Exam 7: Fraud, Internal Control, and Cash

Internal controls are not designed to safeguard assets from

Which of the following is an appropriate internal control activity for cash?

Expected direct materials purchases in Rees Company are $140,000 in the first quarter and $180,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are:

Internal controls are concerned with

Grier Food Store used the following information in recording its bank reconciliation for the month of April. Balance per books April $30 \quad \$ 905$ Balance per bank statement April 30 $\quad \$ 11,300$ (1) Checks written in April but still outstanding $6,300. (2) Checks written in March but still outstanding $2,800. (3) Deposits of April 30 not yet recorded by bank $4,900. (4) NSF check of customer returned by bank $500. (5) Check No. 210 for $594 was correctly issued and paid by bank but incorrectly entered in the cash payments journal as payment on account for $549. (6) Bank service charge for April was $40. (7) A payment on account was incorrectly entered in the cash payments journal and posted to the accounts payable subsidiary ledger for $824 when Check No. 318 was correctly prepared for $284. The check cleared the bank in April. (8) The bank collected a note receivable for the company of $6,000 plus $240 interest revenue. Instructions Prepare a bank reconciliation at April 30.

Ferguson Company is preparing a cash budget for September. The company's cash balance on September 1 is $23,200. The company anticipates cash receipts of $111,800 and cash disbursements of $117,320. If Ferguson desires a cash balance of $24,000, it must

Each of the following is a feature of internal control except

The following credit sales are budgeted by Gonzalez Company: February 150,000 March 210,000 April 180,000 The company's past experience indicates that 80% of the accounts receivable are collected in the month of sale, 20% in the month following the sale. The anticipated cash inflow for the month of April is

An employee authorized to sign checks should not record

All of the following are true regarding the management and monitoring of cash except

The cash records of Landis Company show the following four situations. 1. The June 30 bank reconciliation indicated that deposits in transit total $1,080. During July the general ledger account Cash shows deposits of $24,820, but the bank statement indicates that only $23,400 in deposits were received during the month. 2. The June 30 bank reconciliation also reported outstanding checks of $1,020. During the month of July, Landis Company books show that $25,800 of checks were issued. The bank statement showed that $24,600 of checks cleared the bank in July. 3. In September, deposits per the bank statement totaled $40,100, deposits per books were $38,100, and deposits in transit at September 30 were $3,150. 4. In September, cash disbursements per books were $35,550, checks clearing the bank were $37,500, and outstanding checks at September 30 were $2,150. There were no bank debit or credit memoranda. No errors were made by either the bank or Landis Company. Instructions Answer the following questions. (a) In situation (1), what were the deposits in transit at July 31? (b) In situation (2), what were the outstanding checks at July 31? (c) In situation (3), what were the deposits in transit at August 31? (d) In situation (4), what were the outstanding checks at August 31?

If the cash budget showed a projected cash shortage, the company would most likely

What is the rationale for the internal control principle, segregation of duties?

Bonding means insuring a company against theft by employees.

Listed below are seven errors or problems that 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. Internal Control Principles a. Establishment of responsibility b. Segregation of duties c. Physical control devices d. Documentation procedures e. Independent internal verification

The ______________ of an asset should not have access to the accounting records of that asset.

The separation of duties feature of internal control can be negated when several employees are involved in a scheme.

Which of the following would be added to the balance per bank on a bank reconciliation?

A bank reconciliation is generally prepared by the bank and sent to the depositor along with canceled checks.

A company maintains the asset account, Cash in Bank, on its books, while the bank maintains a reciprocal account that is