Exam 4: Internal Control Cash

The budget period:

Mary's Dairy has the following information available for the preparation of the cash budget for the second quarter: The minimum cash balance for any month is $10,000. Prepare a cash budget for the second quarter for this company. No additional equipment will be purchased this quarter. Assume that any cash in excess of the $10,000 is invested and deducted from the cash account.

In a bank reconciliation, an EFT cash payment is:

The information below was used to prepare a bank reconciliation for Pumpkin Farm Company. for October 31. Use the information to prepare any necessary journal entries as of October 31. NOTE: It is NOT necessary to prepare a bank reconciliation. • Adjusted bank balance as of October 31 was $8,765. • Outstanding checks totaled $1,433. • A customer's check for $854 was returned for NSF. • March's service charge was $85. • Bank collected $1,600 from a customer of Pumpkin Farm in payment of a note receivable, including interest of $100. • A new bookkeeper had problems posting checks and recording cash receipts: 1. Check # 930 for Salaries Expense written for $430, recorded as $930. 2. A deposit for $2,300 for a sale on October 15 was not recorded by the bookkeeper since she was in a hurry to go to lunch. • A deposit was made by the company for $900. This was the correct amount, however, the bank made a mistake and recorded the deposit as $890. • Deposits made at month-end totaled $4,516; these were not shown on bank statement.

With a lock-box system:

A recent cash budget showed estimated cash receipts of $159,000, estimated cash disbursements of $155,000, and a desired ending cash balance of $6,000, with no borrowing of funds. The beginning cash balance was:

A bank reconciliation included an outstanding check of $850 for the payment of salaries. The journal entry to record this reconciling item:

The objective of internal control that minimizes waste, which lowers costs and increases profits is:

External auditors are responsible for maintaining a company's system of internal controls.

Which is NOT an objective of an internal control system?

Every adjustment on the bank side of the bank reconciliation needs to be recorded in the books.

Which of the following is a true statement regarding fraud?

________ is the most common fraud, but ________ is the most expensive fraud.

A compensating balance increases the actual interest rate.

With online banking:

Alpha Company has an account at First Bank. Alpha writes a check payable to Beta Company. In this transaction, Alpha Company is the:

Prepare a bank reconciliation using Fancy Clothing Store's information for August 31. • Two deposits made on August 31 were not on the bank statement, totaling $7,413. • The note. • August 31 balance in Cash was $11,677. • The bookkeeper forgot to record check # 1578 for $843 which was cashed by the bank on August 15th. • The balance on the bank bank collected an EFT payment on a note receivable for $2,750. Of this amount, $150 represented interest on the statement as of August 31 was $8,387. • Bank service charge of $140 was shown on the bank statement. • Checks #1572, 1606, and 1548, totaling $2,356, were not shown on the bank statement, even though the company had sent the checks.

When preparing a bank reconciliation, which of the following items should be added to the book balance?

Sharon is the receptionist and office manager for The Best Construction Company. Sharon handles all of the office duties including billing, cash receipts, payroll, depositing checks and preparing the monthly bank reconciliation. She also prepares all of the checks for disbursements and is an authorized signer on all checks under $25,000. For checks above this amount, two signatures are required. She has been a trusted employee of The Best Construction Company for many years, but still makes just a small amount above minimum wage. She is even the godmother to two of the owner's children and often watches them while their parents go on exotic vacations. Sharon is such a good employee that she rarely takes vacations. Since the owner trusts her completely, he concentrates on the construction business and leaves all of the office work to Sharon. He would never interfere with her work since he has very little accounting knowledge. Sharon has recently become a grandmother and enjoys buying her grandchildren expensive toys and clothes. She has just bought a new Hummer for herself and an exclusive condo in the Virgin Islands. What are the five basic control procedures for any class of transactions? Using these five basic control procedures, what can be done to strengthen the internal control procedures for The Best Construction Company?

There are three parties to a check. The person or company to whom the check is paid is the: