Exam 7: Fraud, Internal Control, and Cash

Checks received through the mail should

Prepare the entry to replenish the $200 petty cash fund of Erin Company, assuming the fund has receipts for: freight-out $60, postage $105, and miscellaneous expense $25. The fund contains $8 in cash.

Joe Foss has worked for Dr. Sam Milton for several years. Joe demonstrates a loyalty that is rare among employees. He hasn't taken a vacation in the last three years. One of Joe's primary duties at the medical office is to open the mail and list the checks received. He also takes cash from patients at the cashier window as patients leave. At times it is so hectic that Joe doesn't bother with giving each patient a receipt for the cash paid on their accounts. He assures them he will see to it that they receive the proper credit. When the traffic is slow in the office, Joe offers to help Ann post the payments to the patients' accounts receivable. She is always happy to receive his help, because he is a very conscientious worker. Instructions Identify any principles of internal control that may be violated in this medical office situation.

When opening a bank checking account, a signature card

Listed below are seven errors or problems which might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write "None." If you think more than one principle is appropriate, list all principles that apply. Possible Errors or Problems 1. An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise. 2. A small fire destroys 3 days of cash receipts. 3. The official designated to sign checks is able to steal blank checks and issue them without fear of detection. 4. A salesclerk in serving customers often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer. 5. Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand. 6. Each cashier counts his own register drawer each day and verbally reports the results to the supervisor. 7. Cashiers with over 5 years' experience are not bonded.

Journal entries are required by the depositor for all of the following except

Riley Company received a notice with its bank statement that the bank had collected a note receivable for $5,000 plus $150 of interest. The bank had credited these amounts to Riley 's account less a collection fee of $10. Riley Company had already accrued the interest for this note on its books. (a) How will these items affect Riley Company's bank reconciliation? (b) Prepare the journal entry that Riley Company will make to record this information on its books.

Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

Replenishing the petty cash fund requires

The principles of internal control include all of the following except

Ernest Company uses an imprest petty cash system. The fund was established on March 1 with a balance of $200. During March the following petty cash receipts were found in the petty cash box. The fund was replenished on March 15 when the fund contained $9 in cash. On March 20, the amount in the fund was increased to $300. Instructions Journalize the entries in March that pertain to the operation of the petty cash fund.

Internal controls are not designed to safeguard assets from

A bank statement

The cash account shows a balance of $40,000 before reconciliation. The bank statement does not include a deposit of $9,200 made on the last day of the month. The bank statement shows a collection by the bank of $3,960 and a customer's check for $1,300 was returned because it was NSF. A customer's check for $1,380 was recorded on the books as $1,920, and a check written for $318 was recorded as $390. The correct balance in the cash account was

Internal control is mainly concerned with the amount of authority a supervisor exercises over a subordinate.

To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.

A deposit ticket is a negotiable instrument that can be transferred to another party by endorsement.

The information below relates to the Cash account in the ledger of Lee Company. Balance September 1-$25,725; Cash deposited-$96,000. Balance September 30-$22,225; Checks written-$99,500. The September bank statement shows a balance of $24,635 on September 30 and the following memoranda. At September 30, deposits in transit were $4,695, and outstanding checks totaled $3,575. Instructions Prepare the bank reconciliation at September 30.

The custodian of the petty cash fund has the responsibility of recording a journal entry every time cash is used from the fund.

A $100 petty cash fund has cash of $17 and receipts of $86. The journal entry to replenish the account would include a