Exam 6: Internal Control and Accounting for Cash

What is an outstanding check?

The bank statement for Tetra Company contained the following items: a bank service charge of $10; a credit memo for interest earned, $15; and a $50 NSF check from a customer. The company had outstanding checks of $100 and a deposit in transit of $300. Which of the following will be caused by recording the customer's NSF check?

On September 30 the bank statement of Fine Company showed a balance of $8,900. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records:Deposits in transit amounted to $3,750Outstanding checks amounted to $7,120A $610 check was incorrectly drawn on Fine's accountNSF checks returned by the bank were $890The bank service charge was $33Credit memo for $105 for the collection of one of the company's account receivableWhat is the true cash balance?

For a petty cash fund to be most useful to a business, one of the employees of the business should be designated as responsible for the fund.

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA Landau Company established a petty cash fund by issuing a check in the amount of $500 to the petty cash custodian.

Chester Company has established internal control policies and procedures in order to achieve the following objectives:1)Effective evaluation of management performance.2)Assure that the accounting records contain reliable information.3)Safeguard the company's assets.4)Assure that employees comply with company policy.Which of these objectives are achieved by accounting controls?

Which of the following statements concerning internal controls is true?

Jasper Company accepted a check from Harp Company as payment for services rendered. Jasper's bank statement revealed that the Harp check was a NSF check. What effect will recording the NSF check have on the accounting equation of Jasper Company?

Indicate whether each of the following statements is true or false. a)________ A bank statement debit memo describes a transaction that increases the depositor's assets.b)________ A bank statement credit memo describes a transaction that increases the customer's account balance.c)________ Service fees charged by a bank appear on bank statements as credit memos.d)________ Deposits in transit appear on the bank statement as credit memos.e)________ Outstanding checks do not appear on the bank statement.

The accountant for Ye Olde Bookstore balanced out the cash register for the day. The company began the day with $125 and ended the day with $1,150.25 in the cash drawer. That day's cash register tape shows $1,031.50 in cash sales. What is the effect on the financial statements of recording the day's sales and any related overage or shortage?

While performing the monthly bank reconciliation, Avon Company adjusted for a bank service charge of $20. Which of the following correctly shows how the adjustment for the bank service charge affects the financial statements?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA In preparing the bank reconciliation of Heath Company, an employee found that the company had deposits in transit of $2,200.

The May 31 balance per bank statement was $12,400. The unadjusted book balance was $17,000. Outstanding checks amounted to $1,700, and deposits in transit were $4,800. The bank statement contained an NSF check for $1,100, a service charge for $50, and a debit memo for direct payment of the telephone bill of $350 (which has not yet been recorded by the company). Required:a)Determine the true cash balance by preparing a bank reconciliation as of May 31.

How will a certified check be shown on a company's bank reconciliation?

A business learns about customers' NSF checks through debit memos that are included with the bank statement.

In the reconciliation of the June bank statement, a deposit made on June 30 did not appear on the June bank statement. How is this deposit in transit shown on the bank reconciliation?

To ensure proper segregation of duties, after the check is signed, an employee should record the check in the accounting records and review the appropriate supporting documents.

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA At June 30, when Heath Company was preparing the bank reconciliation, the employee preparing the reconciliation found that the company had outstanding checks in the amount of $2,650.

One of your friends is preparing to open a store that will sell outdoor gear. When you heard that the business would have three or four employees, you told your friend that she would need to pay careful attention to segregation of duties. She has asked you to explain what duties should be separated and why segregation of duties is important in a business. Write a note to your friend explaining these issues.

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA At Landau Company, the petty cash custodian used petty cash to pay for postage charges.