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Exam 8: Cash and Internal Controls

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Question 91

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Brown Company's bank statement for September 30 showed a cash balance of $1,350.The company's Cash account in its general ledger showed a $995 debit balance.The following information was also available as of September 30. a.A $125 debit memoranda is included with the bank statement and dealt with a customer's check for $100 marked NSF and returned to Brown Company by the bank.In addition,the bank charged the company's a $25 processing fee. b.The September 30 cash receipts,$1,250,were placed in the bank's night depository after banking hours on that date and this amount did not appear on the September 30 bank statement. c.A $15 debit memorandum for checks printed by the September 30 bank was included with the canceled checks. d.Outstanding checks amounted to $1,145. e.A customer's note for $900 was collected by the bank.A collection fee of $25 was deducted by the bank and the difference was deposited in the account. f.Included with the canceled checks was a check for $275,drawn on another company,Browne Inc. 1.Prepare a bank reconciliation as of September 30. 2.Prepare any necessary adjusting journal entries necessary as a result of the bank reconciliation.

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Question 92

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A properly designed internal control system:

A) Lowers the company's risk of loss.
B) Insures profitable operations.
C) Eliminates the need for an audit.
D) Requires the use of non-computerized systems.
E) Is not necessary if the company uses a computerized system.

F) A) and E)
G) B) and C)

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Question 93

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The days' sales uncollected ratio is used to:

A check involves 3 parties: the maker who signs the check,the payee who is the recipient,and the bank on which the check is drawn.

A debit balance in the Cash Over and Short account reflects an expense and is reported on the income statement as part of general and administrative expenses.

An analysis that explains any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n) :

Define an internal control system and describe its purpose.

When a voucher system is used,recording a purchase is initiated by an invoice approval and a voucher,not an invoice.

Two important limitations of internal control systems are (1)human error or human fraud,and (2)cost-benefit.

Managers place a high priority on internal control systems because the systems assist managers in the:

The _____________ of recording purchases records purchases under the assumption that the cash discount for prompt payment will be taken.

The following information is available to reconcile Litner Co.'s book balance of cash with its bank statement cash balance as of April 30.The April 30 cash balance according to the accounting records is $78,356,and the bank statement cash balance for that date is $83,525. a.The bank erroneously cleared a $480 check against the account in April that was not issued by Litner.The check documentation included with the bank statement indicates the check was actually issued by Lightning Co. b.On April 30,the bank issued a credit memorandum for $53 interest earned on Litner's account. c.When the April checks are compared with entries in the accounting records,it is found that Check No.1828 had been correctly drawn for $1,530 to pay for advertising but was erroneously entered in the accounting records as $1,350 d.A credit memorandum indicates that the bank collected $10,000 cash on a note receivable for Litner,deducted a $30 collection fee,and credited the balance to the company's Cash account.Litner did not record this transaction before receiving the statement. e.A debit memorandum of $895 is enclosed with the bank statement for an NSF check for $870 received from a customer.The bank assessed a $25 fee for processing it. f.Litner's April 30 daily cash receipts of $5,102 were placed in the bank's night depository on that date,but do not appear on the April 30 bank statement. g.Litner's April 30 cash disbursements journal indicates that Check No.1837 for $584 and Check No.1840 for $1,219 were both written and entered in the accounting records,but are not among the canceled checks. 1.Prepare the bank reconciliation for this company as of April 30. 2.Prepare the journal entries necessary to bring the company's book balance of cash into conformity with the reconciled cash balance as of April 30.

What is a voucher system?

Internal control in technologically advanced accounting systems depends more on the design and operation of the information system and less on the analysis of its resulting documents.

On a bank reconciliation,the amount of an unrecorded bank service charge should be:

Proper internal control means that responsibility for a task is clearly established and assigned to one person.

The following information is available for Holland Company at December 31: Based on this information,Holland Company should report Cash and Cash Equivalents on December 31 of:

Which of the following events would cause a bank to debit a depositor's account?

Outstanding checks refer to checks that have been:

A voucher system is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.