Exam 4: Internal Control Cash

Which statement about internal controls is FALSE?

The information below was used to prepare a bank reconciliation for Lorena Company at October 31: ∙ According to the bank statement, the bank balance as of October 31 was $8,765. According to the books, the cash balance as of October 31 is $9,557. ∙ Outstanding checks totaled $1,433. ∙ A customer's check for $999 was returned for NSF. ∙ October's service charge was $100. ∙ The bank collected $1,600 from a customer of Lorena Company in payment of a note receivable, including interest of $100. ∙ A new bookkeeper had errors in posting checks and recording cash receipts: 1. Check #930 for Salaries Expense written for $930, recorded as $430. 2. A cash sale for $2,300 on October 15 was not recorded by the bookkeeper since she was in a hurry to go to lunch. Ignore Cost of Goods Sold. ∙ A deposit was made by the company for $900. This was the correct amount, however, the bank made a mistake and recorded the deposit as $890. ∙ Deposits made at month-end totaled $4,516; these were not shown on the bank statement. Required: 1. Prepare the bank reconciliation at October 31. 2. Prepare the journal entries at October 31.

For each of the following situations, indicate which internal control procedure Johnson Company has violated: 1. Since they are costly, background checks are not done for the employees. 2. Purchases of items on credit do not need the approval of the purchasing department. 3. All hard copies of documents are shredded after one month and electronic records are deleted after two months. 4. The company does not prepare operating or cash budgets. 5. The accountant receives the checks from customers in payment of amounts due and records the cash receipts. 6. There are no locks in the area where inventory is stored. 7. The hiring, firing and pay adjustments are made by the foremen in the manufacturing area.

The treasurer is solely responsible for the petty cash fund.

Ways in which a company can limit access to only those persons or departments that have custodial responsibilities include:

When a company receives customers' checks by mail:

Payment by check is an important internal control because:

For good internal control:

New Store has the following information at August 31: ∙ Two deposits made on August 31 were not on the bank statement, totaling $5300. ∙ The bank collected an EFT payment on a note receivable for $2,750. Of this amount, $150 represented interest on the note. ∙ August 31 balance in Cash was $12,987. ∙ The bookkeeper forgot to record check #1578 for $843 which was cashed by the bank on August 15th. ∙ The balance on the bank statement as of August 31 was $11,800. ∙ A check printing fee of $40 was shown on the bank statement. NSF check $100. ∙ Checks #1572, 1606, and 1548, totaling $2346, were not shown on the bank statement, even though the company had sent the checks. What is the adjusted bank balance at August 31?

A compensating balance maintained for a loan increases the actual interest rate on a loan.

In a cash budget, if the cash available before new financing falls below the budgeted balance:

Which of the following statements regarding fraud is INCORRECT?

Payments by EFT are an important internal control for all of the following reasons EXCEPT for:

Fraudulent financial reporting is also called:

Which of the following transactions requires a journal entry?

All items on the bank side of the bank reconciliation need to be recorded in the company's books.

When preparing a bank reconciliation:

The bookkeeper recorded a payment on account as $170 instead of the correct amount of $710. What journal entry is required?

List and briefly discuss the five objectives of internal control.

When customer checks are received in the mail, which employees are involved in processing the checks?