Chapter 6

Discipline: Accounting & Finance

Type of Paper: Question-Answer

Academic Level: Undergrad. (yrs 3-4)

Paper Format: APA

Pages: 1 Words: 275

Question

How do banks help businesses control cash?
-Restricting access to cash -Independently verifying -documenting procedures

In a bank reconciliation, an outstanding check is:
Deducted from the bank balance. (Outstanding checks have already been subtracted from bank's balance but have not yet been subtracted from bank's balance.)

___________ companies sell goods that they have produced.
Manufacturing

To segregate duties involving cash receipts, specific responsibilities are assigned to various employees. Put the following steps in the correct chronological order. -Members of the acct. dept. are responsible for ensuring that cash sales are properly recorded -A supervisor is responsible for collecting the cash at the end of each cashier's shift. -Cashiers are responsible for collecting the cash and issuing a receipt at the point of sale.
1) Cashiers are responsible for collecting the cash and issuing a receipt at the point of sale. 2) A supervisor is responsible for collecting the cash at the end of each cashier's shift. 3) Members of the acct. dept. are responsible for ensuring that cash sales are properly recorded

This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation?
It would be added to the book balance.

11111On a bank reconciliation, which of the following are typical reconciling items the company would not know about until it gets the bank statement?
NSF checks should be a(n) ______ on a bank reconciliation.
Subtraction from the book balance.

On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of the time lags? -Electronic funds transfers -Deposits in transit -Bounced checks -Outstanding checks
-Deposits in transit -Outstanding checks

XYZ Company sold merchandise for $5000, with payment terms of 2/10, n/30. If the customer pays within the discount period and takes the discount, XYZ will receive:
$4900

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. This ratio is used to:
-Compare one company with another -make comparisons over time

A check that you have written has cleared the bank when:
the funds have been withdrawn from your bank account to cover the check

Deposits in _______ are _____ to the ____ side of the bank reconciliation
Transit, added, bank

Define: Establish Responsibilities (one of the 5 principles of internal control)
Assign each task to only one employee in order to allow one to determine who is at fault for an error or theft.

Define: Restrict Access (one of the 5 principles of internal control)
Do not provide access to assets or information unless it is needed to fulfill the assigned task

Define: Segregate Duties (one of the 5 principles of internal control)
Do not make one employee responsible for all parts of a process

Define: Independently Verify (one of the 5 principles of internal control)
Check others' work

Define: Document Procedures (one of the 5 principles of internal control)
Prepare documents to show activities that have occurred

Under the _____ inventory system, the inventory account is updated every time inventory is bought, sold, or returned.
perpetual

Create an income statement in the proper order from the top to bottom
1) Sales Revenue 2) Sales Discounts 3) Net Sales 4) Cost of Goods Sold 5) Gross Profit

Which of the following are limitations in internal control systems?
-Collusion can exist making it impossible to completely prevent fraud -The cost of the control may exceed the benefit of reducing the fraud or potential errors

ABC Corp. sells a product for $1000 cash that cost $600. The journal entry for this transaction using a perpetual inventory system includes:
a debit to Cash of $1000 and a credit to Sales Revenue of $1000; a debit to Cost of Goods Sold of $600 and a credit to Inventory of $600

Under the _____ inventory system inventory records are updated only at the end of the accounting period
Periodic

Before paying an invoice for goods purchased on account, the controller or treasurer should ensure that ______.
-The company is paying the goods is ordered -the company has not already paid this invoice -the company is paying for the goods it actually received

An inventory system reports inventory as_____.
an asset until sold

A bank _____ compares the company's cash records with the bank's and is a key internal control.
reconciliation

For a merchandising company, a strong accounting system will provide information:
-for preparing financial statements -about inventory quantities -about inventory costs

An example of an EFT is:
a direct deposit of employee paychecks

Good internal control for checks received through the mail would include ______.
-The mail clerk giving checks and money orders to the person who makes the bank deposit -The mail clerk sending the cash receipts list and the customers' remittance advice to the accounting department

A muiltistep income statement is useful to financial statement users because it:
-separates cost of goods sold from other operating expenses, which allows the calculation of gross profit. -presents income statement items in meaningful categories.

A bank reconciliation ideally should be preformed by:
the cashier

"NSF" checks stands for "not _________ funds"
sufficient

Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $3,000; deposits in transit of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals:
$9,910

A _______ system is a process for approving and documenting all purchases and payments made on account.
Voucher

Good internal control over cash would include.....
-having a person who does not deposit the cash reconcile the bank statement -giving a cash register receipt to every customer -having a fidelity bond that covers all employees who handle cash

Using a perpetual inventory system, what is the correct journal entry when a customer returns a product that was purchased on account?
-A debit to Sales returns and allowances and a credit to Accounts receivable; and a debit to Inventory and a credit to Cost of Goods sold

A bank reconciliation:
-is a key internal control -should be done monthly -compares the book's cash records with the bank's

A bank will show a customers withdraw as a .....
debit, because a withdrawal decreases its liability from the bank's point of view.

An _______ system controls the amount paid to others by limiting the total amount of money available for making payments
imprest

If a bank reconciliation included a deposit in transit of $670, the company's journal entry for this reconciling item would include:
nothing because the deposit has already been recorded.

_________ of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. A person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records.
Separation

Which of these are cash equivalents?
-Money market funds -Investments with 3 months to maturity
The operating cycle is a series of activities that the company undertakes to generate _______ and, ultimately, cash
revenue

This month's bank statement shows that the bank INCORRECTLY credited ABC Corp.'s account for a $600 deposit that should have been credited to XYZ Corp.'s account. How would this item be treated on ABC's bank reconciliation?
It would be deducted from the bank balance.

X company, which uses a perpetual inventory system sold $2,000 of merchandise on account with credit terms of 2/10, n/30. The journal entry to record the initial sale gross of any discounts will include .....
- A credit to sales revenue of $2,000 - A debit to Accounts receivable of $2,000

What does a gross profit percentage tell you?
A higher ratio means that more is available to cover operating expenses.

A _______ system is a process for approving and documenting all purchases and payments made on account.
voucher

What does FOB destination mean?
Goods are owned by the buyer as soon as they arrive at the buyer's place of business.

Which of the following are elements of internal control over cash receipts?
-A different employee deposits the cash at the bank -Cash receipts are summarized and their total is calculated -2 employees cannot share the same cash register