. (1) What is the company's "cash burn" per month? (2) What is the company's ratio of cash to monthly cash expenses? (3) Interpret the ratio you computed in part 2. What are the implications for Groceries R Us, Inc.?

Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the control procedure: separating operations, custody of assets, and accounting.

The petty cash fund eliminates the need for a bank checking account.

There are three parties to a check. The drawer is

A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice being paid.

Accompanying the bank statement was a debit memo for bank service charges. What entry is required in the company's accounts?

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 invoices 243, 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 sudden increase in slow payments. REQUIRED: Part A: What kind of warning signs could be associated with these issues? Part B: What control could you put in place regarding cash refunds mentioned in Part A (2)?

Accompanying the bank statement was a debit memo for an NSF check received from a customer. This item would be included on the bank reconciliation as a(n)

A $100 petty cash fund contains $91 in petty cash receipts, and $4.75 in currency and coins. The journal entry to record the replenishment of the fund would include a

A $140 petty cash fund has cash of $20 and receipts of $117. The journal entry to replenish the account would include a credit to

Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation, the item is

There are two internal control objectives and they are to ensure accurate financial reports, and ensure compliance with applicable laws.

A business that requires all cash payments be made by check can not use a petty cash system.