Exam 6: Reporting and Analyzing Cash and Internal Controls

__________________________ reflects the liquidity of a company's accounts receivable.

A purchase order is a document the purchasing department sends to the vendor to place an order.

On a bank reconciliation, the amount of an unrecorded bank service charge should be:

Cash equivalents are short-term highly liquid investment assets that are readily converted to a known cash amount, and have maturities of one year.

On a bank statement, deposits are shown as __________________, because the depositor's account is a liability on the bank's records.

A company established a petty cash fund in April of the current year and experienced the following transactions affecting the fund during April. Prepare journal entries to establish the fund on April 1, to replenish it on April 25, and to record the increase in the fund on April 25.

Preparing a bank reconciliation on a monthly basis is an example of:

Freeman Co. had net sales of $4.2 million and ending accounts receivable of $0.8 million. Its days' sales uncollected equals:

Proper internal control would require that a department manager inform the purchasing department of its needs for additional merchandise by preparing and signing a purchase requisition which lists the merchandise needed and requests that it be purchased.

For each of the independent cases below, identify the principle of internal control that is violated, and recommend what should be done to remedy the violation. 1. In order to save money, Indigo Company has decided to drop its property insurance on assets; and stop bonding the cashiers who handle upwards of $5,000 in cash each day. 2. Jobs Company records each sale on a preprinted invoice. Because invoices are sometimes damaged in the process of preparation, the invoices are not prenumbered. Instead, the sales clerk writes the next number on each invoice as it is prepared. 3. Keegan Company is a very small business. Dylan Epps, one of the two office clerks, opens the mail each day and removes the cash receipts that come in the mail. Dylan also records the receipts in the cash records and the customer's account and deposits the cash in the bank. 4. Ludwig Company prides itself on hiring only the most competent employees. The owner, Jeremy Ludwig, believes that since the employees are highly competent he can show he trusts them completely by not checking up on their performance. 5. Maple Industries is a small business with three accounting employees. Each employee is well-trained and able to perform any of the accounting tasks, including handling cash receipts and cash disbursements, and preparing the bank reconciliation. Because of this cross-training, the employees share responsibilities for all of the tasks.

Great Falls Co.'s bank reconciliation as of February 28 is shown below. The adjusting journal entries that Great Falls must record as a result of the bank reconciliation include:

In order to streamline the purchasing process, department managers should place orders directly with suppliers.

The internal document that is used to notify the appropriate person that ordered goods have been received and to describe the quantities and condition of the goods is the _______________.

In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information: The adjusted cash balance per the books on January 31 is:

Petty cash activities are part of an imprest system, which means the withdrawal amounts are recorded in the accounting records as they are incurred.

When a company purchases an insurance policy against losses from theft by an employee, that employee is ________________.

The Petty Cash account is a separate bank account used for small amounts.

____________________ are short-term, highly liquid investment assets that are readily convertible to a known amount of cash.

An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):

Outstanding checks, deposits, and bank service charges are added to the beginning balance of the bank statement to determine the adjusted bank balance.