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Exam 6: Accounting for Cash and Internal Controls

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Question 61

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A ________ is an internal document (or file) that is used to accumulate information to control cash disbursements.

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Question 62

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A company purchases merchandise on November 2 at a $2,400 invoice price (terms 3/10, n/30) and then pays all amounts owed on November 12. Using periodic inventory and net purchases methods, what are the proper entries to record these two transactions?

A)
$\begin{array}{|l|c|r|r|}\hline \text { Nov. 2 } & \text { Merchandise Inventory } & 2,400 & \\\hline & \text { Accounts Payable } & & 2,400 \\\hline\end{array}$

$\begin{array}{|c|c|r|r|}\hline \text { Nov. 11 } & \text { Accounts Payable } & 2,400 & \\\hline & \text { Cash } & & 2,400 \\\hline\end{array}$

B)
$\begin{array}{|l|l|r|r|}\hline \text { Nov. 2 } & \text { Purchases } & 2,328 & \\\hline & \text { Accounts Payable } & & 2,328 \\\hline\end{array}$

$\begin{array}{|c|c|r|r|}\hline \text { Nov. 11 } & \text { Accounts Payable } & 2,328 & \\\hline & \text { Cash } & & 2,328 \\\hline\end{array}$

C)
$\begin{array}{|l|l|r|r|}\hline \text { Nov. 2 } & \text { Purchases } & 2,328 & \\\hline & \text { Accounts Payable } & & 2,328 \\\hline\end{array}$

$\begin{array}{|l|l|r|r|}\hline \text { Nov. 11 } & \text { Accounts Payable } & 2,328 & \\\hline & \text { Purchase Discounts Lost } & 72 & \\\hline & \text { Cash } & & 2,400 \\\hline\end{array}$ .

D)
$\begin{array}{|l|c|r|r|}\hline \text { Nov. 2 } & \text { Merchandise Inventory } & 2,328 & \\\hline & \text { Accounts Payable } & & 2,328 \\\hline\end{array}$

$\begin{array}{|l|l|r|r|}\hline \text { Nov. 11 } & \text { Accounts Payable } & 2,328 & \\\hline & \text { Inventory } & 72 & \\\hline & \text { Cash } & & 2,400 \\\hline\end{array}$

E)
$\begin{array}{|l|l|r|r|}\hline \text { Nov. 2 } & \text { Purchases } & 2,328 & \\\hline & \text { Accounts Payable } & & 2,328 \\\hline\end{array}$

$\begin{array}{|l|l|r|r|}\hline \text { Nov. 11 } & \text { Accounts Payable } & 2,328 & \\\hline & \text { Purchase Discounts Lost } & 72 & \\\hline & \text { Cash } & & 2,400 \\\hline\end{array}$

F) A) and B)
G) All of the above

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Question 63

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The days' sales uncollected ratio is used to:

On August 17, at the end of the day, the cash register's record shows $957, but the count of cash in the register is $965. Prepare the general journal entry to record the day's cash sales.

The days' sales uncollected ratio measures a company's ability to manage its debt.

Following are seven items (a) through (g) that would cause Xavier Company's book balance of cash to differ from its bank statement balance of cash. a. A service charge imposed by the bank. b. A check listed as outstanding on the previous period's reconciliation and still outstanding at the end of this month. c. A customer's check returned by the bank is marked "Not Sufficient Funds. (NSF)" d. A deposit that was mailed to the bank on the last day of the current month and is unrecorded on this month's bank statement. e. A check paid by the bank at its correct $190 amount was recorded in error in the company's Check Register at $109. f. An unrecorded credit memorandum indicated that bank had collected a note receivable for Xavier Company and deposited the proceeds in the company's account. g. A check was written in the current period that is not yet paid or returned by the bank. Indicate where each item (a) through (g) would appear on Xavier Company's bank reconciliation by placing its identifying letter in the parentheses in the proper section of the form below.

The entry necessary to establish a petty cash fund should include:

Given the following information: $\begin{array}{lrlr}\text { Petty cash balance } & \$ 530.00 & \text { Courier receipt } & \$ 74.22 \\\text { Postage receipt } & \$ 25.00 & \text { Office Supplies receipt } & \$ 95.64 \\\text { Business meal receipt } & \$ 54.21 & \text { Cash on hand at the end of the month }& \$ 299.71\end{array}$ What is the amount that needs to be reimbursed?

Identify whether each of the following items would on appear on the bank side or the book side of a bank reconciliation:

The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared.

The bank statement included a check from a customer's payment of an account receivable that had been returned NSF in the amount of $1,228. Prepare the necessary adjusting journal entries.

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 customer's check for $100 marked NSF was returned to Brown Company by the bank. In addition, the bank charged the company's account 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 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. (a) Prepare a bank reconciliation as of September 30. (b) Prepare any necessary adjusting journal entries necessary as a result of the bank reconciliation.

The Petty Cash account is a separate checking account used for small amounts.

Internal control systems used to monitor and control operations are a low priority for managers within the company.

The steps to reconcile the balance of the bank statement to the adjusted balance include adding outstanding checks, deposits, and bank service charges.

When two clerks share the same cash register, which internal control principle is violated?

Separation of duties divides responsibility for a transaction or a series of transactions between two or more individuals or departments. Separation of duties reduces the risk of error and fraud.

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

Which of the following is the most serious limitation of internal controls?

Cash includes currency, coins, and the deposits in most checking accounts.