Question 1

In each of the following situations, identify the internal control weakness as well as the business's potential problem, and suggest a solution.
a. Susan Scandal purchases supplies for Fraud Fortress Company and stores them in a locked room for which she has the key. She is also responsible for distributing these supplies to employees upon request. At the end of each month, Susan takes an inventory of the supplies on hand and notifies the accounting department of the amount for the adjusting entry for supplies used.
b. Jim Devious, an accounting clerk, is responsible for opening the mail, recording and depositing cash receipts, and preparing the monthly bank reconciliation. Jim has not taken a vacation in over five years.
c. The law firm of Dewey, Cheatem & Howe has been extremely busy in recent months. The firm needs another lawyer but has not had the chance to hire one. In the meantime, one of the secretaries has been preparing briefs, writing up wills, and preparing the closing papers for various real estate deals.

Accepted Answer

The answer of In each of the following situations, identify...

Question 2

To maintain effective internal control, employees responsible for handling cash should not have access to the accounting records.

Accepted Answer

A) True 
 B)False

Question 3

Large corporations often use monthly and annual cash budgets, but rarely do they use daily cash budgets.

Accepted Answer

A) True 
 B)False

Question 4

When preparing a bank reconciliation, deposits in transit are added to the balance shown on the bank statement.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true?

Accepted Answer

A)  A cash budget is similar to an income statement. 
B)  A cash budget is prepared for the external auditors. 
C)  A cash budget is a formal financial statement bound by GAAP. 
D)  A cash budget is an internal document used by management to aid in the planning process.

Question 6

The journal entry for a note collected by the bank with interest requires a debit to Cash and a credit to both Note Receivable and Interest Revenue.

Accepted Answer

A) True 
 B)False

Question 7

As they are less liquid than cash, cash equivalents cannot be reported on the same line as cash.

Accepted Answer

A) True 
 B)False

Question 8

In a bank reconciliation, items recorded by the bank but not yet recorded by the company include:

Accepted Answer

A)  bank collections 
B)  deposits in transit 
C)  outstanding cheques 
D)  deposits in transit and outstanding cheques

Question 9

The person to whom a cheque is drawn is referred to as the payer.

Accepted Answer

A) True 
 B)False

Question 10

The sum of the cash in the petty cash fund and the total of the petty cash tickets should equal the opening balance in petty cash at all times.

Accepted Answer

A) True 
 B)False

Question 11

If a bookkeeper mistakenly recorded a disbursement of $63 instead of the correct amount of $36, the error would be shown on the bank reconciliation as a:

Accepted Answer

A)  $36 addition to the books 
B)  $36 deduction from the books 
C)  $27 addition to the books 
D)  $27 deduction from the books

Question 12

Prepare a bank reconciliation for Living Life Company as of September 30, 2014, based on the following information. (Hint: you will need to compute Living Life Company's cash balance per books as of September 30, 2014 using the data below.)

Accepted Answer

The answer of Prepare a bank reconciliation for Living Life...

Question 13

The controller is the chief accounting officer in an organization.

Accepted Answer

A) True 
 B)False

Question 14

Once the bank reconciliation has been completed, journal entries must be made for the book side of the reconciliation.

Accepted Answer

A) True 
 B)False

Question 15

Given the following information prepare the 2014 cash budget for Better Salmon Inc. The Cash balance on January 1, 2014, is $101,000. The budgeted cash balance for December 31, 2014, is $20,500.
Additional information:

Accepted Answer

The answer of Given the following information prepare the 2014...

Question 16

Once a petty cash fund is established, no entry is made to the Petty Cash account except to change the total amount in the fund.

Accepted Answer

A) True 
 B)False

Question 17

Prepare any journal entries based on the following data regarding the bank reconciliation prepared by Corruption Company on July 31, 2014.
a. A customer's cheque for $260 was returned with the bank statement and stamped NSF.
b. Outstanding cheques amount to $650.
c. Service charges for July per bank statement are $25.
d. Cheque #925 for $3,250 for office equipment was erroneously recorded by the bookkeeper as $2,350.
e. The bank erroneously credited Corruption Company's account for a $575 deposit made by Bribe and Bilk Inc.
f. A deposit ticket correctly prepared for $695 appeared on the bank statement as a deposit for $965.
g. Cheque #930 for $900 for rent expense was erroneously recorded by the bookkeeper as $90.

Accepted Answer

The answer of Prepare any journal entries based on the...

Question 18

Which of the following is a limitation of internal control?

Accepted Answer

A)  safeguarding company assets 
B)  accurate and reliable accounting records 
C)  operational efficiency 
D)  employee collusion

Question 19

Identify and briefly describe the two most common types of fraud that impact financial statements.

Accepted Answer

The answer of Identify and briefly describe the two most...

Question 20

When opening incoming mail, the mail room employee should compare the amount of the cheque received with the amount shown on the:

Accepted Answer

A)  sales invoice 
B)  cash receipts journal 
C)  customer order form 
D)  remittance advice

Exam 4: Internal Control and Cash

To maintain effective internal control, employees responsible for handling cash should not have access to the accounting records.

Large corporations often use monthly and annual cash budgets, but rarely do they use daily cash budgets.

When preparing a bank reconciliation, deposits in transit are added to the balance shown on the bank statement.

Which of the following statements is true?

The journal entry for a note collected by the bank with interest requires a debit to Cash and a credit to both Note Receivable and Interest Revenue.

As they are less liquid than cash, cash equivalents cannot be reported on the same line as cash.

In a bank reconciliation, items recorded by the bank but not yet recorded by the company include:

The person to whom a cheque is drawn is referred to as the payer.

The sum of the cash in the petty cash fund and the total of the petty cash tickets should equal the opening balance in petty cash at all times.

If a bookkeeper mistakenly recorded a disbursement of $63 instead of the correct amount of $36, the error would be shown on the bank reconciliation as a:

Prepare a bank reconciliation for Living Life Company as of September 30, 2014, based on the following information. (Hint: you will need to compute Living Life Company's cash balance per books as of September 30, 2014 using the data below.)

The controller is the chief accounting officer in an organization.

Once the bank reconciliation has been completed, journal entries must be made for the book side of the reconciliation.

Given the following information prepare the 2014 cash budget for Better Salmon Inc. The Cash balance on January 1, 2014, is $101,000. The budgeted cash balance for December 31, 2014, is $20,500. Additional information:

Once a petty cash fund is established, no entry is made to the Petty Cash account except to change the total amount in the fund.

Which of the following is a limitation of internal control?

Identify and briefly describe the two most common types of fraud that impact financial statements.

When opening incoming mail, the mail room employee should compare the amount of the cheque received with the amount shown on the: