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Exam 8: Cash and Internal Controls

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Question 41

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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) True
B) False

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Question 42

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On August 25, a company purchased $5,000 worth of merchandise on terms 2/10, n/30; on September 4, the amount due was paid. Using the net method of recording purchases, prepare general journal entries to record (a) the purchase on August 25, and (b) the cash payment on September 4.

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Question 43

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The internal document that is used to notify the appropriate person that ordered goods have been received and to describe the quantities and condition of the goods is the ___________________.

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

Describe the net method of accounting for purchases. Why do companies use the net method?

Cash equivalents:

An internal control system refers to the policies and procedures managers use to _________, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.

An invoice is a document that is used within a company to notify the appropriate persons that ordered goods have been received and to describe the quantities and condition of the goods.

On a bank statement, deposits are listed as debits because the bank increases its cash account when the deposit is made.

Describe the banking activities that promote the control of cash and identify the internal control objectives served by the banking activities.

The number of days' sales uncollected is calculated by:

A person who controls or has access to an asset must not keep that asset's accounting records. This describes the internal control principle of _______________________.

Cash equivalents are short-term highly liquid investment assets that are readily converted to a known cash amount, and have maturities of one year.

Deposits in transit are deposits made and recorded by the depositor but not yet recorded on the bank statement.

A company using the net method of recording purchases failed to take advantage of a discount available. When they pay the full (gross) amount of an invoice at the end of the credit period the journal entry will include a debit to:

On a bank reconciliation, an unrecorded debit memorandum for printing checks is:

If a check correctly written and paid by the bank for $794 is incorrectly recorded in the company's books for $749, how should this error be treated on the bank reconciliation?

The days' sales uncollected ratio measures the liquidity of accounts receivable.

A company established a petty cash fund of $100 on September 1. On September 10, the petty cash fund was replenished when there was $16 remaining and there were petty cash receipts for: office supplies, $27; transportation-in on inventory purchased, $32; and postage, $22. On September 15, the petty cash fund was increased to $125 in total. Record the above transactions in general journal form.

Factors that cause the bank statement balance for a checking account to be different from the company's checking account balance include: outstanding checks, deposits in transit, deductions for bank fees, additions for interest, and errors.