Exam 6: Internal Control and Accounting for Cash

On April 30, 2013, Southern Company established a petty cash fund of $1,000. On May 1, 2013, a disbursement of $255 was made from the fund for payment of delivery expense. What entry should be made on May 1, 2013 to record this disbursement?

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.

What term is used for a customer's check that is returned by the bank on which it was drawn because the customer did not have enough funds to pay the check? How is this event treated on the bank reconciliation?

Indicate whether each of the following items regarding internal control is true or false. _____ a) Accounting controls are composed of procedures designed to safeguard assets and ensure accounting records contain reliable information. _____ b) Administrative controls concern the reliability of the financial statements and the accuracy of the general ledger. _____ c) Whenever possible, the functions of authorization, recording and custody should be exercised by the same dependable employee. _____ d) Cash is most susceptible to embezzlement at the points of receipt and disbursement. _____ e) A well-designed internal control system can prevent collusion by employees.

What account is used to record the amount of cash shortages or overages relative to a petty cash system?

In preparing the bank reconciliation of Hearst Company, an employee found that the company had deposits in transit of $2,400.

Which of the following is not a generally recognized internal control procedure?

How will a certified check be treated in a company's bank reconciliation?

While performing its monthly bank reconciliation, the bookkeeper for the Gee Corporation noted that a deposit of $900 (received from a customer on account) was recorded in the company books as $990. Which of the following shows the effect of the correcting entry on the financial statements?

An audit is useful to financial statement users because it A)Guarantees that the financial statements are accurate and correct. B)Guarantees that management has not been involved in misappropriation of assets. C)Provides reasonable assurance that the financial statements do not have material misstatements. C)The financial audit does not guarantee complete accuracy or the absence of fraud. It does provide reasonable assurance of material accuracy and compliance with GAAP. D) Both B and

Following the February bank reconciliation, the accountant made the following entry in the journal of King Company: This journal entry may have been used to record:

Which of the following is not one of the purposes of an internal control system?

Indicate whether each of the following statements is true or false. _____ a) Debit memos in a bank statement describe transactions that increase the depositor's assets. _____ b) Credit memos in a bank statement describe transactions that act to increase the bank's liabilities. _____ c) Service fees charged by a bank appear on bank statements as debit memos. _____ d) Deposits in transit appear on the bank statement as credit memos. _____ e) Outstanding checks do not appear on the bank statement.

In preparing the bank reconciliation for Hearst Company, an employee found that the bank statement reported a bank service charge of $28.

The primary focus of financial audits is the discovery of fraud.

All journal entries made related to bank reconciliations include an expense or revenue account.

Indicate whether each of the following statements regarding internal controls is true or false. _____ a) Separation of duties is an internal control feature that requires different individuals to perform the following functions: authorization, recording, and custody of assets. _____ b) Under proper internal controls, the person who collects customer payments should also maintain the records of cash receipts. _____ c) Under proper internal controls, those who are given authority should not bear the corresponding responsibility. _____ d) One of the basic rules of internal control is to require employees to take regular vacations. _____ e) A fidelity bond is a form of insurance that companies buy to protect themselves from loss due to employee dishonesty.

The accountant for Barb's 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?

At June 30, 2013, when Hearst Company was preparing the bank reconciliation, the employee doing the reconciliation found that the company had outstanding checks in the amount of $2,850.

The May 31, 2013, balance per bank statement was $6,200. The cash balance per books was $8,500. Outstanding checks amounted to $850, and deposits in transit were $2,400. The bank statement contained an NSF check for $550, a service charge for $25, and a debit memo for direct payment of the telephone bill of $175. Required: a) Prepare a bank reconciliation to determine the true cash balance at May 31, 2013. b) Prepare any necessary journal entries.