Exam 6: Internal Control and Accounting for Cash

Potter Company's petty cash fund was established on January 1, 2013 with $500. On January 31, 2013 a count of the fund revealed: $103 in cash remaining and vouchers for miscellaneous payments totaling $400. What effect will the necessary entries to replenish the fund have on the company's financial statements?

Why would a merchandising company need good internal controls related to its inventory? List three of the key elements of an internal control system that would apply to inventory, and explain how each of them does relate to inventory.

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

Most companies strive to receive a qualified audit opinion.

Which of the following statements about materiality is not true?

In preparing the bank reconciliation for Hearst Company, a company employee found that the bank statement included an NFS check that the company had received from a customer paying its account at Hearst Company.

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

In preparing a bank reconciliation, typical adjustments to the book balance include bank service charges, customer NSF checks, and interest earned on the account.

The entry to replenish a petty cash fund includes:

In a bank reconciliation, a customer's NSF check included with the bank statement is:

For each of the following items, indicate whether they are an adjustment to the bank side, the book side, or not applicable when preparing a bank reconciliation. If they are adjustment items, indicate whether the balance would be increased or decreased.

Indicate whether each of the following statements about the auditor's role in financial accounting is true or false. _____ a) The proper conduct of an audit guarantees the accuracy of all figures on the financial statements. _____ b) The financial audit is a detailed review of a company's financial statements and documents. _____ c) The primary responsibility of the independent accounting firm is to the audit client. _____ d) The most favorable type of audit report is called a qualified opinion. _____ e) The ultimate responsibility for the financial statements lies with management of the company rather than the independent accounting firm.

Which of the following statements accurately describes a fidelity bond?

For a business, Cash generally includes currency, customers' checks, and some savings accounts.

The following information pertains to the bank reconciliation of January 31, 2013 for the Gashi Company: In addition, the reconciliation revealed one error: Check #2146 for $76, written to pay utilities expense, was incorrectly recorded in the books for $67. Required: Using the above information, compute the unadjusted book balance for cash.

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

Explain the meaning of "internal control" and distinguish between administrative controls and accounting controls.

Flora's Flowers established a $400 petty cash fund. The following expenditures were made from the fund: A count of the cash in the fund revealed a balance of $89.00. Required: a) Show the effect of establishing the fund on the accounting equation. b) For what amount must the check be written to replenish the fund? c) Prepare the journal entry to record the recognition of expenditures paid from the fund and replenishment of the fund.

In preparing the bank reconciliation for Hearst Company, an employee found that a certified check that the company had used to settle an account payable remained outstanding.

Indicate whether each of the following items regarding petty cash is true or false. _____ a) The establishment of a petty cash fund is an asset exchange transaction. _____ b) The replenishment of a petty cash fund is an asset source transaction. _____ c) At any time, the total of the petty cash vouchers plus the remaining coins and currency should equal the balance of the Petty Cash ledger account. _____ d) If a shortage occurs, a credit is entered to the Cash Short and Over account. _____ e) There is no journal entry made in the accounting records at the time when petty cash funds are disbursed.