Fundamentals of Financial Accounting 5Th Canadian Edition By Fred Phillips -Test Bank

Fundamentals of Financial Accounting 5Th Canadian Edition By Fred Phillips -Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 05

Fraud, Internal Control, and Cash

 

 

True / False Questions

1. Employee fraud is grouped into three categories: corruption, asset misappropriation, and financial statement fraud.
   TRUE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define fraud and internal control.
Topic: 05-01 Fraud

2. Internal controls include the policies and procedures a company implements to protect against theft of assets, to promote efficiency, and to ensure compliance with laws and regulations.
   TRUE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define fraud and internal control.
Topic: 05-03 Internal Control

3. The three elements of the fraud triangle are: means, opportunity, and incentives
   FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define fraud and internal control.
Topic: 05-01 Fraud

 

 

4. Incentives for engaging in fraud can be divided into two categories: creating business opportunities and satisfying personal greed.
   TRUE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define fraud and internal control.
Topic: 05-01 Fraud

5. Internal controls, if properly implemented, can eliminate the opportunity for fraud.
   FALSE

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-01 Define fraud and internal control.
Topic: 05-01 Fraud

6. Those who willfully misrepresent financial results now face fines of up to $10 million and maximum jail sentences of 25 years.
   FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-02 Changes to Corporate Governance in Canada

7. Five common principles of internal control are: establish responsibility, segregate duties, restricted access, document procedures, and independently verify.
   TRUE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define fraud and internal control.
Topic: 05-03 Internal Control

8. Internal control will always detect fraud.
   FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-07 Control Limitations

9. Cash reported on the balance sheet includes cash deposited in the bank but not cash equivalents.
   FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-05 Explain the reporting of cash.
Topic: 05-24 Reporting Cash

10. Restricted cash is not reported separately on the balance sheet.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-05 Explain the reporting of cash.
Topic: 05-25 Restricted Cash

11. Cash equivalents are short-term highly liquid investments purchased within 6 months of maturity.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-05 Explain the reporting of cash.
Topic: 05-24 Reporting Cash

12. EFT (electronic funds transfer) discovered on the bank statement do not require adjustments.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-14 Cash paid to Employees via Electronic Funds Transfer

13. The internal control principle of establishing responsibility occurs when one employee is made responsible for all parts of a process.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define fraud and internal control.
Topic: 05-06 Principles of Control Activities

14. The primary goal of internal controls for cash receipts is to ensure that the business pays only for properly authorized transactions.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Topic: 05-09 Controls for Cash Receipts

15. The primary internal control goal for cash receipts is to ensure that the business receives the appropriate amount of cash and safely deposits it in the bank.
    TRUE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Topic: 05-09 Controls for Cash Receipts

16. NSF (Not Sufficient funds) cheques are deducting from the balance per book when conducting bank reconciliation.
    TRUE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

17. A voucher system is a process for approving and documenting all purchases and payments on account.
    TRUE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Topic: 05-12 Controls for Cash Payments

18. The purchasing, receiving, and bill payment duties are amalgamated to ensure that the company obtains and pays only for the goods or services that have been properly authorized.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Topic: 05-12 Controls for Cash Payments

19. An imprest system is a process that controls the amount paid to others by limiting the total amount of money available for making payments to others.
    TRUE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Topic: 05-12 Controls for Cash Payments

20. An imprest payroll system is one example of how banking procedures can fail to help a company control its cash
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Topic: 05-12 Controls for Cash Payments

21. A bank reconciliation is an internal report prepared to verify the accuracy of both the cash account of a business or individual and the bank statement.
    TRUE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

22. After preparing a bank reconciliation, no adjusting journal entries need to be made for outstanding cheques or deposits in transit.
    TRUE

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

23. If a company’s records show a different cash balance from that shown on the company’s bank statement, either the company or the bank has made an error.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

24. An employee authorized to sign cheques may record cash disbursement transactions.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Topic: 05-06 Principles of Control Activities

25. NSF cheques are recorded as accounts payable.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

26. Deposits are listed on the bank statement in the order in which the company receives them.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-18 Bank Statement

27. Time lags are uncommon and the way to properly account for them will depend on whether a company is following IFRS or ASPE.
    FALSE

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

 

 

 

Multiple Choice Questions

28. What has been the main thrust of recent changes in the financial reporting rules following the financial scandals of Enron, Worldcom, etc.?
    A.To improve internal control over companies’ financial reporting.
    B. To add to the work of the companies’ external accountants.
    C. To force the companies’ to disclose more of their internal information.
    D. To provide incentives to increase their net income.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-01 Define fraud and internal control.
Topic: 05-02 Changes to Corporate Governance in Canada

29. Segregation of duties means that a company assigns responsibilities so that:
    A.sufficient workers are available to cover all necessary jobs.
    B. responsibilities for related activities are assigned to two or more people.
    C. employees are restricted to jobs for which they have adequate training.
    D. workers are divided into those who make decisions and those who carry them out.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-06 Principles of Control Activities

30. Internal controls are concerned with:
    A.only manual systems of accounting.
    B. the extent of government regulations.
    C. protecting against theft of assets and enhancing the reliability of accounting information.
    D. preparing income tax returns.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-03 Internal Control

31. The internal control principle related to separating employees’ duties so that the work of one person can be used to check the work of another person is called:
    A.duplication of responsibility.
    B. independent internal verification.
    C. segregation of duties.
    D. rotation of duties.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-06 Principles of Control Activities

32. Which of the following is not stated as a primary objective of a company’s internal control policies and procedures?
    A.The proper recording and authorization of transactions.
    B. The maintenance of adequate records.
    C. The prevention or detection of unauthorized activities involving a company’s records.
    D. The provision of current information for outside investors and analysts.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-03 Internal Control

33. The main purposes of internal controls include:
    A.prevention of error, theft, and fraud.
    B. promotion of efficiency.
    C. ensuring compliance with laws and regulations.
    D. all of the answers are acceptable.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-03 Internal Control

34. Your company makes a bank deposit of $857 in its chequing account. Which of the following describes how this transaction should be accounted for?
    A.You add $857 to your recorded cash balance and the bank deducts $857 from your chequing account balance.
    B. You deduct $857 from your recorded cash balance and the bank deducts $857 from your chequing account balance.
    C. You add $857 to your recorded cash balance and the bank adds $857 to your chequing account balance.
    D. You deduct $857 from your recorded cash balance and the bank adds $857 to your chequing account balance.

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

35. Your company writes a cheque for $967. Which of the following describes how this transaction should be accounted for?
    A.You add $967 to your recorded cash balance and the bank deducts $967 from your chequing account balance.
    B. You deduct $967 from your recorded cash balance and the bank deducts $967 from your chequing account balance.
    C. You add $967 to your recorded cash balance and the bank adds $967 to your chequing account balance.
    D. You deduct $967 from your recorded cash balance and the bank adds $967 to your chequing account balance.

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

36. Before reconciling to its bank statement, Lauren Cosmetics Corporation’s general ledger had a month-end balance in the cash account of $5,250. The bank reconciliation for the month contained the following items:

    
    

Deposits in transit	$750
Outstanding cheques	$465
Interest earned	$20
NSF cheque returned to bank	$100
Bank service charge	$10

Given the above information, what adjusted cash balance should Lauren report at month-end?
A. $4,500
B. $4,820
C. $5,160
D. $5,590

Up-to-date ending cash balance = Ending cash balance per books + interest earned – NSF cheque – bank service charges.
$5,250 + $20 – $100 – $10 = $5,160.

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

37. The following information was available to the accountant of Horton Company when preparing the monthly bank reconciliation:

Outstanding cheques:	#643 for $502
	#651 for $43
Bank service charges	$25
Deposits in transit	$190
Interest received from bank	$5
Customer cheque returned by bank as NSF	$20
Cash balance per bank statement	$975
Cash balance per books (prior to reconciliation)	$660

 

The amount of cash that should appear on the balance sheet following completion of the reconciliation and adjustment of the accounting records is:
A. $660
B. $640
C. $620
D. $305

Cash on balance sheet = Cash per bank + Deposits in transit – Outstanding cheques
$975 + $190 – ($502 + $43) = $620 or, Cash on balance sheet = Cash per books + Interest received from bank – NSF checks – Bank service charges. $660 + $5 – $20 – $25 = $620.

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

38. All of the following bank reconciliation items would result in an adjusting journal entry on the company’s books except:
    A. interest earned.
    B. deposits in transit.
    C. service charge.
    D. a customer’s cheque returned NSF.

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

39. Notification by the bank that a customer’s deposited cheque was returned NSF requires that the company make the following adjusting journal entry:
    A.Debit accounts receivable, credit cash
    B. Debit cash, credit accounts receivable
    C. Debit bank charges expense, credit accounts receivable
    D. No adjusting entry required.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

40. DigDug Corporation had outstanding cheques totalling $5,400 on its June bank reconciliation. In July, DigDug issued cheques totalling $38,900. The July bank statement shows that $26,300 in cheques cleared the bank in July. The amount of outstanding cheques on DigDug’s July bank reconciliation should be:
    A.$12,600.
    B. $18,000.
    C. $5,400.
    D. $7,200.

Remaining outstanding cheques = Outstanding cheques + additional cheques issued – cheques cleared
$5,400+38,900-26,300 = $18,000.

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

41. Deposits in transit:
    A.have been recorded by the company but not yet by the bank.
    B. have been recorded by the bank but not yet by the company.
    C. have not been recorded by the bank or the company.
    D. are customers’ cheques that have not yet been received by the company.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

42. Which of the following bank reconciliation items would not result in an adjusting journal entry in the company’s books?
    A.Service charge.
    B. Outstanding cheques.
    C. A customer’s cheque returned NSF.
    D. Interest earned on deposits.

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

43. Which of the following items on a bank reconciliation would require an adjusting journal entry on the company’s books?
    A.An error by the bank.
    B. Outstanding cheques.
    C. A bank service charge.
    D. A deposit in transit.

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

44. On October 31, 2018, your company’s records say that the company has $16,451.03 in its chequing account. A review of the bank statement shows you have three outstanding cheques total-ling $5,643.01, and the bank has paid you interest of $12.19 and charged you $9.00 in fees. The bank statement dated October 31, 2018 would report a balance of:
    A.$22,090.85.
    B. $10,811.21.
    C. $22,097.23.
    D. $16,454.22

$16,451.03 + $12.19 – $9 = $16,454.22 would be the adjusted balance per company books.
The bank statement would show an unadjusted balance of $16,454.22 + $5,643.01 = $22,097.23.

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

45. On October 31, 2018, the bank’s records say that your company has $12,956.73 in its chequing account. You are aware of three outstanding cheques for a total of $2,112.19. During October 2018, the bank rejected two deposited cheques from customers totalling $654.19 because of insufficient funds and charged you $12.00 in service fees. You had not yet received notice about the bad cheques, but you were aware of and have recorded the $12.00 of service fees. Prior to adjustment on October 31, 2018, your Cash account would have a balance of:
    A.$14,402.73.
    B. $15,711.11.
    C. $11,498.73.
    D. $10,202.35.

Unadjusted balance per books = $12,956.73 – $2,112.10 + $654.19 = $11,498.73.

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

46. When preparing this month’s bank reconciliation, you find that you failed to record a $95 deposit for a payment you received from a customer. You immediately prepare a journal entry to record the deposit. Which of the following describes the actions to be taken when preparing next month’s bank reconciliation?
    A.You must decrease the balance per bank by $95.
    B. You must increase the balance per bank by $95.
    C. You must increase the balance per books by $95.
    D. No further action is necessary.

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

47. Which of the following situations would cause the balance per bank to be less than the balance per books?
    A.Interest payments made by the bank.
    B. Cheques from customers returned as NSF.
    C. Outstanding cheques.
    D. All of the answers are acceptable.

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

48. Which of the following situations would cause the balance per bank to be more than the balance per books?
    A.Deposits in transit.
    B. Service charges.
    C. Outstanding cheques.
    D. Cheques from customers returned as NSF.

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

49. When you identify outstanding cheques in performing a bank reconciliation, you must:
    A.deduct the amount of the outstanding cheques from the balance per books.
    B. deduct the amount of the outstanding cheques from the balance per bank.
    C. add the amount of the outstanding cheques to the balance per books.
    D. add the amount of the outstanding cheques to the balance per bank.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

50. When you identify interest received from the bank in performing a bank reconciliation, you must:
    A.add the amount of interest to the balance per bank.
    B. deduct the amount of interest from the balance per books.
    C. add the amount of interest to the balance per books.
    D. deduct the amount of interest from the balance per bank.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

51. When a company makes a sale and accepts a credit card payment from a customer, the company:
    A.debits Cash.
    B. credits Accounts Receivable.
    C. credits Cash.
    D. debits Accounts Receivable.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Topic: 05-09 Controls for Cash Receipts

52. Which of the following is/are true?
    A.The primary goal of internal controls for cash payments is to ensure that the business pays all transactions.
    B. The primary internal control goal for cash receipts is to ensure that the business receives the appropriate amount of cash and safely deposits it in the bank.
    C. The operating cycle is a series of activities that a company undertakes to generate returns and, ultimately, revenues.
    D. All of the choices are correct.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-07 Control Limitations.
Topic: 05-09 Controls for Cash Receipts

53. Cash on the balance sheet does not include:
    A.Cash in the bank
    B. Petty Cash
    C. Short-term investments
    D. Cash equivalent

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-05 Explain the reporting of cash.
Topic: 05-24 Reporting Cash

54. According to the changes in financial reporting which of the following is required to communicate with the external auditors and ensure that they are able to effectively perform their work?
    A.Board of directors
    B. Audit committee of the board of directors
    C. Audit committee of the management
    D. CEO and corporate officers

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-02 Changes to Corporate Governance in Canada

55. In addition to examining the company’s financial statements and report whether they were presented fairly without any misstatement what else is required of the external auditors by the recent changes in financial reporting?
    A.To report any financial misstatements or irregularities to the press
    B. To review and test the effectiveness of the company’s internal controls
    C. To review and test the effectiveness of the company’s board of directors
    D. To review and test the effectiveness of the company’s marketing department

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-02 Changes to Corporate Governance in Canada

56. Fraud investigators refer to what elements as being part of the fraud triangle?
    A.Motive, incentive, opportunity.
    B. Incentive, opportunity, rationalize behavior.
    C. Motive, means, rationalize behavior.
    D. Means, motive, opportunity.

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Topic: 05-01 Fraud

 

 

Short Answer Questions

57. You have received the bank statement for your company’s account and need to reconcile it with your cash account. Your records show an ending balance for the month of $12,722.40 while the bank’s records show an ending balance of $12,367.16.
    The bank charged $8 in service fees and paid $26.05 in interest. All but three cheques written during the month were processed by the bank without incident during the month. The three exceptions were:

    1) Check #841 was correctly processed by the bank as $981.27 but was mistakenly recorded by you as $781.27.
    2) Check #853 for $64.57 had not yet been processed by the bank.
    3) Check #855 for $683.46 had not yet been processed by the bank.

    All but two of the deposits made during the month were processed by the bank without incident. The two exceptions were:

    1) A customer cheque for $307.95, which had been deposited during the month, was returned NSF.
    2) A deposit totalling $613.37 had not yet been processed by the bank.

    Using the information provided above, prepare a bank reconciliation.

Bank Statement		Company’s Books
Ending cash balance per bank		Ending cash balance per books	$12,722.40
Statement	$12,367.16
Additions		Additions
Deposit in transit	613.37	Interest received from the bank	26.05
	12,980.53		12,748.45
Deductions		Deductions
Outstanding cheques	64.57	NSF cheque	307.95
	683.46	Bank service fees	8.00
		Error correction	200.00
Ending correct cash balance	$12,232.50	Ending correct cash balance	$12,232.50

 

 

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

58. For each of the following events, match the event with the section of the bank reconciliation in which it is listed, if at all, and indicate the operation performed.

	Section		Operation
B	Bank Statement	A	Addition to this section
C	Company’s Books	D	Deduction from this section
N	Neither	N	No impact

 

	Section	Operation	Event
1.			Your company enters an $18.67 cheque as a $13.67 cheque.
2.			Your company has a deposit in transit.
3.			The bank pays interest on your account.
4.			Your company writes six cheques that clear the bank.
5.			Your company has written two cheques which have not cleared the bank.
6.			The bank charges your company $6 in service fees.
7.			Your company failed to record a withdrawal from the account.
8.			Your company makes three deposits that have all been recorded by the bank.
9.			A cheque deposited by your company bounces.

 

 

1. C and D
   2. B and A
   3. C and A
   4. N and N
   5. B and D
   6. C and D
   7. C and D
   8. N and N
   9. C and D

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-22 Bank Reconciliation

59. Identify whether a company debits (Dr) or credits (Cr) its Cash account to record each of the following transactions:

    _____ The company writes a $197.06 cheque.
    _____ The company deposits a $5,000 cheque into its account.
    _____ In a bank reconciliation, the company discovers that it recorded a $127.35 payment to a supplier as $27.35.
    _____ The bank pays $16.00 interest on the company’s account.
    _____ The company electronically transfers $867 to a supplier.
    _____ A customer’s cheque in the amount of $31 is returned by the bank as NSF.
    _____ The bank charges $12 in fees to the company’s bank account.
    _____ When preparing the bank reconciliation, the company’s accountant discovers a cheque in the amount of $1,000 that had been written but had not been recorded.
    _____ A customer electronically transfers $189.43 to the company’s bank account.

Cr, Dr, Cr, Dr, Cr, Cr, Cr, Cr, and Dr

 

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Topic: 05-17 Cash Reporting
Topic: 05-22 Bank Reconciliation

60. Match the term and the definition. There are more definitions than terms.

    _____ outstanding cheque
    _____ SOX
    _____ NSF cheque
    _____ Time lags
    _____ Cash equivalents
    _____ Restricted cash
    _____ Asset misappropriation
    _____ Loan covenants

    A. Theft or embezzlement.
    B. Examples of this include deposits in transit and outstanding cheques.
    C. Short-term highly liquid investments purchased within 3 months of maturity.
    D. When a cheque has been written on an account that does not have enough money to cover it.
    E. Created by the U.S. Congress in response to Enron, and includes regulations on various topics as internal control systems and certification of executives.
    F. When an employee has a means of committing fraud.
    G. Lending agreements that include financial targets such as maintaining a certain level of assets.
    H. Physically locking up valuable assets.
    I. Not available for general use but rather restricted for a specific purpose.
    J. When a cheque has been written but has not yet been recorded by the cheque writer’s bank.

J, E, D, B, C, I, A, G

 

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-01 Define fraud and internal control.
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Learning Objective: 05-05 Explain the reporting of cash.
Topic: 05-01 Fraud
Topic: 05-02 Changes to Corporate Governance in Canada
Topic: 05-22 Bank Reconciliation
Topic: 05-24 Reporting Cash