ch 7 Flashcards
The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is
bank service charges.
A company reports a debit balance in Cash Over and Short as a(n)
miscellaneous expense
On a bank reconciliation, outstanding checks are
deducted from the bank balance.
Internal control consists of all the related methods and measures adopted within an organization to safeguard assets, enhance the accuracy and reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations
T/F
true
An organization uses internal control to safeguard assets, enhance the accuracy and reliability of accounting records, increase efficiency of operations, and.
ensure compliance with laws and regulations
A disbursement system that uses wire, telephone, or computers to transfer cash balances from one location to another is called a(n)
electronic funds transfer system
Which of the following is not a result of the Sarbanes-Oxley Act?
Companies must file financial statements with the Internal Revenue Service
Control is most effective when two people are responsible for a given task.
T/F
false
Which of the following statements is true under IFRS?
A.) IFRS defines cash as cash on hand and demand deposits.
B.) IFRS defines cash equivalents as short-term, highly liquid investments that are readily convertible to known amounts of cash.
C.) IFRS reports cash and cash equivalents in the statement of financial position.
D.) All of these answer choices are correct.
All of these answer choices are correct.
The Sarbanes Oxley Act (SOX) internal control standards apply only to companies listed on the U.S. exchanges.
T/F
TRUE
Cash equivalents include all of the following except
A.) Restricted cash.
B.) Money market funds.
C.) Commercial paper.
D.) U.S. Treasury bills.
Restricted cash.
All of the following are classified as cash except
A.) restricted cash.
B.) checks.
C.) money orders.
D.) money on hand.
restricted cash
Which of the following statements correctly describes the reporting of cash?
A,) Restricted cash funds cannot be reported as a current asset.
B.) Cash cannot be combined with cash equivalents.
C.) Restricted cash funds may be combined with Cash.
D.) Cash is listed first in the current assets section.
Cash is listed first in the current assets section.
Which of the following items at November 30 is not cash or cash equivalent?
A.) Coins and currency.
B.) Money market funds.
C.) Money orders.
D.) Treasury bond
Treasury bond
Restricted cash expected to be used within the next year should be
reported as a current asset
Cash equivalents include each of the following except
A. Money market funds.
B. Petty cash.
C. U.S. Treasury bills.
D. Commercial paper.
Petty cash.
Dewitt Company gathered the following information in preparing its bank reconciliation on May 31: Cash balance per books, May 31, $3,500; deposits in transit, $1,150; note and interest collected by the bank, $850; bank service charge, $20; outstanding checks, $2,500; NSF check, $170. The adjusted cash balance per books at May 31 is
Adjusted cash balance per books = Cash balance per books, May 31 ($3,500) + note and interest collected ($850) – bank service charge ($20) – NSF check ($170) = $4,160.
On a bank reconciliation, collection of a note receivable by the bank is
added to the book balance
If a check written and paid by the bank for $638 is incorrectly recorded on the company’s books at $683, the appropriate treatment on the bank reconciliation would be to
add $45 to the book’s balance
[In this situation, the company’s Cash account has been understated due to the error. Therefore, the difference between the amount recorded on the company’s books and the amount paid by the bank ($683 - $638 = $45) should be added to the book’s balance.]
In a bank reconciliation, a bank service charge is
deducted from the book balance
Journal entries are required by the depositor for all of the following except
A. an NSF check.
B. collection of a note receivable.
C. bank errors.
D. bank service charges.
bank errors.
The lack of agreement between the bank balance and the book balance is due to time lags and errors.
T/F
TRUE
All of the following would involve a debit memorandum except
A. interest earned.
B. a bank service charge.
C. the cost of printing checks.
D.an NSF check.
interest earned
The party who issues a check is the
maker
The control features of a bank account do not include
A. having bank auditors verify the correctness of the balance per books.
B. providing a double record of all bank transactions.
C. minimizing the amount of cash that must be kept on hand.
D. safeguarding cash by using a bank as a depository.
having bank auditors verify the correctness of the balance per books.
A bank may issue a credit memorandum for
the collection of a note receivable by the bank for the depositor
There are two parties to a check: the maker and the payee.
T/F
FALSE
A petty cash fund of $200 is replenished when the fund contains $5 in cash and receipts of $190. The entry to replenish the fund would
debit Cash Over and Short for $5.
[The correct journal entry would be to debit the related expense accounts for the receipts, $190, debit Cash Over and Short, $5 ($195 - $190) and credit cash, $195]
Making payments from a petty cash fund requires
no accounting entry to record a payment when it is made from petty cash.
A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $3 in cash. In recording the check, the company should
debit Cash Over and Short for $3
Companies use a petty cash fund to pay relatively small amounts.
T/F
TRUE
Printing check amounts by machine in indelible ink is an example of
physical controls
The use of pre-numbered checks in disbursing cash is an application of the principle of
documentation procedures.
Internal control over cash disbursements is more effective when companies pay by check, rather than by cash.
T/F
TRUE
Cash is the asset most susceptible to fraudulent activities.
T/F
TRUE
Having different individuals receive cash, record cash receipts, and hold the cash is an example of
segregation of duties
Large companies often assign independent internal verification to the
internal auditors
Controls that relate primarily to the safeguarding of assets are
physical controls
The principles of internal control include all of the following except
A. combining of duties.
B. independent internal verification.
C. physical controls.
D. establishment of responsibility.
combining of duties
Which of the following control activities is relevant when a company uses a computerized (rather than manual) accounting system?
A. Establishment of responsibility
B. Segregation of duties
C. Independent internal verification
D. All of these answer choices are correct
All of these answer choices are correct
Physical controls do not include
A. locked warehouses for inventories.
B. safes and vaults to store cash.
C. bank safety deposit boxes for important papers.
D. independent bank reconciliations.
independent bank reconciliations.
The principles of internal control do not include
A. management responsibility.
B. establishment of responsibility.
C. independent internal verification.
D. documentation procedures
management responsibility.
The use of remittance advices for mail receipts is an example of
documentation procedures
