Internal Control
Which of the following is not accomplished with an internal control system?
A. Protect assets.
B. Ensure reliable accounting.
C. Guarantee a return to investors.
D. Uphold company policies.
E. Promote efficient operations.
C. Guarantee a return to investors.
Learning Objective: 06-C1 Define internal control and identify its purpose and principles.
Cash equivalents:
A. Include accounts receivable.
B. Include accounts payable.
C. Are readily convertible to a known cash amount.
D. Include long-term investments.
E. Include investments due in twenty months.
C. Are readily convertible to a known cash amount.
Learning Objective: 06-C2 Define cash and cash equivalents and explain how to report them.
The three parties involved with a check are:
A. The writer, the cashier, and the bank (payer).
B. The maker, the payee, and the bank (payer).
C. The maker, the manager, and the payee.
D. The bookkeeper, the payee, and the bank (payer).
E. The signer, the cashier, and the company.
B. The maker, the payee, and the bank (payer).
Learning Objective: 06-P3 Prepare a bank reconciliation.
Havermill Company establishes a $450 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $93 for Office Supplies, $177 for merchandise inventory, and $42 for miscellaneous expenses. The fund has a balance of $138. On October 1, the accountant determines that the fund should be increased by $90. The journal entry to record the establishment of the fund on September 1 is:
A. Debit Cash $450; credit Petty Cash $450.
B. Debit Petty Cash $450; credit Accounts Payable $450.
C. Debit Miscellaneous Expense $450; credit Cash $450.
D. Debit Petty Cash $450; credit Cash $450.
E. Debit Cash $450; credit Accounts Payable $450.
D. Debit Petty Cash $450; credit Cash $450.
An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:
A. Cash Lost. B. Bank Reconciliation. C. Petty Cash.
D. Cash Over and Short. E. Cash Receivable.
D. Cash Over and Short.
The principles of internal control include:
A. Separate recordkeeping from custody of assets.
B. Maintain minimal records.
C. Use only computerized systems.
D. Bond all employees.
E. Require automated sales systems.
A. Separate recordkeeping from custody of assets.
Learning Objective: 06-C1 Define internal control and identify its purpose and principles.
Cash and cash equivalents include:
A. Postage stamps.
B. Customer checks, cashier’s checks, certified checks, and money orders.
C. Accounts payable.
D. Two-year certificates of deposit.
E. Accounts receivable.
B. Customer checks, cashier’s checks, certified checks, and money orders.
Learning Objective: 06-C2 Define cash and cash equivalents and explain how to report them.
A bank statement provided by the bank includes:
A. A list of outstanding checks.
B. A list of petty cash amounts.
C. The beginning and the ending account balance.
D. A listing of deposits in transit.
E. A reconciliation to the depositor cash account.
C. The beginning and the ending account balance.
Learning Objective: 06-P3 Prepare a bank reconciliation.
Havermill Company establishes a $360 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $84 for Office Supplies, $148 for merchandise inventory, and $33 for miscellaneous expenses. The fund has a balance of $29. On October 1, the accountant determines that the fund should be increased by $50. The journal entry to record the increase in the fund balance on October 1 is:
A. Debit Petty Cash $410; credit Cash $410.
B. Debit Cash $50; credit Petty Cash $50.
C. Debit Miscellaneous Expense $50; credit Cash $50.
D. Debit Petty Cash $50; credit Accounts Payable $50.
E. Debit Petty Cash $50; credit Cash $50.
E. Debit Petty Cash $50; credit Cash $50.
A set of procedures and approvals for verifying, approving and recording liabilities for cash payment, and for issuing checks for payment of verified, approved, and recorded liabilities is referred to as a(n):
A. Internal cash system.
B. Petty cash system.
C. Cash disbursement system.
D. Voucher system.
E. Cash control system.
D. Voucher system.
Two clerks sharing the same cash register is a violation of which internal control principle?
A. Establish responsibilities.
B. Maintain adequate records.
C. Insure assets.
D. Bond key employees.
E. Apply technological controls.
A. Establish responsibilities.
Learning Objective: 06-C1 Define internal control and identify its purpose and principles.
Cash equivalents:
A. Are short-term, highly liquid investment assets.
B. Include 5-year certificates of deposit.
C. Include accounts receivable.
D. Are recorded in petty cash.
E. Include long-term investments.
A. Are short-term, highly liquid investment assets.
Learning Objective: 06-C2 Define cash and cash equivalents and explain how to report them.
Easton Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on June 30, its Cash account shows a debit balance of $64,209. Easton's June bank statement shows a $61,549 balance in the bank. Determine the adjusted cash balance using the following information:
Deposit in transit $ 5,000 Outstanding checks $ 2,325
Check printing fee, not yet recorded by company $ 23
Interest earned, not yet recorded by the company $ 38
The adjusted cash balance should be: A. $64,186 B. $64,247
C. $66,549 D. $59,224 E. $64,224
E. $64,224
Bank balance $ 61,549 Book balance $ 64,209
+ Deposit in transit +5,000 Interest earned +38
− Outstanding checks −2,325 Check printing −23
Adjusted bank balance $ 64,224 Adjusted book balance $ 64,224
Havermill Company establishes a $260 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $74 for Repairs Expense, $139 for merchandise inventory, and $23 for miscellaneous expenses. The fund has a balance of $24. On October 1, the accountant determines that the fund should be increased by $52. The journal entry to record the reimbursement of the fund on September 30 includes a:
A. Debit to Repairs Expense for $74.
B. Credit to Merchandise Inventory for $139.
C. Credit to Cash for $260.
D. Debit Petty Cash for $236.
E. Credit to Cash for $24.
A. Debit to Repairs Expense for $74.
At the end of the day, the cash register's record shows $1,290, but the count of cash in the cash register is $1,265. The correct entry to record the cash sales is
A. Debit Cash Over and Short $25, credit Sales $25.
B. Debit Cash $1,290; credit Sales $1,290.
C. Debit Cash $1,265; debit Cash Over and Short $25; credit Sales $1,290.
D. Debit Cash $1,265; Credit Sales $1,265.
E. Debit Cash $1,290; credit Cash Over and Short $1,265; credit Sales $25.
C. Debit Cash $1,265; debit Cash Over and Short $25; credit Sales $1,290.
Which internal control principle prescribes the use of pre-numbered sales slips?
A. Apply technological controls.
B. Maintain adequate records.
C. Perform regular and independent reviews.
D. Establish responsibilities.
E. Divide responsibility for related transactions.
B. Maintain adequate records.
Learning Objective: 06-C1 Define internal control and identify its purpose and principles.
Which of the following pertaining to cash equivalents is false?
A. They are readily convertible to a known cash amount.
B. They must usually be within three months of their due date.
C. They are close enough to their due date so that their market value will not greatly change.
D. They include short-term U.S. treasury bills.
E. They include long-term investments.
E. They include long-term investments.
Learning Objective: 06-C2 Define cash and cash equivalents and explain how to report them.
Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on August 31, its Cash account shows a debit balance of $13,162. Franklin's August bank statement shows a $14,237 balance in the bank. Determine the adjusted cash balance using the following information:
Deposit in transit $ 4,500
Outstanding checks $ 3,900
Bank service fees, not yet recorded by company $ 50
The bank collected on a note receivable, not yet recorded by the company $ 1,725
The adjusted cash balance should be:
A. $18,737 B. $10,337 C. $14,887 D. $13,112 E. $14,837
E. $14,837
Bank balance $ 14,237 Book balance $ 13,162
+ Deposit in transit +4,500 Bank service fees −50
- Outstanding checks −3,900 Note collected +1,725
Adjusted bank balance $ 14,837 Adjusted book balance $ 14,837
Meng Company maintains a $325 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $85 for office supplies, $170 for merchandise inventory, and $25 for miscellaneous expenses. There is a cash shortage of $9. Based on this information, the amount of cash in the fund before the replenishment is: A. $325. B. $280. C. $45. D. $54. E. $36.
E. $36.
$325 fund balance minus $280 in receipts = $45 theoretical cash balance. Since there was an $9 shortage, the cash on hand was less than expected. $45 − $9 = $36.
The number of days' sales uncollected is used to:
A. Measure how many days of sales remain until the end of the year.
B. Determine the number of days that have passed without collecting on accounts receivable.
C. Identify the likelihood of collecting sales on account.
D. Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.
E. Measure the amount of cash sales during a period.
D. Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.
Internal control systems are:
A. Developed by the Securities and Exchange Commission for public companies.
B. Developed by the Small Business Administration for non-public companies.
C. Developed by the Internal Revenue Service for all U.S. companies.
D. Required by Sarbanes-Oxley (SOX) to be documented and verified if the company's stock is traded on an exchange (a public company).
E. Required only if a company plans to engage in interstate commerce.
D. Required by Sarbanes-Oxley (SOX) to be documented and verified if the company's stock is traded on an exchange (a public company).
Learning Objective: 06-C1 Define internal control and identify its purpose and principles.
The following information is available for Birch Company at December 31:
Cash in registers $ 2,920
Investment maturing in 9 years $ 16,300
Accounts receivable $ 1,800
Cash in bank account $ 23,731
Accounts payable $ 780
Cash in petty cash fund $ 330
Inventory of postage stamps $ 31
U.S. Treasury bill maturing in 15 days $ 11,300
Based on this information, Birch Company should report Cash and Cash Equivalents on December 31 of:
A. $54,581 B. $40,861 C. $43,312 D. $39,301
E. $38,281
E. $38,281
Add $2,920 of cash in registers + $23,731 of cash in bank + $330 of cash in petty cash fund + $11,300 of U.S. Treasury bill with maturity of less than three months = $38,281.
Learning Objective: 06-C2 Define cash and cash equivalents and explain how to report them.
Great Falls Company's bank reconciliation as of February 28 is shown below.
Bank balance $ 37,643 Book balance $ 38,153
+ Deposit in transit 2,950 Note collection +745
− Outstanding checks −1,730 Check printing −35
Adjusted bank balance $ 38,863 Adjusted book balance $ 38,863
One of the journal entries that Great Falls Company must record as a result of the bank reconciliation includes:
A. Debit Notes Payable $745; credit Cash $745.
B. Debit Cash $745; credit Notes Receivable $745.
C. Debit Cash $2,950; credit Sales $2,950.
D. Debit Cash $2,950; credit Accounts Receivable $2,950.
E. Debit Miscellaneous Expense $35; credit Accounts Payable $35.
B. Debit Cash $745; credit Notes Receivable $745.
Meng Company maintains a $300 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $80 for office supplies, $160 for merchandise inventory, and $20 for miscellaneous expenses. There is a cash shortage of $8. The journal entry to replenish the fund on January 31 is:
A. Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Debit Cash Over and Short, $8; Credit Petty Cash, $268.
B. Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Credit Cash Over and Short, $8; Credit Petty Cash, $252.
C. Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Credit Cash Over and Short, $8; Credit Cash, $252.
D. Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Debit Cash Over and Short, $8; Credit Cash, $268.
E. Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Credit Cash Over and Short, $8; Credit Petty Cash, $300.
D. Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Debit Cash Over and Short, $8; Credit Cash, $268.
$300 fund balance minus $260 in receipts = $40 theoretical cash balance. Since there was an $8 shortage, the cash on hand was less than expected. $40 − $8 = $32. Cash replenishment is $268 ($300 Petty cash fund balance minus $32 cash on hand).
A company had net sales of $21,000 and accounts receivable of $2,520 for the current period. Its days' sales uncollected equals:
Note: Use 365 days a year.
A. 8.0 days. B. 58.9 days. C. 43.8 days. D. 7.4 days. E. 45.2 days.
C. 43.8 days.
Days' Sales Uncollected Ratio = Accounts Receivable/Net Sales × 365
Days' Sales Uncollected Ratio = $2,520/$21,000 × 365 = 43.8 days