Fundamentals of Financial Accounting Fred Phillips 6e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Fundamentals of Financial Accounting, 6e (Phillips) Chapter 5 Fraud, Internal Control, and Cash 1) Employee fraud is often grouped into three categories, including corruption, asset misappropriation, and …
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Fundamentals of Financial Accounting Fred Phillips 6e – Test Bank
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Sample Questions Are Posted Below
Fundamentals of Financial Accounting, 6e (Phillips)
Chapter 5 Fraud, Internal Control, and Cash
1) Employee fraud is often grouped into three categories, including corruption, asset misappropriation, and embezzlement.
Answer: FALSE
Explanation: Employee fraud is often grouped into three categories, including corruption, asset misappropriation, and financial statement fraud. Embezzlement (or theft) is considered to be asset misappropriation.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
2) The fraud triangle identifies incentive, opportunity, and benchmarks as the requirements for a fraud to occur.
Answer: FALSE
Explanation: The elements of the fraud triangle necessary for fraud to occur are: incentive, opportunity, and rationalization.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
3) The Sarbanes-Oxley Act (SOX) requires external auditors to test the company’s internal control system.
Answer: TRUE
Explanation: SOX requires external auditors to test the effectiveness of the company’s internal controls and issue a report.
Difficulty: 1 Easy
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
4) Internal control consists of the actions taken by people at every level of an organization to achieve its objectives relating to operations, reporting, and compliance.
Answer: TRUE
Explanation: Internal control consists of the actions taken by people at every level of an organization to achieve its objectives relating to operations, reporting, and compliance.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
5) The incentive element of the fraud triangle relates to an employee’s means of committing fraud such as weaknesses in internal control.
Answer: FALSE
Explanation: The incentive element of the fraud triangle relates to an employee’s reason for committing fraud, such as personal financial pressure.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
6) The Sarbanes-Oxley Act (SOX) grants legal protection to ‘whistle-blowers.’
Answer: TRUE
Explanation: SOX does provide that a ‘whistle-blower’ cannot be fired and grants legal protection so they are not retaliated against by those charged with fraud.
Difficulty: 1 Easy
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
7) Internal controls include the policies and procedures a company implements to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations.
Answer: TRUE
Explanation: Internal control consists of the actions taken to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
8) The components of an internal control system include control environment, risk assessment, control activities, information and communication, and monitoring activities.
Answer: TRUE
Explanation: The components of an internal control system include control environment, risk assessment, control activities, information and communication, and monitoring activities.
Difficulty: 1 Easy
Topic: Fraud; Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
9) A highly effective internal control should be implemented even if the cost is greater than the benefit.
Answer: FALSE
Explanation: Cost-benefit analysis is employed by an organization to determine whether internal control procedures should be implemented. Only those internal controls whose benefits exceed their costs should be implemented.
Difficulty: 2 Medium
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) The use of internal controls cannot guarantee protection against losses due to fraud, errors, and inefficiencies.
Answer: TRUE
Explanation: An adequate internal control system does not guarantee that losses will not occur.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
11) When duties are properly segregated, the accounting department should compare the cash in the register with the cash count sheet.
Answer: TRUE
Explanation: Segregation of duties relating to cash receipts ensures that those who handle the cash (cashiers and supervisors) do not have access to those who record it (the accounting staff). As such, the supervisor should compare the cash in the register with the cash count sheet.
Difficulty: 1 Easy
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
12) A good voucher system includes procedures and approvals designed to control cash payments.
Answer: TRUE
Explanation: The voucher system is part of the internal control system to provide control over cash disbursement (payment) transactions.
Difficulty: 1 Easy
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
13) A petty cash fund is a separate checking account used to reimburse employees for expenditures they have made on behalf of the organization.
Answer: FALSE
Explanation: A petty cash fund is a system used to reimburse employees for expenditures they have made on behalf of the organization. The company removes cash from its general bank account to hold at its premises in a locked cash box. The petty cash fund is comprised of the contents of that locked box.
Difficulty: 1 Easy
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
14) On a bank statement, deposits are listed as credits and cleared checks are listed as debits.
Answer: TRUE
Explanation: From the bank’s point of view, deposits are liabilities and are recorded as credits, and cleared checks are listed as debits because they reduce the bank’s liability to the depositor.
Difficulty: 2 Medium
Topic: Controls from Bank Procedures
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
15) Cash equivalents are short-term, highly liquid investments purchased within one year of maturity.
Answer: FALSE
Explanation: Cash equivalents are highly liquid investments purchased within three months of maturity.
Difficulty: 1 Easy
Topic: Reporting Cash
Learning Objective: 05-05 Explain the reporting of cash.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
16) The entry recorded when the petty cash fund is replenished includes a debit to Petty Cash and a credit to Cash.
Answer: FALSE
Explanation: The entry recorded when the petty cash fund is established includes a debit to Petty Cash and a credit to Cash. The entry recorded when the petty cash fund is replenished includes a debit (or debits) to the asset or expense account(s) relating to the items that were paid from the petty cash fund (i.e., Supplies, Travel Expense, Office Expense, etc.) and a credit to Cash.
Difficulty: 1 Easy
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
17) Cash that is legally or contractually required to be set aside for a specific purpose cannot be reported with Cash and Cash Equivalents on the balance sheet.
Answer: TRUE
Explanation: Companies are sometimes legally or contractually required to set aside cash for a specific purpose and are not allowed to use it for day-to-day operations. This restricted cash must be reported separately on the balance sheet.
Difficulty: 1 Easy
Topic: Reporting Cash
Learning Objective: 05-05 Explain the reporting of cash.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
18) The Grass is Greener Company borrows money from a bank. Part of the loan agreement requires Grass is Greener to maintain stockholders’ equity of at least 40% of assets or otherwise to pay a higher interest rate. This requirement is referred to as a:
Answer: A
Explanation: Many lending agreements include loan covenants, which require the company to achieve financial targets, such as maintaining specific levels of assets or stockholders’ equity. Loan covenants are terms of a loan agreement that if broken, entitle the lender to renegotiate loan terms or force repayment.
Difficulty: 2 Medium
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
19) Employee fraud includes which of the following categories?
Answer: C
Explanation: A fraud is an attempt to deceive others for personal gain. Employee fraud is often grouped into three categories: corruption, asset misappropriation, and financial statement fraud.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
20) From the creditor’s perspective, which of the following help to ensure a company will be able to repay a loan?
Answer: B
Explanation: Loan covenants are terms of the loan agreement that, if broken, entitle the lender to renegotiate the loan terms or force repayment. Many lending agreements include loan covenants, which require the company to achieve financial targets, such as maintaining specific levels of assets or stockholders’ equity.
Difficulty: 2 Medium
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
21) Research has found that three factors exist when fraud occurs. Which of the following is one of the three factors of the fraud triangle?
Answer: D
Explanation: The three factors in the fraud triangle include incentive, opportunity, and rationalization.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
22) The fraud triangle contains three elements that must exist for accounting fraud to occur. The elements are:
Answer: D
Explanation: For accounting fraud to occur, there must first be an incentive for someone to commit the fraud. Second, the opportunity to commit the fraud must exist. Lastly, fraudsters rationalize their actions through a feeling of personal entitlement, which outweighs moral principles, such as honesty and concern for others.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
23) Which of the following would overstate a company’s net income?
Answer: B
Explanation: Managers at Bausch & Lomb shipped as much as two years’ worth of contact lenses to opticians who hadn’t even ordered them. These shipments were counted as sales revenue, which overstated net income. Reporting revenue before cash is received and accruing interest earned would increase net income and is in accordance with GAAP. Accruing liabilities before they are incurred would decrease net income and is not in accordance with GAAP.
Difficulty: 3 Hard
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Analyze
AACSB: Ethics
Accessibility: Keyboard Navigation
24) An attempt to deceive others for personal gain is known as:
Answer: A
Explanation: A fraud is generally defined as an attempt to deceive others for personal gain.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
25) Which of the following is not a category of employee fraud?
Answer: D
Explanation: Employee fraud is often grouped into three categories: corruption, asset misappropriation, and financial statement fraud.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
26) Which element is part of the fraud triangle?
Answer: A
Explanation: The fraud triangle includes incentive, opportunity, and rationalization.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) A strong system of internal ________ reduces the ________ to commit fraud.
Answer: A
Explanation: Internal controls systems help ensure that information is properly recorded and reported. A strong system of internal controls reduces the opportunity to commit fraud.
Difficulty: 1 Easy
Topic: Fraud
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) Which of the following was passed by Congress in response to financial statement frauds that occurred in the early 2000s?
Answer: C
Explanation: The Sarbanes-Oxley Act is a set of regulations passed by Congress in 2002 which attempts to improve financial reporting.
Difficulty: 1 Easy
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
29) Which of the following is a set of regulations passed by Congress in 2002 in an attempt to improve financial reporting and restore investor confidence?
Answer: C
Explanation: The Sarbanes-Oxley Act is a set of regulations passed by Congress in 2002 in an attempt to improve financial reporting and restore investor confidence.
Difficulty: 1 Easy
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
30) Why was the Sarbanes-Oxley Act (SOX) enacted?
Answer: C
Explanation: SOX was created in response to financial statement frauds that occurred in the early 2000s. Confidence in the stock markets had been shaken by frauds involving Enron and WorldCom, so the U.S. Congress passed the act in an attempt to improve financial reporting and restore investor confidence.
Difficulty: 1 Easy
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
31) Which of the following key requirements of the Sarbanes-Oxley Act (SOX) is correctly paired with the correct action?
Answer: B
Explanation: To encourage honesty, SOX requires tip lines, whistleblower protections, and ethics codes.
Difficulty: 2 Medium
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
32) All of the following are requirements of the Sarbanes-Oxley Act (SOX) except:
Answer: D
Explanation: SOX requires management of all public companies to report on effectiveness of internal controls over financial reporting, which establishes their primary responsibility for the internal control system.
Difficulty: 3 Hard
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
33) Considering current laws that deal with misstatements of financial results, which of the following statements is correct?
Answer: B
Explanation: The Sarbanes-Oxley Act (SOX) increased maximum jail sentences to 20 years, which can quickly add up because federal sentencing guidelines allow judges to declare consecutive jail terms for each violation.
Difficulty: 2 Medium
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
34) All of the following are requirements of the Sarbanes-Oxley Act (SOX) except:
Answer: D
Explanation: SOX requires public companies to adopt a code of ethics for their senior financial officers.
Difficulty: 2 Medium
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
35) The Sarbanes-Oxley Act (SOX) requires the establishment of an audit committee that includes the:
Answer: C
Explanation: SOX requires all public companies to establish an audit committee of independent directors.
Difficulty: 2 Medium
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
36) Which of the following is not a change introduced by the Sarbanes-Oxley Act?
Answer: B
Explanation: Publically traded companies have been required by the SEC to have their financial statements audited long before the Sarbanes-Oxley Act.
Difficulty: 1 Easy
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
37) Which of the following was not a change introduced by the Sarbanes-Oxley Act?
Answer: A
Explanation: The Sarbanes-Oxley Act enacted changes broadly designed to: counteract incentives by imposing stiff penalties and maximum jail sentences; reducing opportunities for fraud by requiring audit committees of independent directors and requiring an evaluation of the effectiveness of internal control over financial reporting by management and, for large public companies, by external auditors; and encouraging honesty by requiring public companies to have anonymous tip lines and granting legal protection to whistleblowers. SOX did not include provisions that set limits on executive compensation.
Difficulty: 1 Easy
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
38) Which of the following is a significant objective of the Sarbanes-Oxley (SOX) Act?
Answer: A
Explanation: The objectives of the Sarbanes-Oxley Act (SOX) include measures to counteract incentives to commit fraud, reduce fraud opportunities and improve companies’ internal control over financial Reporting, and encourage honesty.
Difficulty: 1 Easy
Topic: The Sarbanes-Oxley Act (SOX)
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
39) Protecting against theft of assets and enhancing accounting information is the objective of:
Answer: C
Explanation: Internal control consists of the actions taken to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
40) The objectives of a company’s system of internal control include which of the following?
Answer: C
Explanation: Internal control consists of the actions taken by people at every level of an organization to achieve its objectives relating to operations, reporting, and compliance. Internal controls are actions taken to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations. Ensuring a reasonable return to investors through the stock price, retaining position as a market leader, and providing innovative products are not objectives of a company’s system of internal control.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
41) The main purposes of internal controls include all of the following except:
Answer: D
Explanation: Reporting objectives include producing reliable and timely accounting information for use by people internal and external to the organization. Providing more favorable financial information is not one of the main purposes of internal controls.
Difficulty: 2 Medium
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
42) All of the following are goals of internal control except:
Answer: C
Explanation: Internal control consists of the actions taken by people at every level of an organization to achieve its objectives. Those objectives include: operational objectives, which focus on completing work efficiently and effectively and protecting assets by reducing the risk of fraud; reporting objectives, which include producing reliable and timely accounting information for use by people internal and external to the organization; and compliance objectives, which focus on adhering to laws and regulations.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
43) Which of the following is not a reason that a business needs an effective internal control system?
Answer: D
Explanation: The compliance objectives of internal control focus on adhering to (rather than circumventing) laws and regulations.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
44) The control environment:
Answer: A
Explanation: The control environment refers to the attitude that people in the organization hold regarding internal control.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
45) The control components used by companies as a framework when analyzing their internal control systems include:
Answer: B
Explanation: The control components used by companies as a framework when analyzing their internal control systems include control environment, risk assessment, control activities, information and communication, and monitoring activities.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
46) The continuous assessment by management to assess the potential for fraud and other risks is referred to as:
Answer: D
Explanation: The continuous assessment by management to assess the potential for fraud and other risks is referred to as risk assessment.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
47) Which of the following statements about internal control is correct?
Answer: A
Explanation: Internal control includes actions taken to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations. Internal control doesn’t eliminate fraud or any other unethical behavior.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
48) Which of the following is not one of the control components that are part of the framework used when analyzing an internal control system?
Answer: D
Explanation: Most organizations use the following control components as a framework when analyzing their internal control systems: control environment, risk assessment, control activities, information and communication, and monitoring activities.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
49) The purpose of internal controls includes all of the following except:
Answer: D
Explanation: Internal controls can never completely prevent and detect errors and fraud for two reasons. First, an organization will implement internal controls only to the extent that their benefits exceed their costs. A second limitation is that internal controls can fail as a result of human error or fraud.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-01 Define fraud and internal control.; 05-02 Explain common principles and limitations of internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
50) The principles of internal control include which of the following?
Answer: B
Explanation: The five key principles of control activities are to establish responsibility, segregate duties, restrict access, document procedures, and independently verify.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
51) Assigning responsibilities so that related activities are assigned to two or more people is the goal of:
Answer: B
Explanation: Segregation of duties is an internal control designed into the accounting system to prevent an employee from making a mistake or committing a dishonest act as part of one assigned duty and then also covering it up through another assigned duty. Segregation of duties involves assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it.
Difficulty: 2 Medium
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Understand
AACSB: Ethics
Accessibility: Keyboard Navigation
52) Which principle of internal control states that you should assign each task to only one employee?
Answer: B
Explanation: Establishing responsibility states that each task is assigned to only one employee.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
53) If a company hires an auditor to check that the work done by others within the company is supported by documentation, it is doing so under the principle of control activities referred to as:
Answer: A
Explanation: A business can perform independent verification in various ways. The most obvious is to hire someone (an auditor) to check that the work done by others within the company is appropriate and supported by documentation.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
54) The internal control principle related to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it is referred to as:
Answer: C
Explanation: Segregation of duties refers to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
55) Which of the following is an example of restricting access?
Answer: B
Explanation: Companies restrict access to check-signing equipment, require a passcode to open cash registers, and protect computer systems with firewalls.
Difficulty: 2 Medium
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
56) Which of the following is not a commonly used internal control?
Answer: D
Explanation: Mandatory vacations, anonymous hotlines, bonding employees, and segregating duties are commonly used internal controls.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
57) Common control principles include all of the following, except:
Answer: A
Explanation: Effective systems of internal control are based on five common principles: 1) establishing responsibility, 2) segregating duties, 3) restricting access to assets or information, 4) documenting procedures, and 5) independently verifying. Outsourcing work to third parties is not an internal control procedure.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
58) A small company would have the most difficulty in implementing which of the following internal control principles?
Answer: A
Explanation: For smaller companies, the cost of hiring additional employees to fully segregate duties exceeds the benefits.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
59) Which of the following is not an example of internal control?
Answer: D
Explanation: The five principles of internal control include: establish responsibility, segregate duties, restrict access (including the use of passwords), document procedures, and independently verity (including periodic bank reconciliations). The five principles covered in this section do not represent all possible forms of internal control. Many other policies and procedures exist, such as bonding employees. Customer satisfaction surveys are not an example of an internal control procedure.
Difficulty: 2 Medium
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
60) Collusion occurs when:
Answer: A
Explanation: Criminally minded employees have been known to override (disarm) internal controls or collude (work together) to get around them.
Difficulty: 1 Easy
Topic: Internal Control for Cash
Learning Objective: 05-02 Explain common principles and limitations of internal control.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
61) The volume of transactions is enormous and the risk of handling errors is significant for:
Answer: A
Explanation: Internal control for cash is important for two main reasons. First, because the volume of cash transactions is enormous, the risk of cash-handling errors is significant. Second, because cash is valuable, portable, and “owned” by the person who possesses it, it poses a high risk of theft.
Difficulty: 2 Medium
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Ethics
Accessibility: Keyboard Navigation
62) On June 4, Marie Co. had cash sales rung up by cashiers totaling $163,800. Cash in the drawer was counted and found to be $165,000. The journal entry to record the day’s sales would include a:
Answer: B
Explanation: Cash would be debited for $165,000, Sales Revenue credited for $163,800, and Cash Overage credited for $1,200.
Difficulty: 2 Medium
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
63) A company’s cash receipts procedures include the following. Cashiers collect cash and issue a receipt at the point of sale. Supervisors take custody of the cash at the end of each cashier’s shift and deposit it in the bank. Accounting staff then ensure the receipts from cash sales are properly recorded in the accounting system. Which internal control principle is most evident with these procedures?
Answer: B
Explanation: Segregating these duties ensures that those who handle the cash (cashiers and supervisors) do not have access to those who record it (the accounting staff).
Difficulty: 1 Easy
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
64) Which of the following is one of the internal control functions performed by a cash register?
Answer: B
Explanation: The use of a cash register and its accompanying point-of-sale accounting system to perform three important functions: (1) document the amount charged for each item sold, (2) restrict access to cash, and (3) document the total cash sales.
Difficulty: 2 Medium
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
65) The cashier uses the cash register and its accompanying point-of-sale accounting system to perform three important functions. Which of the following is one of those functions?
Answer: C
Explanation: The cashier uses the cash register and its accompanying point-of-sale accounting system to perform three important functions: (1) document the amount charged for each item sold, (2) restrict access to cash, and (3) document the total cash sales.
Difficulty: 1 Easy
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
66) The cash count sheet determines all of the following except the:
Answer: C
Explanation: By documenting the total cash sales, the cash register provides an independent record of the amount of cash the cashier should have collected and passed on for deposit at the bank. The cashier uses this information when completing a cash count sheet at the end of each shift. The cash count sheet documents the amount of cash the cashier received and determines any cash short or over that occurred during the shift. A cash count sheet does not document the amount of cash reported on the balance sheet.
Difficulty: 1 Easy
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
67) Which of the following is a correct statement regarding the Cash Shortage account?
Answer: B
Explanation: Cash Shortage account is reported on the income statement as a miscellaneous expense. A cash shortage occurs when recorded cash exceeds cash counted.
Difficulty: 1 Easy
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
68) The account Cash Overage is which type of account?
Answer: C
Explanation: The Cash Shortage account is reported on the income statement as a miscellaneous expense; the Cash Overage account is reported as a miscellaneous revenue.
Difficulty: 1 Easy
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
69) A remittance advice:
Answer: A
Explanation: The customer typically explains the purpose of the payment using a remittance advice, which the customer includes with the payment.
Difficulty: 1 Easy
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
70) When cash is received from a remote source, the accounting department then compares the total on the cash receipts list with the stamped deposit slip received from the bank. Which internal control principle is being met with this procedure?
Answer: B
Explanation: This comparison serves to independently verify that all cash received by mail was deposited in the bank.
Difficulty: 1 Easy
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
71) Which of the following statements concerning electronic funds transfers is not correct?
Answer: C
Explanation: Because these payments are deposited directly into the company’s bank account, EFTs eliminate the need for some internal controls.
Difficulty: 1 Easy
Topic: Controls for Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
72) An example of the internal control principle of establishing responsibility is:
Answer: A
Explanation: Whenever possible, establish responsibility by assigning each task to only one employee. Doing so will allow you to determine who caused any errors or thefts that occur. That’s why retail companies assign a separate cash register drawer to each employee at the beginning of a shift. If two cashiers were to use the same drawer, it would be impossible to know which cashier caused the drawer to be short on cash. With only one person responsible for adding and removing money from the drawer, there’s no doubt about who is responsible for a cash shortage.
Difficulty: 1 Easy
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
73) Cashiers at a supermarket have to talk to a manager before approving price changes at the register. Which internal control principle is being followed?
Answer: A
Explanation: Segregation of duties is an internal control designed into the accounting system to prevent an employee from making a mistake or committing a dishonest act as part of one assigned duty and then also covering it up through another assigned duty. One employee should not initiate, approve, record, and have access to the items involved in the same transaction.
Difficulty: 1 Easy
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
74) Comparing the cash in the register with the cash count sheet is required by the internal control principle of:
Answer: A
Explanation: Independent verification involves an independent person checking the work of others.
Difficulty: 1 Easy
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
75) Assigning sequential numbers to cash sales, so that the accounting staff can ensure that every sale has been recorded is required by the internal control principle of:
Answer: A
Explanation: To enhance the documentation procedures control, most companies assign sequential numbers to their documents and check that they are used in numerical sequence. This check occurs frequently, sometimes daily, to ensure that every transaction is recorded and that each document number corresponds to one and only one accounting entry.
Difficulty: 1 Easy
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
76) A cash register does not:
Answer: D
Explanation: A cash register restricts access to cash, documents the amount of cash received for items sold, and summarizes the cash register’s total cash sales. It is not used to reconcile accrual accounting with cash accounting.
Difficulty: 1 Easy
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
77) The cashier for Bell Buoy rang up sales totaling $7,644, but had $7,650 to deposit, which journal entry would be recorded?
Answer: A
Explanation: The entry includes a debit to Cash for $7,650, a credit to Cash Overage for $6 (or $7,650 − $7,644), and a credit to Sales Revenue for $7,644.
Difficulty: 3 Hard
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
78) When the cash count sheets for the day equal $14,140 and the cash register reports $14,280, the journal entry to record the sales will include a:
Answer: A
Explanation: The entry includes a debit to Cash for $14,280, a debit to Cash Shortage for $140 (or $14,280 − $14,140), and a credit to Sales Revenue for $14,140.
Difficulty: 3 Hard
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
79) A cashier for Seaside Electronics rang up sales totaling $8,000, but had only $7,994 to deposit, which journal entry would be recorded? A debit to:
Answer: A
Explanation: The entry includes a debit to Cash for $7,994, a debit to Cash Shortage for $6 (or $4,000 − $7,994), and a credit to Sales Revenue for $4,000.
Difficulty: 3 Hard
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
80) Which of the following is not related to the segregation of duties for cash received in person?
Answer: D
Explanation: To properly segregate duties involving cash receipts, specific responsibilities are assigned to employees. Cashiers collect cash and issue a receipt at the point of sale. Supervisors take custody of the cash at the end of each cashier’s shift and deposit it in the bank. Accounting staff then ensure the receipts from cash sales are properly recorded in the accounting system. Segregating these duties ensures that those who handle the cash (cashiers and supervisors) do not have access to those who record it (the accounting staff). If this segregation of duties did not exist, employees could steal the cash and cover up the theft by changing the accounting records.
Difficulty: 2 Medium
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
81) Which of the following is an internal control for checks received through the mail?
Answer: D
Explanation: The mail clerk lists all amounts received on a cash receipt list, which also includes the customers’ names and the purpose of each payment. Ideally, someone supervises the clerk who opens the mail to ensure that he or she takes no cash that may have been remitted by a customer. The clerk stamps each check “For Deposit Only.” After these steps have been completed, the cash received is separated from the record of cash received. Checks and money orders are given to the person who prepares the bank deposit whereas the cash receipts list and remittance advices are sent to the accounting department. The accounting department then compares the total on the cash receipts list with the stamped deposit slip received from the bank.
Difficulty: 1 Easy
Topic: Control over Cash Receipts
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
82) Which of the following is the primary goal of internal controls for cash payments?
Answer: A
Explanation: The primary goal of internal controls for all cash payments is to ensure that the business pays only for properly authorized transactions. The other answer choices are controls that are used in a voucher system.
Difficulty: 2 Medium
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
83) What is the primary goal of internal controls for cash payments?
Answer: C
Explanation: The primary goal of internal controls for all cash payments is to ensure that the business pays only for properly authorized transactions.
Difficulty: 1 Easy
Topic: Control over Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
84) Which of the following is an internal control procedure relating to cash payments?
Answer: D
Explanation: The use of a cash count sheet, completing a bank deposit and comparing cash register receipts with the bank deposit are internal control procedures relating to cash receipts. The voucher system and imprest system are controls for cash payments. The bank reconciliation is a control for both cash receipts and cash payments.
Difficulty: 1 Easy
Topic: Controls for Cash Receipts; Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
85) A process for approving and documenting all purchases and payments on account is:
Answer: C
Explanation: A voucher system is a process for approving and documenting all purchases and payments on account.
Difficulty: 1 Easy
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
86) Assume a voucher system is in use. When the bill for goods or services is obtained, which control principle(s) must be met when the related control procedures are designed?
Answer: D
Explanation: When the bill for goods or services is obtained, the company must (1) independently verify that the supplier charges only for items received at approved prices and (2) document procedures by preparing a journal entry to record the asset purchased and liability owed.
Difficulty: 3 Hard
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
87) Which of the following statements is correct regarding a voucher system?
Answer: A
Explanation: The journal entry to record the asset purchased and liability owed should be recorded when the bill for goods or services is received (step 4). Most companies rely on a voucher system to control transactions relating to cash payments. Employees requiring office supplies should complete a purchase requisition that must be approved by a supervisor before the order is place with the supplier. Internal controls, which include voucher systems, can never completely prevent and detect errors and fraud.
Difficulty: 3 Hard
Topic: Internal Control for Cash; Control over Cash Payments
Learning Objective: 05-02 Explain common principles and limitations of internal control.; 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Understand
AACSB: Analytical Thinking; Communication
Accessibility: Keyboard Navigation
88) Which of the following statements concerning a voucher is not correct?
Answer: C
Explanation: The voucher is the collection of documents prepared at each step in the system. It is completed when the purchase requisition, the purchase order, the receiving report, and the invoice have been matched. Only the purchase requisition and purchase order are prepared before the goods or services are ordered.
Difficulty: 1 Easy
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
89) The preparation of a list of goods received is an example of:
Answer: C
Explanation: The principles of control activities include document procedures, which include preparing a list of all goods received which helps ensure the supplier charges only for item received.
Difficulty: 1 Easy
Topic: Control over Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
90) A voucher system employs various forms of documentation related to steps in the control over cash. Which of the following is not a document in the voucher system?
Answer: D
Explanation: A voucher system is a process for approving and documenting all purchases and payments made on account. Documentation includes purchase requisitions, purchase orders, receiving reports, supplier invoice, and company check or EFT transaction number. The cash count sheet documents the amount of cash the cashier received and determines any cash short or over that occurred during the shift. As such, it relates to controls over cash receipts.
Difficulty: 1 Easy
Topic: Control over Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
91) Most companies pay salaries and wages to employees through EFTs, which are known by employees as:
Answer: A
Explanation: Most companies pay salaries and wages to employees through EFTs, which are known by employees as direct deposits.
Difficulty: 1 Easy
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
92) Which of the following statements incorrectly describes an imprest system?
Answer: C
Explanation: 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. Using an imprest payroll system, the company instructs the bank to transfer the total net pay of all employees for the pay period out of the company’s general bank account and into a special payroll account established for that purpose. Then the bank transfers the individual amounts from the payroll account to the employees’ checking accounts. If the transfers occur without error, the special payroll account equals zero after all employees have been paid. If the account is overdrawn or a balance remains, the company knows that an error has occurred.
Difficulty: 1 Easy
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
93) A system used to reimburse employees for expenditures they have made on behalf of the organization is referred to as a(n):
Answer: C
Explanation: A petty cash fund is a system used to reimburse employees for expenditures they have made on behalf of the organization.
Difficulty: 1 Easy
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
94) Which of the following statements concerning a petty cash fund is not correct?
Answer: D
Explanation: When using a petty cash system, administrative costs of processing small-dollar purchases can exceed the cost of the items themselves. To avoid the administrative costs of operating a petty cash fund and implement tighter controls over small dollar purchases, many organizations have turned to purchasing cards, or Pcards.
Difficulty: 3 Hard
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
95) A process for approving and documenting all purchases and payments on account is referred to as a(n):
Answer: A
Explanation: A voucher system is a process for approving and documenting all purchases and payments on account.
Difficulty: 1 Easy
Topic: Control over Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
96) A collection of documents prepared in the process of approving, processing and documenting all purchases and payments made on account is referred to as a(n):
Answer: A
Explanation: A voucher is simply a collection of documents prepared at each step in the voucher system.
Difficulty: 1 Easy
Topic: Control over Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
97) A difference between an imprest payroll account and petty cash is petty cash is:
Answer: A
Explanation: 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. A petty cash fund is a system used to reimburse employees for expenditures they have made on behalf of the organization. Like an imprest bank account, a petty cash fund acts as a control by establishing a limited amount of cash to use for specific types of expenses. The main difference between the two is that rather than transfer funds from a general bank account to another special account at the bank, the company removes cash from its general bank account to hold at its premises in a locked cash box.
Difficulty: 1 Easy
Topic: Controls for Cash Payments
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
98) The services provided by banks help businesses to control cash by meeting which of the following control objectives?
Answer: C
Explanation: The services provided by banks help businesses to control cash by restricting access, documenting procedures, and independently verifying.
Difficulty: 3 Hard
Topic: Controls from Bank Procedures
Learning Objective: 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
99) A check that you have written has cleared the bank when:
Answer: A
Explanation: After a check is written, the payee (to whom the check is written) usually presents the check to a financial institution for deposit or cash. That financial institution contacts the check writer’s bank, which in turn withdraws the amount of the check from the check writer’s account and reports it as a deduction on the bank statement. The check is then said to have cleared the bank.
Difficulty: 1 Easy
Topic: Controls from Bank Procedures
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
100) The amount of cash available for deposit at the bank is determined from the:
Answer: C
Explanation: A bank statement provides an overall summary of the account. The summary is followed by a list of specific transactions posted to the account and a running balance in the account.
Difficulty: 1 Easy
Topic: Bank Statement
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
101) The bank will show a customer’s deposit on the bank statement as a:
Answer: A
Explanation: The bank statement is presented from the bank’s point of view. The amounts in a company’s bank account are liabilities to the bank because they will eventually be used by or returned to the account holder. As with all liabilities, increases are reported as credits on the bank statement. Amounts that are removed from a bank account reduce the bank’s liability, so they are reported as debits on the bank statement. Banks typically explain the reasons for these increases (credits) and decreases (debits) with symbols or in a short memo, appropriately called a credit memo or debit memo.
Difficulty: 1 Easy
Topic: Bank Statement
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
102) The bank will show a customer’s withdrawal as a:
Answer: C
Explanation: The bank statement is presented from the bank’s point of view. The amounts in a company’s bank account are liabilities to the bank because they will eventually be used by or returned to the account holder. As with all liabilities, increases are reported as credits on the bank statement. Amounts that are removed from a bank account reduce the bank’s liability, so they are reported as debits on the bank statement. Banks typically explain the reasons for these increases (credits) and decreases (debits) with symbols or in a short memo, appropriately called a credit memo or debit memo.
Difficulty: 1 Easy
Topic: Bank Statement
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
103) An internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual is a(n):
Answer: B
Explanation: A bank reconciliation is an internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
104) A check is said to have cleared the bank when:
Answer: C
Explanation: After a check is written, the payee usually presents the check to a financial institution for deposit or cash. That financial institution contacts the check writer’s bank, which in turn withdraws the amount of the check from the check writer’s account and reports it as a deduction on the bank statement. The check is then said to have cleared the bank.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
105) Which one of the statements appearing below is incorrect regarding bank reconciliations?
Answer: B
Explanation: Since the company has already recorded outstanding checks or deposits in transit in its records, no journal entries are needed for these items. A bank reconciliation is an internal report prepared to verify the accuracy of the cash account. The up-to-date ending cash balance on both sides should always equal. A difference between the company’s cash balance and the bank’s balance can result from either errors or timing differences.
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
106) A bank reconciliation item that a company’s bank may not know about would be:
Answer: B
Explanation: There is a time lag between deposits made recently that are recorded on a company’s records, but not yet recognized by the bank. These are deposits in transit.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
107) Outstanding checks refer to checks that have been:
Answer: C
Explanation: An outstanding check occurs when you write a check and send it to a company, but your bank does not find out about it until that company deposits the check in its own bank, which then notifies your bank.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
108) Which of the following situations would cause the balance per bank to be more than the balance per books?
Answer: C
Explanation: The balance per the bank would be greater than the balance per the books if the books did not reflect cash receipts that were reflected by the bank, or if the balance per the books reflected deductions such as outstanding checks that were not yet recorded by the bank.
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
109) Outstanding checks have:
Answer: A
Explanation: Outstanding checks have been recorded by the company but have not yet been recorded by the bank.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
110) A company made a bank deposit on September 30 that did not appear on the bank statement dated September 30. In preparing the September 30 bank reconciliation, the company should:
Answer: D
Explanation: Deposits in transit should be added to the end cash balance per bank statement to arrive at the up-to-date ending cash balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
111) When you identify outstanding checks in performing a bank reconciliation, you must:
Answer: B
Explanation: The balance per the bank does not reflect outstanding checks because they are not aware of them yet, so the outstanding checks must be deducted from the balance per the bank.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
112) McKeel Publishing had outstanding checks totaling $7,560 on its June bank reconciliation. In July, McKeel issued checks totaling $54,460. The July bank statement shows that $36,820 in checks cleared the bank in July. The amount of outstanding checks on McKeel’s July bank reconciliation should be:
Answer: B
Explanation: Remaining outstanding checks = Outstanding checks + Additional checks issued − Checks cleared
= $7,560 + $54,460 − $36,820 = $25,200
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
113) Which of the following would be added to the ending cash balance per bank when performing a bank reconciliation?
Answer: D
Explanation: Deposits in transit were not known to the bank at the time the bank statement was prepared. Therefore, they are added in updating the ending cash balance per bank statement. Electronic fund transfers, NSF checks, and service charges would already have been processed by the bank.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
114) On a bank reconciliation, the amount of an NSF check is:
Answer: D
Explanation: An NSF check is deducted from the company’s book balance because it has already been deducted from the bank balance but not yet removed from the company’s balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
115) A deposit in transit on last month’s bank reconciliation is shown as a deposit on the bank statement this month. As a result, in preparing this period’s reconciliation, the amount of this deposit should:
Answer: D
Explanation: A deposit in transit on last month’s bank reconciliation that is listed as a deposit on this month’s bank statement has been processed by the bank. As a result, it should not be shown on this month’s bank reconciliation. There is no longer a timing difference; the deposit has been recorded on the company’s books and processed by the bank.
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
116) A check that was outstanding on last period’s bank reconciliation was not among the cancelled checks returned by the bank this period. In preparing the bank reconciliation for this period, the amount of this check should be:
Answer: C
Explanation: All outstanding checks are deducted from the bank balance. Whether the check was written during the current period or written in a prior period is irrelevant. There is still a timing difference; the check is recorded on the company’s books but has not yet been processed by the bank.
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
117) Which of the following would not cause the bank balance to differ from the cash balance in the accounting records?
Answer: A
Explanation: The company’s records can differ from the bank’s records for two basic reasons: (1) the company has recorded some items that the bank doesn’t know about at the time it prepares the statement of account or (2) the bank has recorded some items that the company doesn’t know about until the bank statement is examined. Both the company and the bank will know about company checks that have cleared the bank.
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
118) Urban Bloom, Inc.’s books show an ending cash balance of $18,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $5,400, deposits in transit of $3,600, NSF check of $180, and interest earned on the bank account of $18, the company’s up-to-date ending cash balance equals:
Answer: A
Explanation: In this situation:
Up-to-date ending cash balance = Ending cash balance per books + Interest received from bank − NSF check
= $18,000 + $18 − 180 = $17,838
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
119) Outstanding checks are ________ on a bank reconciliation.
Answer: C
Explanation: The bank balance is adjusted since the bank does not yet know about this item. Think about what the bank will do when it processes the item. Outstanding checks are deducted from the bank balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
120) A $6,000 bank deposit made on the last day of the month did not appear on this month’s bank statement. How would this item be treated on the bank reconciliation?
Answer: B
Explanation: The bank balance is adjusted since the bank does not yet know about this item. Think about what the bank will do when it processes the item. Deposits in transit are added to the bank balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
121) Which of the following is added to the bank balance on a bank reconciliation?
Answer: A
Explanation: The bank balance is adjusted since the bank does not yet know about this item. Think about what the bank will do when it processes the items. Deposits in transit are added to the bank balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
122) Outstanding checks written by the company should be a(n) ________ on the company’s bank reconciliation.
Answer: B
Explanation: The bank balance is adjusted since the bank does not yet know about this item. Think about what the bank will do when it processes the items. Outstanding checks will be deducted from the bank balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
123) In a bank reconciliation, an outstanding check is:
Answer: A
Explanation: The bank balance is adjusted since the bank does not yet know about this item. Think about what the bank will do when it processes the items. Outstanding checks will be deducted from the bank balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
124) Which of the following is deducted from the bank balance on a bank reconciliation?
Answer: B
Explanation: The bank balance is adjusted since the bank does not yet know about this item. Think about what the bank will do when it processes the items. Outstanding checks will be deducted from the bank balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
125) In a bank reconciliation, an EFT received from a customer is:
Answer: A
Explanation: The book balance is adjusted since the company may not yet know about this item. Think about what the bank did when it processed the item. An EFT from a customer will be added to the book balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
126) This month’s bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation?
Answer: A
Explanation: The book balance is adjusted since the company may not yet know about this item. Think about what the bank did when it processed the item. The NSF check must be deducted from the book balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
127) NSF checks from customers should be a(n) ________ on a bank reconciliation.
Answer: D
Explanation: The book balance is adjusted since the company may not yet know about this item. Think about what the bank did when it processed the item. The NSF check must be deducted from the book balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
128) A bank service charge should be a(n) ________ on a bank reconciliation.
Answer: D
Explanation: The book balance is adjusted since the company may not yet know about this item. Think about what the bank did when it processed the item. The bank service charge must be deducted from the book balance.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
129) The bank credited your account for a deposit made by another bank customer. This bank error should be a(n) ________ on a bank reconciliation.
Answer: B
Explanation: The erroneous deposit on the bank statement should be deducted from the bank balance.
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
130) If the company’s accountant mistakenly recorded an $85 deposit as $58, the error would be shown on the bank reconciliation as a(n):
Answer: C
Explanation: The book balance is adjusted since the company did not know about this item until the bank reconciliation was prepared. Think about how the item was recorded and how it should have been recorded.
| Recorded as deposit (check) | $ | 58 | ||
| Adjustment needed | 27 | |||
| Actual amount of deposit (check) | $ | 85 |
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
131) If a bank reconciliation included a deposit in transit of $1,240, the company’s journal entry for this reconciling item would include:
Answer: A
Explanation: Journal entries are not needed for the reconciling items on the bank’s side because the items have already been recorded by the company.
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
132) While preparing the bank reconciliation for March, the accountant for Bertran Industries discovered that a $649 check in payment of an account payable had been entered incorrectly in the journal as $694. Which of the following is true?
Answer: A
Explanation: The book balance is adjusted since the company did not know about this item until the bank reconciliation was prepared. Think about how the item was recorded and how it should have been recorded.
| Recorded as deposit (check) | $ | (694 | ) | |
| Adjustment needed | 45 | |||
| Actual amount of deposit (check) | $ | (649 | ) |
The related entry includes a debit to Cash for $45 (since the adjustment needed is positive) and a credit to Accounts Payable, the account involved in the original entry.
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
133) Which of the following would be deducted from the ending cash balance per books when performing a bank reconciliation?
Answer: B
Explanation: Service charges are an expense to the company that was not known until the bank statement was received. Therefore, it is a deduction in updating the company’s books.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
134) When preparing this month’s bank reconciliation, you find that you failed to record a $1,240 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?
Answer: D
Explanation: The journal entry made to adjust the current month’s balance will not affect next month’s reconciliation.
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
135) In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 2889 for December’s utilities was correctly written and drawn for $970 but was erroneously entered into the accounting records as $790. The journal entry to adjust the books for the bank reconciliation would include a debit to:
Answer: B
Explanation: When this check was originally recorded, the Cash account was decreased by $790 rather than $970 and, as such, the Cash account is overstated by $180 (or $970 − $790 = $180). To correct the error, the journal entry must include a debit to Utilities Expense and a credit to Cash for $180.
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
136) Before reconciling its bank statement, Rollin Corporation’s general ledger had a month-end balance in the cash account of $9,450. The bank reconciliation for the month contained the following items:
| Deposits in transit | $ | 1,350 | ||
| Outstanding checks | 837 | |||
| Interest earned | 36 | |||
| NSF check returned to bank | 180 | |||
| Bank service charge | 18 |
Given the above information, what up-to-date ending cash balance should Rollin report at month-end?
Answer: C
Explanation: Up-to-Date Ending cash balance per books = Ending cash balance per books + Interest earned − NSF check − Bank service charge
= $9,450 + $36 − $180 − $18 = $9,288
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
137) The following information was available to the accountant of Scarlet Co. when preparing the monthly bank reconciliation:
| Cash balance per bank statement | $ | 1,950 | ||
| Cash balance per books (prior to reconciliation) | 1,320 | |||
| Outstanding check #643 | 1,004 | |||
| Outstanding check #651 | 86 | |||
| Bank service charges | 50 | |||
| Customer check returned by bank as NSF | 40 | |||
| Deposits in transit | 380 | |||
| Interest received from bank | 10 |
The amount of cash that should appear on the balance sheet following completion of the reconciliation and adjustment of the accounting records is:
Answer: C
Explanation: Up-to-date ending cash balance = Ending cash balance per bank statement + Deposits in transit − Outstanding checks
= $1,950 + $380 − ($1,004 + $86) = $1,240
Or
Up-to-date ending cash balance = Ending cash balance per books + Interest received from bank − NSF check − Bank service charge
= $1,320 + $10 − $40 − $50 = $1,240
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
138) Lenore, Inc. gathered the following information from its accounting records and the October bank statement to prepare the October bank reconciliation:
| Ending cash balance per books, 10/31 | $ | 7,000 | ||
| Deposits in transit | 300 | |||
| Interest received from bank | 1,700 | |||
| Bank service charge for check printing | 60 | |||
| Outstanding checks | 4,000 | |||
| NSF check of T. Owens | 350 |
The up-to-date ending cash balance on October 31 is:
Answer: B
Explanation: The ending cash balance per books does not reflect the interest received from the bank, the bank service charge, or the NSF check that would be included in the October bank statement. As such, the up-to-date ending cash balance on October 31 is computed as follows:
Up-to-date ending cash balance = Ending cash balance per books + Interest received from the bank − Bank service charge − NSF check of T. Owens
= $7,000 + $1,700 − $60 − $350 = $8,290
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
139) Lenore, Inc. gathered the following information from its accounting records and the October bank statement to prepare the October bank reconciliation:
| Ending cash balance per books, 10/31 | $ | 7,000 | ||
| Deposits in transit | 300 | |||
| Interest received from bank | 1,700 | |||
| Bank service charge for check printing | 60 | |||
| Outstanding checks | 4,000 | |||
| NSF check of T. Owens | 350 |
What journal entry would Lenore, Inc. be required to record for the interest received from the bank?
Answer: D
Explanation: The interest earned, and received from the bank, would be included in the October bank statement but not the company’s accounting records. Therefore, a journal entry to recognize the interest earned and cash received would be needed.
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
140) On October 31, 2018, your company’s records say that the company has $16,451.03 in its checking account. A review of the bank statement shows you have three outstanding checks totaling $5,643.01, and the bank has paid you interest of $12.19 and charged you $9.00 in service charges. The bank statement dated October 31, 2018 would report a balance of:
Answer: C
Explanation: Start with updates to cash balance per books and back into ending cash balance per bank statement.
Up-to-date ending cash balance = Balance per books + Interest received from bank − Bank service charges
= $16,451.03 + $12.19 − $9 = $16,454.22
Up-to-date ending cash balance = Ending cash balance per bank statement − Outstanding checks
Ending cash balance per bank statement = Up-to-date ending cash balance + Outstanding checks
= $16,454.22 + $5,643.01 = $22,097.23
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
141) On October 31, 2018, the bank statement shows that your company has $12,956.73 in its checking account. You are aware of three outstanding checks that total $2,112.19. During October, 2018, the bank rejected two deposited checks from customers totaling $654.19 because of insufficient funds and charged you $12.00 in service fees. You had not yet received notice about the bad checks, 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:
Answer: C
Explanation: The bank balance does not reflect the outstanding checks, and the unadjusted cash account per the company does not reflect the NSF check.
Unadjusted balance per books = $12,956.73 − $2,112.19 + $654.19 = $11,498.73
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
142) All of the following bank reconciliation items would result in a journal entry on the company’s books except:
Answer: B
Explanation: Journal entries are necessary for the adjustments made to the cash balance per the books. Outstanding checks are reconciling items for the cash balance per bank.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
143) Which of the following items will require an adjusting journal entry on a company’s books?
Answer: D
Explanation: An adjusting journal entry is required only for those adjustments that affect the ending cash balance per books. The adjustments that affect the ending cash balance per the bank statement do not require an adjusting journal entry on the books of the company.
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
144) What journal entry must be prepared when the company is notified by the bank that a customer’s check that had been deposited in the amount of $776 was returned NSF?
Answer: A
Explanation: NSF checks returned require a decrease in the Cash account and an increase in Accounts Receivable.
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
145) Which of the following bank reconciliation items would not result in a journal entry on a company’s books?
Answer: B
Explanation: Journal entries are necessary for all adjustments made to the balance per the books. Outstanding checks were already deducted on the company’s books when the checks were issued and do not require an adjustment.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
146) Which of the following items on a bank reconciliation would require a journal entry on a company’s books?
Answer: C
Explanation: Journal entries are required for any adjustment to the cash balance per the company. Outstanding checks and deposits in transit are already reflected on the company’s books. If you discover a bank error, you should ask the bank to correct its records, but you should not change yours.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
147) Which of the following items appearing on a bank reconciliation require a journal entry to bring the Cash account up-to-date?
Answer: B
Explanation: Journal entries are required for all adjustments made to the balance per the books. Outstanding checks and deposits in transit have already been reflected on the company’s books. If you discover a bank error, you should ask the bank to correct its records, but you should not change yours.
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
148) Egrane, Inc.’s monthly bank statement showed the ending balance of cash of $14,800. The bank reconciliation for the period showed an adjustment for a deposit in transit of $1,200, outstanding checks of $1,600, a NSF check of $560, bank service charges of $24 and the EFT from a customer in payment of the customer’s account of $1,200.
What is the up-to-date ending Cash balance?
Answer: A
Explanation: Up-to-date ending cash balance = Balance per the bank + Deposits in transit − Outstanding checks
= $14,800 + $1,200 − $1,600 = $14,400
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
149) Egrane, Inc.’s monthly bank statement showed the ending balance of cash of $14,800. The bank reconciliation for the period showed an adjustment for a deposit in transit of $1,200, outstanding checks of $1,600, a NSF check of $560, bank service charges of $24 and the EFT from a customer in payment of the customer’s account of $1,200.
What was the cash balance on the Egrane’s books (before the adjustments for items on the bank reconciliation)?
Answer: B
Explanation: Start with updates to bank statement and back into ending cash balance per books.
Up-to-date ending cash balance = Balance per the bank + Deposits in transit − Outstanding checks
= $14,800 + $1,200 − $1,600 = $14,400
Up-to-date ending cash balance = Ending cash balance per book − NSF check − Bank service charges + EFT
Ending cash balance per books = Up-to-date ending cash balance + NSF check + Bank service charges − EFT
= $14,400 + $560 + $24 − $1,200 = $13,784
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
150) Egrane, Inc.’s monthly bank statement showed the ending balance of cash of $14,800. The bank reconciliation for the period showed an adjustment for a deposit in transit of $1,200, outstanding checks of $1,600, a NSF check of $560, bank service charges of $24 and the EFT from a customer in payment of the customer’s account of $1,200.
What journal entry should be recorded by Egrane for the NSF check returned?
Answer: A
Explanation: Since the amount was rejected by the bank and is still owed by the customer, the company must debit Accounts Receivable and credit Cash for $560, the amount of the NSF check.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
151) Egrane, Inc.’s monthly bank statement showed the ending balance of cash of $14,800. The bank reconciliation for the period showed an adjustment for a deposit in transit of $1,200, outstanding checks of $1,600, a NSF check of $560, bank service charges of $24 and the EFT from a customer in payment of the customer’s account of $1,200.
What journal entry should be recorded by Egrane for the EFT?
Answer: A
Explanation: An EFT occurs when a customer electronically transfers funds from his or her bank account to the company’s bank account. To process this EFT, the accounting department debits Cash and credits Account Receivable for $1,200.
Difficulty: 1 Easy
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
152) The journal entry to establish a petty cash fund should include a debit to:
Answer: B
Explanation: The journal entry to establish a petty cash fund should include a debit to Petty Cash and a credit to Cash.
Difficulty: 1 Easy
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
153) The petty cash fund was used to reimburse employees for office expenses during the month. The cash and receipts in the locked box equaled the Petty Cash account balance. When the petty cash fund is replenished, the related journal entry will include a debit to:
Answer: A
Explanation: The amount of the check required to replenish the fund is recorded as a reduction in Cash (with a credit), and the various items that were paid are recorded in their corresponding accounts (with debits).
Difficulty: 1 Easy
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
154) When the petty cash fund is replenished:
Answer: D
Explanation: The amount of the check required to replenish the fund is recorded as a reduction in Cash (with a credit), and the various items that were paid are recorded in their corresponding accounts (with debits).
Difficulty: 1 Easy
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
155) Assume that the custodian of a $540 petty cash fund has $75 in currency and coins plus $465 in receipts at the end of the month. The entry to replenish the petty cash fund will include a:
Answer: D
Explanation: The various items that were paid are recorded in their corresponding accounts (with debits). The amount of the check required to replenish the fund is $465.00 (or $540 − $75). That amount is recorded as a reduction in Cash (with a credit).
Difficulty: 1 Easy
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
156) When a petty cash fund is in use:
Answer: A
Explanation: Because the petty cash fund receipts involve such small amounts, payments out of petty cash are not recorded in the accounting system until the fund is replenished.
Difficulty: 1 Easy
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
157) Brown Industries plans to decrease a $294 petty cash fund to $108. The current balance in the account includes $60 in receipts and $234 in currency. The entry to reimburse and reduce the size of the petty cash fund will include a:
Answer: B
Explanation: The petty cash fund currently has $234 in currency; only $108 is needed for the new, smaller balance. As a result, $126 (or $234 − $108) will be deposited in the company’s bank (Cash) account. The journal entry to record that transaction will include a debit to Cash for $126. The various items that were paid are recorded in their corresponding accounts (with debits totaling $60). And, finally, the Petty Cash account will be reduced with a credit of $186 (or $294 − $108).
Difficulty: 3 Hard
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
158) Which amount should be reported as cash on the balance sheet?
Answer: C
Explanation: The up-to-date ending cash balance per the bank reconciliation is the amount reported as cash on the balance sheet.
Difficulty: 1 Easy
Topic: Reporting Cash
Learning Objective: 05-05 Explain the reporting of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
159) Cash equivalents would include:
Answer: A
Explanation: Cash, as reported on the balance sheet, includes cash deposited with banks, petty cash on hand, and cash equivalents. Cash equivalents are short-term, highly liquid investments purchased within three months of maturity.
Difficulty: 2 Medium
Topic: Reporting Cash
Learning Objective: 05-05 Explain the reporting of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
160) Which of the following statements relating to restricted cash is not correct?
Answer: C
Explanation: By reporting restricted cash separately on the balance sheet (rather than as part of cash and cash equivalents), the company more clearly conveys to financial statement users the actual amount of cash available to pay liabilities.
Difficulty: 1 Easy
Topic: Reporting Cash
Learning Objective: 05-05 Explain the reporting of cash.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
161) The company has $8,000 in its checking account, $16,000 in its savings account, $800 in petty cash, $20,000 in one-year Treasury bills, and $12,000 in a money market fund. What amount should be reported as cash and cash equivalents on the balance sheet?
Answer: C
Explanation: Cash, as reported on the balance sheet, includes cash deposited with banks, petty cash on hand, and cash equivalents. Cash equivalents are short-term, highly liquid investments purchased within three months of maturity. Cash equivalents include money market funds, government Treasury bills, and other highly liquid investments.
Cash and cash equivalents = $8,000 + $16,000 + $800 + $12,000
Difficulty: 1 Easy
Topic: Reporting Cash
Learning Objective: 05-05 Explain the reporting of cash.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
162) Restricted cash is reported:
Answer: A
Explanation: Companies are sometimes legally or contractually required to set aside cash for a specific purpose and are not allowed to use it for day-to-day operations. This restricted cash must be reported separately on the balance sheet.
Difficulty: 1 Easy
Topic: Restricted Cash
Learning Objective: 05-05 Explain the reporting of cash.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
163) The entry to record to establish a petty cash fund is a ________ to Cash and a ________ to Petty Cash.
Answer: C
Explanation: The entry to establish a petty cash fund includes a debit to Petty Cash and a credit to Cash.
Difficulty: 3 Hard
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
164) Petty cash payments are recorded in the accounting system when:
Answer: A
Explanation: When the petty cash fund is replenished, The amount of the check needed to replenish the fund is recorded as a reduction in Cash (with a credit), and the various items that were paid are recorded in their corresponding accounts (with debits).
Difficulty: 1 Easy
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
165) The entry to record to replenishing the petty cash fund involves debiting ________ and crediting________.
Answer: A
Explanation: When the petty cash fund is replenished, The amount of the check needed to replenish the fund is recorded as a reduction in Cash (with a credit), and the various items that were paid are recorded in their corresponding accounts (with debits).
Difficulty: 1 Easy
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
166) You are the accountant for Georgia Company and you have recently received the bank statement for your company’s account and need to reconcile it with your general ledger cash account. Georgia’s records show an ending balance for the month of $25,444.80 while the bank’s records show an ending balance of $24,734.32. The bank charged $16 in service fees and paid $52.10 in interest.
All but three checks written during the month were processed by the bank without incident during the month. The three exceptions were:
Check #841 was correctly processed by the bank as $1,962.54 but was mistakenly recorded by you as $1,562.54.
Check #853 for $129.14 had not yet been processed by the bank.
Check #855 for $1,366.92 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:
A customer check for $615.90, which had been deposited during the month, was returned NSF.
A deposit totaling $1,226.74 had not yet been processed by the bank.
Required:
Using the information provided above, prepare a bank reconciliation. (Round your answers to 2 decimal places.)
Answer:
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
167) The following information is available for the Tierney Company for the month of November.
On November 30, after all transactions have been recorded, the balance in the company’s Cash account has a balance of $27,202.
The company’s bank statement shows a balance on November 30 of $29,279.
Outstanding checks at November 30 include check #3030 in the amount of $1,525 and check #3556 in the amount of $1,459.
Included with the bank statement was a credit memo in the amount of $770 for an EFT in payment of a customer’s account.
The bank deducted $67 for an NSF check from a customer deposited on November 22.
A deposit placed in the bank’s night depository on November 30 totaled $1,675 and did not appear on the bank statement.
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.
Included with the bank statement was a debit memorandum in the amount of $25 for bank service charges.
Required:
Prepare a bank reconciliation for Tierney Company as of November 30.
Answer:
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
168) The following information is available for the Tierney Company for the month of November.
On November 30, after all transactions have been recorded, the balance in the company’s Cash account has a balance of $27,202.
The company’s bank statement shows a balance on November 30 of $29,279.
Outstanding checks at November 30 include check #3030 in the amount of $1,525 and check #3556 in the amount of $1,459.
Included with the bank statement was a credit memo in the amount of $770 for an EFT in payment of a customer’s account.
The bank deducted $67 for an NSF check from a customer deposited on November 22.
A deposit placed in the bank’s night depository on November 30 totaled $1,675 and did not appear on the bank statement.
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.
Included with the bank statement was a debit memorandum in the amount of $25 for bank service charges.
Required:
Prepare the journal entries for the items that would appear on the company’s bank reconciliation as of November 30. (If no entry is required for a transaction/event, select “No Journal Entry Required” in the first account field.)
Answer:
| Nov. 30 | Cash | 770 | |
| Accounts Receivable | 770 | ||
| Nov. 30 | Cash | 90 | |
| Accounts Payable | 90 | ||
| Nov. 30 | Accounts Receivable | 67 | |
| Cash | 67 | ||
| Nov. 30 | Office Expenses | 25 | |
| Cash | 25 |
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
169) McDermott Company’s bank statement for September 30 showed an ending 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.
The bank deducted $125 for an NSF check from a customer deposited on September 15.
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.
A $15 debit memorandum for checks printed by the bank was included with the canceled checks.
Outstanding checks amounted to $1,145.
Included with the bank statement was a credit memo in the amount of $875 for an EFT in payment of a customer’s account.
Included with the canceled checks was a check for $275, drawn on the account of another company.
Required:
Part a. Prepare a bank reconciliation as of September 30.
Part b. Prepare the journal entries for the items on the company’s bank reconciliation as of September 30.
Answer:
Part a.
Part b.
| Sept. 30 | Cash | 875 | |
| Accounts Receivable | 875 | ||
| Sept. 30 | Accounts Receivable | 125 | |
| Cash | 125 | ||
| Sept. 30 | Office Expenses | 15 | |
| Cash | 15 |
Difficulty: 3 Hard
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
170) Cottage Co. 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 debit balance of $36,606. The company’s bank statement as of December 31 shows an ending cash balance of $31,842. The following information was also available.
Outstanding checks as of December 31 total $4,522.
Included with the bank statement was a debit memo in the amount of $70 for service charges.
Check No. 2519, listed with the canceled checks, was correctly drawn for $805 in payment of a utility bill on December 16. The company mistakenly recorded it with a debit to Utilities Expense and a credit to Cash in the amount of $895.
The December 31 cash receipts of $6,850 were placed in the bank’s night depository after banking hours and were not recorded on the December 31 bank statement.
The bank deducted $2,456 for an NSF check from a customer deposited on December 10.
Required:
Prepare the bank reconciliation as of December 31.
Answer:
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
171) Cottage Co. 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 debit balance of $36,606. The company’s bank statement as of December 31 shows an ending cash balance of $31,842. The following information was also available.
Outstanding checks as of December 31 total $4,522.
Included with the bank statement was a debit memo in the amount of $70 for bank service charges.
Check No. 2519, listed with the canceled checks, was correctly drawn for $805 in payment of a utility bill on December 16. The company mistakenly recorded it with a debit to Utilities Expense and a credit to Cash in the amount of $895.
The December 31 cash receipts of $6,850 were placed in the bank’s night depository after banking hours and were not recorded on the December 31 bank statement.
The bank deducted $2,456 for an NSF check from a customer deposited on December 10.
Required:
Prepare the journal entries for the items that would appear on the company’s bank reconciliation as of December 31. (If no entry is required for a transaction/event, select “No Journal Entry Required” in the first account field.)
Answer:
| Dec. 31 | Cash | 90 | |
| Utilities Expense | 90 | ||
| Dec. 31 | Accounts Receivable | 2,456 | |
| Cash | 2,456 | ||
| Dec. 31 | Office Expenses | 70 | |
| Cash | 70 |
Difficulty: 2 Medium
Topic: Bank Reconciliation
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.
Bloom’s: Apply
AACSB: Analytical Thinking
172) On April 1, a company established a petty cash fund of $1,000.
Required:
Prepare the journal entry, if any, required on April 1. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)
Answer:
| April 1 | Petty Cash | 1,000 | |
| Cash | 1,000 |
Difficulty: 1 Easy
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Apply
AACSB: Analytical Thinking; Communication
173) A petty cash fund was originally established with a check for $180. On December 31, the petty cash fund was replenished when there was $5.10 remaining and there were petty cash receipts for postage, $52.20; supplies, $62.22; and equipment repair, $58.80.
Required:
Prepare the journal entry, if any, required, to record the replenishment of the petty cash fund on December 31. (If no entry is required for a transaction/event, select “No Journal Entry Required” in the first account field. Round your final answer to two decimal places.)
Answer:
| Dec. 31 | Office Expenses | 52.20 | |
| Supplies | 62.22 | ||
| Repairs and Maintenance Expense | 58.80 | ||
| Cash Shortage | 1.68 | ||
| Cash | 174.90 |
Difficulty: 2 Medium
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Apply
AACSB: Analytical Thinking; Communication
174) On September 1, a company established a petty cash fund of $200. On September 10, the petty cash fund was replenished when there was $32 remaining and there were petty cash receipts for supplies, $54, and postage, $108. On September 15, the petty cash fund was increased to $250.
Required:
Prepare the journal entries, if any, required on September 1, September 10, and September 15. (If no entry is required for a transaction/event, select “No Journal Entry Required” in the first account field.)
Answer:
| Sept.1 | Petty Cash | 200 | |
| Cash | 200 | ||
| Sept.10 | Supplies | 54 | |
| Office Expenses | 108 | ||
| Cash Shortage | 6 | ||
| Cash | 168 | ||
| Sept.15 | Petty Cash | 50 | |
| Cash | 50 |
Difficulty: 3 Hard
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Apply
AACSB: Analytical Thinking; Communication
175) A company established a $400 petty cash. On October 15, there was $16 remaining in the petty cash fund on that date and there were petty cash receipts for travel expense, $39, delivery expense, $138, and office expenses, $214. The petty cash fund was replenished and increased to $1,000 in total.
Required:
Prepare the journal entry, if any, required, to record the replenishment of the petty cash fund and the increase in its amount on October 15. (If no entry is required for a transaction/event, select “No Journal Entry Required” in the first account field.)
Answer:
| Oct. 15 | Travel Expense | 39 | |
| Delivery Expense | 138 | ||
| Office Expenses | 214 | ||
| Petty Cash | 600 | ||
| Cash Overage | 7 | ||
| Cash | 984 |
Difficulty: 3 Hard
Topic: Petty Cash Systems
Learning Objective: 05-S1 Describe the operations of petty cash systems.
Bloom’s: Apply
AACSB: Analytical Thinking; Communication
Match the term to the appropriate definition. There are more definitions than terms.
176) Fraud
Difficulty: 1 Easy
Topic: Fraud; The Sarbanes-Oxley Act (SOX); Internal Control; Controls over Cash Payments
Learning Objective: 05-01 Define fraud and internal control.; 05-02 Explain common principles and limitations of internal control.; 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
177) Imprest System
Difficulty: 1 Easy
Topic: Fraud; The Sarbanes-Oxley Act (SOX); Internal Control; Controls over Cash Payments
Learning Objective: 05-01 Define fraud and internal control.; 05-02 Explain common principles and limitations of internal control.; 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
178) Internal Control
Difficulty: 1 Easy
Topic: Fraud; The Sarbanes-Oxley Act (SOX); Internal Control; Controls over Cash Payments
Learning Objective: 05-01 Define fraud and internal control.; 05-02 Explain common principles and limitations of internal control.; 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
179) Loan Covenants
Difficulty: 1 Easy
Topic: Fraud; The Sarbanes-Oxley Act (SOX); Internal Control; Controls over Cash Payments
Learning Objective: 05-01 Define fraud and internal control.; 05-02 Explain common principles and limitations of internal control.; 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
180) Sarbanes-Oxley Act (SOX)
Difficulty: 1 Easy
Topic: Fraud; The Sarbanes-Oxley Act (SOX); Internal Control; Controls over Cash Payments
Learning Objective: 05-01 Define fraud and internal control.; 05-02 Explain common principles and limitations of internal control.; 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
181) Segregation of Duties
Difficulty: 1 Easy
Topic: Fraud; The Sarbanes-Oxley Act (SOX); Internal Control; Controls over Cash Payments
Learning Objective: 05-01 Define fraud and internal control.; 05-02 Explain common principles and limitations of internal control.; 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
182) Voucher System
Difficulty: 1 Easy
Topic: Fraud; The Sarbanes-Oxley Act (SOX); Internal Control; Controls over Cash Payments
Learning Objective: 05-01 Define fraud and internal control.; 05-02 Explain common principles and limitations of internal control.; 05-03 Apply internal control principles to cash receipts and payments.
Bloom’s: Remember
AACSB: Reflective Thinking
Answers: 176) C 177) K 178) H 179) D 180) A 181) I 182) B
Match the term to the appropriate definition. There are more definitions than terms.
183) Bank Reconciliation
Difficulty: 1 Easy
Topic: Bank Reconciliation; Reporting Cash
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.; 05-05 Explain the reporting of cash.
Bloom’s: Remember
AACSB: Reflective Thinking
184) Cash
Difficulty: 1 Easy
Topic: Bank Reconciliation; Reporting Cash
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.; 05-05 Explain the reporting of cash.
Bloom’s: Remember
AACSB: Reflective Thinking
185) Cash Equivalents
Difficulty: 1 Easy
Topic: Bank Reconciliation; Reporting Cash
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.; 05-05 Explain the reporting of cash.
Bloom’s: Remember
AACSB: Reflective Thinking
186) NSF (Not Sufficient Funds) Check
Difficulty: 1 Easy
Topic: Bank Reconciliation; Reporting Cash
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.; 05-05 Explain the reporting of cash.
Bloom’s: Remember
AACSB: Reflective Thinking
187) Restricted Cash
Difficulty: 1 Easy
Topic: Bank Reconciliation; Reporting Cash
Learning Objective: 05-04 Perform the key control of reconciling cash to bank statements.; 05-05 Explain the reporting of cash.
Bloom’s: Remember
AACSB: Reflective Thinking
Answers: 183) J 184) A 185) C 186) G 187) E
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
