Chapter 23

Question 1

The monthly reconciliation of differences between the cash balance recorded in the general ledger and the bank account

Answer 1

Bank Reconciliation

Question 2

Separate bank accounts maintained at local banks by branches of a company

Answer 2

Branch Bank Accounts

Question 3

Excess cash invested in short-term, highly liquid investments such as time deposits, certificates of deposit, and money market funds

Answer 3

Cash Equivalents

Question 4

A partial period bank statement and related cancelled checks, duplicate deposit slips, and other documents included in bank statements provided by the bank directly to the auditor; the auditor uses the information to verify reconciliation items on the client’s year- end bank reconciliation

Answer 4

Cutoff Bank Statement

Question 5

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

Answer 5

Fair Value Estimate

Question 6

A tradable asset of any kind, including cash, equity securities, debt securities, and derivative instruments

Answer 6

Financial Instruments

Question 7

The primary bank account for most organizations; virtually all cash receipts and disbursements flow through this account at some time

Answer 7

General Cash Account

Question 8

A fund maintained within the company for small cash acquisitions or to cash employees’ checks; the fund’s fixed balance is comparatively small and is periodically reimbursed

Answer 8

Imprest Petty Cash Fund

Question 9

The transfer of money from one bank to another and improperly recording the transfer so that the amount is recorded as an asset in both accounts; used for embezzlement and to cover theft of cash

Answer 9

Kiting

Question 10

A four-column audit schedule prepared by the auditor to reconcile the bank’s record of the client’s beginning balance, cash deposits, cleared checks, and ending balance for the period with the client’s records

Answer 10

Proof of Cash

Question 11

A form approved by the AICPA and American Bankers Association through which the bank responds to the auditor about bank balance and loan information provided on the confirmation

Answer 11

Standard Bank Confirmation Form

Question 12

A brief discussion of the relationship between cash in bank and the other transaction cycles serves a dual function:

Answer 12

1. It shows the importance of audit tests of various transaction cycles on the audit of cash.
2. It aids in further understanding the integration of the different transaction cycles.

Question 13

Internal controls over year-end cash balances in the general account can be divided into two categories:

Answer 13

1. Controls over the transaction cycles affecting the recording of cash receipts and disbursements
2. Independent bank reconciliations

Question 14

More important, the BLANK reconciliation provides an opportunity for an internal verification of cash receipts and disbursements transactions.

Answer 14

Independent

Question 15

Banks are BLANK BLANK for searching their records for bank balances or loans beyond those included on the form by the CPA firm’s client.

Answer 15

Not Responsible

Question 16

Procedures that may uncover fraud in the cash receipts area include:

Answer 16

1. Confirmation of accounts receivable
2. Tests performed to detect lapping
3. Review if the general ledger entries in the cash account for unusual items
4. Comparison of customer orders to sales and subsequent cash receipts
5. Examination of approvals and supporting documentation for bad debt and sales returns and allowances

Question 17

A proof of cash include the following four reconciliation tasks:

Answer 17

1. Reconcile the balance on the bank statement with the general ledger balance at the beginning of the proof-of-cash period.
2. Reconcile cash receipts deposited per the bank with receipts recorded in the cash receipts journal for a given period.
3. Reconcile electronic payments and cancelled checks clearing the bank with those recorded in the cash disbursements journal for a given period.
4. Reconcile the balance on the bank statement with the general ledger balance at the end of the proof-of-cash period.