Exam 8: Fraud, Internal Control, and Cash

Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of

Osborn Company assembled the following information in completing its March bank reconciliation: balance per bank $3,820; outstanding checks $775; deposits in transit $1,250; NSF check $80; bank service charge $25; cash balance per books $4,400. As a result of this reconciliation, Osborn will

The safeguarding of assets is an objective of a company's system of internal control.

The difference between the cash in bank balance shown on the company's books and the cash balance shown on the bank statement may be caused by ______________ and by ______________ in recording transactions by either party.

Deposits in transit

The cash balance per books for Feagen Company on September 30, 2010 is $10,740.93. The following checks and receipts were recorded for the month of October, 2010: In addition, the bank statement for the month of October is presented below: Check No. 18 was correctly written for $708.62 for a payment on account. The NSF check was from S. Long, a customer, in settlement of an accounts receivable. An entry had not been made for the NSF check. The credit memo is for the collection of a note receivable including interest of $60 which has not been accrued. The bank service charge is $25.00. Instructions (a) Prepare a bank reconciliation at October 31. (b) Prepare the adjusting journal entries required by the bank reconciliation.

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

The size of the petty cash fund is dependent on

Identify which principle of internal control is being followed in each of the following cases. 1. Warehouse employees do not have access to the accounting records. 2. Prenumbered shipping documents are prepared for each shipment of goods. 3. The locked warehouse is accessible only by warehouse employees with keys.

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

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.

In the month of May, Grimm Company Inc. wrote checks in the amount of $27,750. In June, checks in the amount of $37,974 were written. In May, $25,404 of these checks were presented to the bank for payment, and $32,649 in June. What is the amount of outstanding checks at the end of May?

On a bank reconciliation, deposits in transit are

Identify whether each of the following items would be (a) added to the book balance, or (b) deducted from the book balance in a bank reconciliation. 1. EFT transfer to a supplier 2. Bank service charge 3. Check printing charge 4. Error recording check # 214 which was written for $230 but recorded for $320 5. Collection of note and interest by bank on company's behalf

Indicate how each of the following items would be shown on a bank reconciliation. 1. Bank error (The bank charged our account with another company's check) 2. Check printing charge 3. Deposits in transit 4. Note collected by the bank 5. NSF checks 6. Outstanding checks

Identify the internal control procedures applicable to cash disbursements followed by Downey Company in each of the following cases. 1. Company checks are prenumbered. 2. Only the treasurer is authorized to sign checks. 3. All employees are required to take vacations. 4. Blank checks are stored in a locked safe. 5. The bookkeeper, not the treasurer, records cash disbursements.

Heath Company gathered the following reconciling information in preparing its July bank reconciliation: The adjusted cash balance per books on July 31 is

The information below relates to the Cash account in the ledger of Remington Company. Balance September 1-$25,725; Cash deposited-$96,000. Balance September 30-$26,100; Checks written-$95,620. The September bank statement shows a balance of $24,635 on September 30 and the following memoranda. At September 30, deposits in transit were $6,695, and outstanding checks totaled $3,575. Instructions Prepare the bank reconciliation at September 30.

The entry to replenish a petty cash fund includes a credit to

Quayle Company gathered the following reconciling information in preparing its August bank reconciliation: The adjusted cash balance per books on August 31 is