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Exam 6: Internal Control and Accounting for Cash

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Question 31

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Which of the following is not considered an accounting control?

A) Performance evaluations.
B) Requiring employees to take vacations.
C) Bonding of employees.
D) Use of prenumbered documents.

E) C) and D)
F) A) and C)

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Question 32

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Is the establishment of a petty cash fund an asset source, asset use, asset exchange, or claims exchange transaction?

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Asset exchange
Explanation: Es...

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Question 33

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Which of the following is not a procedure to maintain internal controls over cash payments?

Indicate whether each of the following statements regarding internal controls is true or false. _____ a) The Sarbanes-Oxley Act of 2002 requires public companies to evaluate their internal controls and report those findings with SEC filings. _____ b) The Sarbanes-Oxley Act applies to all companies, while the Enterprise Risk Management (ERM) framework is used by public companies only. _____ c) Enterprise Risk Management (ERM) is an expansion of the earlier framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO). _____ d) The COSO framework includes five interrelated components: separation of duties, quality employees, prenumbered documents, physical controls, and performance evaluations. _____ e) Congress passed the Sarbanes-Oxley Act in 2002 in response to high profile fraud cases such as Enron and WorldCom.

While performing the monthly bank reconciliation, the bookkeeper for Marcus Company made the journal entry for a bank service charge of $49. Which of the following correctly shows the effect of the entry on the financial statements?

The purpose of a petty cash fund is to make and maintain control over a business's small cash disbursements.

Which of the following entries would be required to establish a $500 petty cash fund?

Internal controls that assess degree of compliance with company policies are classified as accounting controls.

Barton Company established a petty cash fund of $100 on January 3. At January 28, the fund contained cash of $13 and receipts for the following payments. On January 28, the petty cash fund was replenished. Required: Record the above events in general journal form to (1) establish the fund, (2) recognize the expenditures.

Which of the following internal control procedures does not ordinarily apply to the management of the petty cash fund?

The usual form for a bank reconciliation begins with the ending cash balance shown on the bank statement and reconciles it to the ending cash balance on the company's books.

During the process of preparing the bank reconciliation, an employee for Hearst Company discovered that Check #4261 for $86, used to pay an account payable, was recorded in the company books as $68.

Preparing a bank reconciliation is an important internal control for a business.

Establishment of a petty cash fund is an asset exchange transaction.

What is a deposit in transit?

In preparing the bank reconciliation for Hearst Company, an employee discovered that the bank had collected one of the company's notes receivable in the amount of $25,000 and had deposited this amount in the company's account at the bank. This amount does not include interest.

Are outstanding checks an adjustment to the book balance, the bank balance, or not used in a bank reconciliation?

The bank statement for Richards Company included a debit memo for a bank service charge of $58. Required: a) Show the effects of recognizing the bank service charge on the financial statements by recording appropriate amounts in the financial statements model provided. Include dollar amounts of increases and decreases; for cash flow, indicate whether it is an operating activity, investing activity, or financing activity. b) Is the recognition of the bank service charge an asset source, use, or exchange transaction? c) Prepare the journal entry that Richards should make to recognize the effects of the service charge.

In preparing the bank reconciliation for Hearst Company, an employee discovered an error. A $650 cash receipt for the collection of an account receivable was recorded in the company's books as $605. The deposit slip was correct, and the bank deposit had been correctly prepared. The error appeared only in the company's accounting records.

In preparing a bank reconciliation, typical adjustments to the bank balance are deposits in transit and bank service charges.