Exam 6: Internal Control and Accounting for Cash

How do accounting controls differ from administrative controls?

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.

What is the purpose of establishing a petty cash fund?

Use the following to answer questions Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.Enter only one letter for each element. -In preparing the bank reconciliation of Heath Company,an employee found that the company had deposits in transit of $2,200.

The entry to replenish a petty cash fund includes:

What is a disclaimer of audit opinion?

Most companies strive to receive an unqualified audit opinion.

While preparing its bank reconciliation,Maynard Company determined that its bank had collected a $650 account receivable for the company and deducted a $25 collection fee.Which of the following shows the effect of this transaction on the financial statements?

The bank statement for Raymond Company included a debit memo for a bank service charge of $50. Required: a)Show the effects of recognizing the bank service charge on the financial statements by recording appropriate amounts in the financial statements model provided.Include dollar amounts of increases and decreases;for cash flow,indicate whether it is an operating activity,investing activity,or financing activity. b)Is the recognition of the bank service charge an asset source,use,or exchange transaction? c)Prepare the journal entry that Raymond should make to recognize the effects of the service charge.

Requiring separation of duties in a business eliminates the need for the work of one employee to serve as a check on the work of other employees.

In the reconciliation of the June bank statement,a deposit made on June 30 did not appear on the June bank statement.In preparing the bank reconciliation,this deposit in transit should be:

Boothe Company established a petty cash fund of $200 on January 3.At January 28,the fund contained cash of $112 and receipts for the following payments. On January 28,the petty cash fund was replenished. Required: Record the above events in general journal form to (1)establish the fund, (2)recognize the expenditures.

The accountant for Ye Olde Bookstore balanced out the cash register for the day.The register indicates $1,031.50 in sales,the change fund at the beginning of the day was $125 and the actual cash in the register is $1,150.25 (including the change fund,previously accounted for).What is the effect on the financial statements of the entry to record the day's sales and any related overage or shortage?

Internal controls that assess degree of compliance with company policies are classified as administrative controls.

Michelle Edwards operates a small dress shop that sells various items of apparel and accessories.She employs two clerks who make sales to customers,accept returns when a customer is dissatisfied with merchandise,and put new merchandise on display.One of the clerks,Kristen Scott,was hired recently.Michelle had always done all the accounting for the store and had made bank deposits.However,Kristen has offered to do the accounting for the store during slow periods when there are no customers in the store;she also has begun making bank deposits as she leaves for the day.Having Kristen take these responsibilities allows Michelle more time for acquiring merchandise for the store and for personal errands.What potential risks for the success of Michelle's business are present in this situation?

In preparing the April bank reconciliation for Oscar Company,it was discovered that on April 10 a check was written to pay delivery expense of $45 but the check was erroneously recorded as $54 in the company's books.The journal entry required to correct the error is

When a "debit memo" is included in a bank statement,what effect does that have on the cash balance?

What is meant by the term "materiality?"

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 separation of duties.She has asked you to explain what duties should be separated and why separation of duties is important in a business.Write a note to your friend explaining these issues.

Which internal control procedure addresses the idea that the likelihood of employee fraud or theft is reduced if collusion is required to accomplish it?