Chapter.7 Fraud Internal Control And Cash Verified Test Bank - Practice Test Bank | Accounting for Decisions 8e by Paul D. Kimmel. DOCX document preview.
CHAPTER 7
FRAUD, INTERNAL CONTROL, AND CASH
CHAPTER LEARNING OBJECTIVES
1. Define fraud and the principles of internal control. A fraud is a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer. The fraud triangle refers to the three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization. Internal control consists of all the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.
The principles of internal control are establishment of responsibility; segregation of duties; documentation procedures, physical controls, independent internal verification, and human resource controls.
2. Apply internal control principles to cash. Internal controls over cash receipts include: (a) designating only personnel such as cashiers to handle cash; (b) assigning the duties of receiving cash, recording cash, and having custody of cash to different individuals; (c) obtaining remittance advices for mail receipts, cash register tapes or computer records for over-the-counter receipts, deposit slips or confirmations for bank deposits; (d) using company safes and bank vaults to store cash with access limited to authorized personnel, and using cash registers or point-of-sale (POS) terminals in executing over-the-counter receipts; (e) making independent daily counts of register receipts and daily comparisons of total receipts with total deposits; and (f) conducting background checks and bonding personnel who handle cash as well as requiring them to take vacations.
Internal controls over cash disbursements include: (a) having only specified individuals such as the treasurer authorized to sign checks and approved vendors; (b) assigning the duties of approving items for payment, paying the items, and recording the payment to different individuals; (c) using prenumbered checks and accounting for all checks, with each check supported by an approved invoice; after payment, stamping each approved invoice “paid”;
(d) storing blank checks in a safe or vault with access restricted to authorized personnel, and using a machine with indelible ink to imprint amounts on checks; (e) comparing each check with the approved invoice before issuing the check, and making monthly reconciliations of bank and book balances; and (f) bonding personnel who handle cash, requiring employees to take vacations, and conducting background checks.
3. Identify the control features of a bank account. In reconciling the bank account, it is customary to reconcile the balance per books and the balance per bank to their adjusted balance. The steps reconciling the Cash account are to determine deposits in transit, and electronic funds transfers received by the bank, outstanding checks, errors by the depositor or the bank, and unrecorded bank memoranda.
4. Explain the reporting of cash and the basic principles of cash management. Cash is listed first in the current assets section of the balance sheet. Companies often report cash together with cash equivalents. Cash restricted for a special purpose is reported separately as a current asset or as a noncurrent asset, depending on when the company expects to use the cash.
The basic principles of cash management include: (a) increase the speed of receivables collection, (b) keep inventory levels low, (c) monitor the timing of payment of liabilities, (d) plan the timing of major expenditures, and (e) invest idle cash.
The three main elements of a cash budget are the cash receipts section, cash disbursements section, and financing section.
*5. Explain the operation of a petty cash fund. In operating a petty cash fund, a company establishes the fund by appointing a custodian and determining the size of the fund. The custodian makes payments from the fund for documented expenditures. The company replenishes the fund as needed, and at the end of each accounting period. Accounting entries to record payments are made each time the fund is replenished.
Difficulties:
Easy: 207
Medium: 69
Hard: 11
Question List by Section
Fraud and Internal Control:
Fraud: 1, 2, 45, 56, 65, 83, 91, 278
The Sarbanes-Oxley Act: 46
Internal Control: 3, 16, 53, 54, 57, 66, 84, 260, 280, 286, 287
Principles of Internal Control Activities: 13, 15, 47, 48, 49, 50, 51, 58, 60, 223, 224, 237, 238
Establishment of Responsibility: 4, 5, 12, 55, 69, 71, 85
Segregation of Duties: 6, 20, 67, 68, 87, 261
Segregation of Related Activities: 59
Purchasing Activities: 17, 70, 72, 74, 86, 90
Sales Activities: 73, 89
Segregation of Recordkeeping from Physical Custody: 7, 61, 62, 75, 262
Documentation Procedures: 19, 92, 93, 264
Physical Controls: 76
Independent Internal Verification: 63, 77, 78, 263, 279, 281
Human Resource Controls: 8, 10, 11, 79, 80, 81, 88, 265
Data Analytics and Internal Controls: 21, 22, 94
Limitations of Internal Control: 9, 14, 18, 52, 64, 82, 266, 282
Cash Controls: 23, 95, 97, 99, 100, 102, 108
Cash Receipts Controls: 96, 98, 101, 225
Over-the-Counter Receipts: 115, 116
Electronic Receipts 113, 114, 268
Check Receipts: 24, 117, 118
Cash Disbursements Controls: 26, 27, 28, 103, 104, 105, 106, 107, 109, 110, 111, 112, 226, 267, 283
Voucher System Controls: 25
Petty Cash Fund: 119
Control Features of a Bank Account:
Electronic Banking: 29, 120
Bank Statements: 121, 122, 123, 124, 125, 126, 127, 269
Reconciling the Bank Account: 30, 31, 33, 136, 284
Reconciliation Procedure: 32, 158, 159, 160, 161, 227, 231, 246, 248, 249, 250, 251, 270
Reconciling Items per Bank: 131, 133, 141, 142, 153, 271, 272
Reconciling Items per Books: 128, 129, 130, 132, 134, 135, 137, 138, 139, 140, 143, 144, 170, 171
Bank Reconciliation Illustrated: 149, 150, 151, 152, 154, 156, 157, 163, 164, 165, 166, 167, 168, 232, 233, 238, 239, 240, 241, 242, 243, 244, 245, 247
Entries from Bank Reconciliation: 145, 147, 155, 162, 228, 229, 230
Collection of Electronic Funds Transfer: NA
Book Error: 169
NSF Check: 148
Bank Charge Expense: 146
Reporting Cash: 172, 173, 174
Cash Equivalents: 34, 35, 37, 175, 176, 177, 180
Restricted Cash: 36, 181
Managing and Monitoring Cash: 178, 179, 182, 183, 185, 186, 187, 188, 204
Basic Principles of Cash Management: 38, 42, 273, 285
Cash Budgeting: 39, 40, 41, 184, 189, 190, 191, 192, 193, 194, 195, 196, 197, 198, 199, 200, 201, 202, 203, 205, 206, 207, 208, 209, 234, 235, 236, 252, 253, 254, 255, 274
Operation of a Petty Cash Fund: 43, 44, 212, 215
Establishing the Petty Cash Fund: 222, 256, 257, 259
Making Payments from the Petty Cash Fund: 211, 275
Replenishing the Petty Cash Fund: 210, 213, 214, 216, 217, 218, 219, 220, 221, 258, 276
TRUE-FALSE STATEMENTS
1. The most important element of the fraud triangle is rationalization.
2. Employees sometimes commit fraud because of personal financial problems caused by too much debt.
3. The safeguarding of assets is an objective of a company's system of internal control.
4. When one individual is responsible for all related activities, the potential for errors and irregularities is decreased.
5. Internal control is most effective when several people are responsible for a given task.
6. An effective system of internal control centralizes functions in a single capable individual.
7. The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.
8. Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.
9. The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.
10. Bonding means insuring a company against theft by employees.
11. It is unlikely that a company would want to bond its employees who handle cash or inventory.
12. An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as a check on the other.
13. A good system of internal control will safeguard assets and enhance the accuracy and reliability of accounting records.
14. A system of internal control cannot be considered good until the possibility of human error has been completely eliminated.
15. Only large companies need to be concerned with a system of internal control.
16. Under an effective system of internal control, errors occur only because of fraud or dishonesty.
17. The responsibilities for ordering, receiving, and paying for merchandise should be assigned to different individuals.
18. The separation of duties feature of internal control can be negated when several employees are involved in a scheme.
19. In order to prevent a transaction from being recorded more than once, a company should maintain only one journal.
20. Segregation of duties among employees eliminates the possibility of collusion.
21. Data analytics has drastically reduced investigations of period-end samples of transactions to identify potential internal control violations.
22. Data analytics allows companies to continuously monitor virtually every transaction.
23. For efficiency of operations and better control over cash, a company should maintain only one bank account.
24. Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.
25. The treasurer should prepare and sign a check only after authorization to issue a check has been provided.
26. Control over cash disbursements is improved if major expenditures are paid by check.
27. Because EFT eliminates the need for employees to handle cash, internal controls are not needed.
28. An example of segregation of duties is having a check signer recording cash disbursements.
29. Electronic funds transfer (EFT) is a disbursement system that uses a telephone or a computer to transfer cash from one location to another.
30. One example of a periodic independent internal verification is the bank reconciliation.
31. To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee authorized to sign checks.
32. All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the cash account.
33. A bank reconciliation is generally prepared by the bank and sent to the depositor along with canceled checks.
34 Sound internal control activities dictate that the amount of cash on hand should be kept to a maximum.
35. Cash equivalents are highly liquid investments that can be converted into a specific amount of cash.
36. Cash equivalents include money market accounts, commercial paper, and U.S. Treasury bills held for ninety days or less.
37. Cash restricted in use should be separately reported on the balance sheet.
38. A basic principle of cash management is to increase the speed of paying liabilities.
39. If a monthly cash budget is prepared properly, there will never be a cash deficiency at the end of any month.
40. A cash budget contributes to more effective cash management.
41. In budgeting cash, cash disbursements include payments to employees and suppliers as well as for depreciation.
42. A liquid investment is one for which there is a ready market.
*43. A petty cash fund is used to pay relatively large amounts.
*44. A journal entry is not needed when a petty cash fund is replenished.
MULTIPLE CHOICE QUESTIONS
45. Which of the following is not one of the main factors that contribute to fraudulent activity?
a. Opportunity.
b. Incompatible duties.
c. Financial pressure.
d. Rationalization.
46. All of the following requirements about internal controls were enacted under the Sarbanes Oxley Act except
a. independent outside auditors must attest to the adequacy of the internal control system.
b. companies must maintain an adequate system of internal control.
c. companies must ensure the internal controls are reliable and effective.
d. independent outside auditors must eliminate redundant internal controls.
47. Which one of the following is not an objective of a system of internal controls?
a. Safeguard company assets.
b. Ensure the effectiveness of management’s strategic plan.
c. Enhance the accuracy and reliability of accounting records.
d. Increase efficiency of operations.
48. Which one of the following is not an objective of a system of internal controls?
a. Safeguard company assets.
b. Enhance the accuracy and reliability of accounting records.
c. Ensure fairness of the financial statements.
d. Ensure compliance with laws and regulations.
49. All of the following are examples of internal control procedures except
a. using prenumbered documents.
b. reconciling the bank statement.
c. customer satisfaction surveys.
d. insisting that employees take vacations.
50. Each of the following is a component of internal control except
a. an extensive marketing plan.
b. bonding of employees.
c. segregation of duties.
d. prenumbered documents.
51. Each of the following is a feature of internal control except
a. limited access to assets.
b. independent internal verifications.
c. authorization of transactions.
d. generic design of documents.
52. Which of the following is not a limitation of internal control?
a. Cost versus benefit
b. The human element
c. Segregation of duties
d. The size of the company
53. Internal controls are concerned with
a. only manual systems of accounting.
b. the extent of government regulations.
c. safeguarding assets.
d. preparing income tax returns.
54. Internal control is defined, in part, as a plan that safeguards
a. documents.
b. assets.
c. liabilities.
d. capital stock.
55. Under the concept of establishment of responsibility, how many people should have the ultimate responsibility for a given task?
a. Everyone in the organization.
b. An individual and his/her supervisor.
c. Only one individual.
d. The CEO.
56. Which of the following is not an element of fraud in a business environment?
a. Financial pressure
b. Rationalization
c. Opportunity
d. Risk assessment
57. Which one of the following is not an objective of internal control?
a. To ensure compliance with laws and regulations
b. To guarantee the accuracy of the accounting records
c. To enhance the reliability of financial statements
d. To safeguard assets
58. Which one of the following is a principle of internal control that requires that different individuals should be responsible for related activities?
a. Establishment of responsibility
b. Documentation procedures
c. Management responsibility
d. Segregation of duties
59. Which internal control is demonstrated by assigning different individuals to be responsible for related activities?
a. Documentation procedures
b. Segregation of duties
c. Establishment of responsibility
d. Independent internal verification
60. Internal controls are designed to safeguard assets from
a. employee theft.
b. robbery.
c. unauthorized use.
d. all of these answers are correct.
61. Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them
a. increases the potential for errors and fraud.
b. decreases the potential for errors and fraud.
c. is an example of good internal control.
d. is a good example of safeguarding the company's assets.
62. The custodian of a company asset should
a. have access to the accounting records for that asset.
b. be someone outside the company.
c. not have access to the accounting records for that asset.
d. be an accountant.
63. Internal auditors
a. are hired by CPA firms to audit business firms.
b. are employees of the IRS who evaluate the internal controls of companies filing tax returns.
c. evaluate the system of internal controls for the companies that employ them.
d. cannot evaluate the system of internal controls of the company that employs them.
64. When two or more people get together for the purpose of circumventing prescribed controls, it is called
a. a fraud committee.
b. collusion.
c. a division of duties.
d. bonding of employees.
65. From an internal control standpoint, the asset most susceptible to improper diversion and use is
a. prepaid insurance.
b. cash.
c. buildings.
d. land.
66. A traditional definition of internal control specifically includes all of the following features except
a. ensure compliance with laws and regulations.
b. promotion of operational efficiency.
c. reliability of accounting data.
d. insistence that employees not take earned vacations.
67. A consequence of the segregation of duties is that
a. theft by employees becomes impossible.
b. operations become extremely inefficient.
c. fewer employees will need to be bonded.
d. theft is still possible when several employees are involved.
68. A very small company would have the most difficulty in implementing which of the following internal control activities?
a. Segregation of duties.
b. Limited access to assets.
c. Periodic independent verification.
d. Sound personnel procedures.
69. The principle of establishing responsibility does not include
a. one person being responsible for one task.
b. authorization of transactions.
c. independent internal verification.
d. approval of transactions.
70. The control principle related to not having the same person authorize and pay for goods is known as
a. establishment of responsibility.
b. independent internal verification.
c. segregation of duties.
d. rotation of duties.
71. Two individuals at a retail store work the same cash register. You evaluate this situation as
a. a violation of establishment of responsibility.
b. a violation of segregation of duties.
c. supporting the establishment of responsibility.
d. supporting internal independent verification.
72. An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of
a. establishment of responsibility is violated.
b. independent internal verification is violated.
c. documentation procedures is violated.
d. segregation of duties is violated.
73. Related selling activities do not include
a. ordering the merchandise.
b. making a sale.
c. shipping the goods.
d. billing the customer.
74. Related purchasing activities include
a. ordering, receiving, paying.
b. ordering, selling, paying.
c. ordering, shipping, billing.
d. selling, shipping, paying.
75. Joe is a warehouse custodian and maintains the accounting records of the inventory held at the warehouse. An assessment of this situation indicates
A. documentation procedures are violated.
b. independent internal verification is violated.
c. segregation of duties is violated.
d. establishment of responsibility is violated.
76. Physical controls to safeguard assets do not include
a. cashier department supervisors.
b. safes.
c. safety deposit boxes.
d. locked warehouses.
77. In large companies, the independent internal verification procedure is often assigned to
a. computer operators.
b. management.
c. internal auditors.
d. outside CPAs.
78. Maximum benefit from independent internal verification is best obtained when
a. it is made on a pre-announced basis.
b. it is done by the employee possessing custody of the asset.
c. discrepancies are reported to management.
d. it is done at the time of the audit.
79. If employees are bonded
a. it means that they are not allowed to handle cash.
b. they have worked for the company for at least 10 years.
c. they have been insured against misappropriation of assets.
d. it is impossible for them to steal from the company.
80. In a small business, the lack of certain separations of duties can best be overcome by
a. bonding the employees.
b. getting the owner actively involved.
c. hiring only honest employees.
d. holding one person responsible for a given set of transactions.
81. Ryan Seacrest has worked for Idol Inc. for 20 years without taking a vacation. An internal control principle that would address this situation would be
a. human resource controls.
b. establishment of responsibility.
c. physical controls.
d. documentation procedures.
82. A system of internal control
a. is infallible.
b. can be rendered ineffective by employee collusion.
c. invariably will have costs exceeding benefits.
d. is premised on the concept of absolute assurance.
83. Which of the following statements is correct?
a. Due to its liquid nature, cash is the asset most susceptible to fraudulent activities.
b. A good system of internal control will ensure that employees will not be able to steal cash.
c. It takes two or more employees working together to be able to steal cash.
84. Internal control measures
a. only apply to publicly traded companies.
b. are in place to safeguard assets.
c. can eliminate all irregularities in the accounting process.
85. Acme Grocery Store has the following policy. ‘Only one cashier can have access to a cash drawer.’ Which internal control principle supports this policy?
a. Documentation procedures.
b. Segregation of duties.
c. Physical controls.
d. Establishment of responsibility.
86. Luke Bryan has been a trusted employee for over 10 years. He is responsible for ordering merchandise inventory, receiving the inventory items, and authorizing the payment for these items. Which internal control principle, if any, is being violated?
a. None. Luke has proven to be trustworthy and has enough experience to do a good job.
b. Documentation procedures.
c. Establishment of responsibility.
d. Segregation of duties.
87. What is the rationale for the internal control principle, segregation of duties?
a. History has shown that employees are generally dishonest and thus cannot be entrusted with performing related duties.
b. The work of one employee should, without duplication of effort, provide a reliable basis for evaluating the work of another employee.
c. Control is most effective when only one person is responsible for a given task.
d. Segregation of duties causes companies to hire more employees and thus it supports the economy.
88. Bonding involves all of the following except
a. the company obtains insurance protection against misappropriation of assets by a dishonest employee.
b. the insurance company screens employees before they are added to the policy.
c. the company informs employees that the insurance company will vigorously prosecute all offenders.
d. employees do not commit inappropriate acts because of the threat of prosecution and their loyalty to the employer.
89. Related sales activities include
a. making a sale, billing the customer, and collecting the payment.
b. ordering goods and approving payments.
c. writing checks and preparing the bank reconciliation.
d. ordering merchandise and receiving goods.
90. Related purchasing activities include
a. making a sale, billing the customer, and collecting the payment.
b. ordering goods, receiving goods, and authorizing payment for the goods.
c. approving cash disbursements and preparing the bank reconciliation.
d. receiving goods and preparing the bank reconciliation.
91. Physical controls include all of the following except
a. garment sensors.
b. mandatory employee vacations.
c. television monitors.
d. passkey access to restricted areas.
92. Examples of documentation supporting the recording of transactions include all of the following except
a. sales invoices.
b. shipping documents.
c. purchase orders.
93. Which of the following is one of two documentation procedures that companies should establish as part of the system of internal controls?
a. Employees should number sales invoices sequentially as sales are made.
b. Transactions should be documented when the books are closed at the end of the accounting period.
c. Source documents for accounting entries should be forwarded promptly to the accounting department.
d. A bank reconciliation should be prepared monthly.
94. All of the following are ways in which data analytics can enhance a system of internal controls except:
a. Identify spikes in activity
b. Ensure compliance with the policies regarding segregation of duties.
c. Increase the need for investigations of period-end samples of transactions.
d. Flag high dollar amounts in higher risk area.
95. Which of the following would not be included in the definition of cash?
a. Money on deposit in a bank.
b. Coins.
c. NSF checks.
d. Petty cash.
96. At A1 Enterprise, one accounting clerk prepares the cash deposits while the other clerk enters the collections in the journal and ledger. Which of the following is the best explanation of this type of internal control principle over cash receipts?
a. Physical controls.
b. Documentation procedures.
c. Segregation of duties.
d. Mechanical controls.
97. Which one of the following items would not be considered cash?
a. Coins.
b. Money orders.
c. Currency.
d. Postdated checks.
98. The reconciliation of the cash register tape with the cash in the register is an example of
a. other internal controls.
b. independent internal verification.
c. establishment of responsibility.
d. segregation of duties.
99. Which of the following is not an internal control procedure for cash?
a. Payments should be made with cash.
b. There should be limited access to cash.
c. The amount of cash on hand should be kept to a minimum.
d. Cash should be deposited daily.
100. Which of the following is not an internal control activity for cash?
a. The number of persons who have access to cash should be limited.
b. The functions of record keeping and maintaining custody of cash should be combined.
c. Surprise audits of cash on hand should be made occasionally.
d. All cash receipts should be recorded promptly.
101. Supervisors counting cash receipts daily is an example of
a. human resource controls.
b. independent internal verification.
c. establishment of responsibility.
d. segregation of duties.
102. Which of the following is not an internal control procedure for cash?
a. Only designated personnel are authorized to handle cash.
b. The same individual receives the cash and pays the bills.
c. Surprise audits of cash on hand should be made occasionally.
d. Access to cash is limited.
103. Which of the following is not an internal control activity for cash?
a. All payments should be made with currency, not checks.
b. Banking facilities should be used as much as possible.
c. The amount of cash on hand should be kept to a minimum.
d. Employees who have access to cash should be bonded.
104. Control over cash disbursements is generally more effective when
a. all bills are paid in cash.
b. disbursements are made by the accounts payable subsidiary clerk.
c. payments are made by check.
d. all purchases are made on credit.
105. Which of the following is not a suggested procedure to establish internal control over cash disbursements?
a. Anyone can sign the checks.
b. Different individuals approve and make the payments.
c. Blank checks are stored with limited access.
d. The bank statement is reconciled monthly.
106. The use of prenumbered checks is an example of
a. documentation procedures.
b. independent internal verification.
c. establishment of responsibility.
d. segregation of duties.
107. Before a check authorization is issued, the following documents must be in agreement, except for the
a. invoice.
b. remittance advice.
c. receiving report.
d. purchase order.
108. Which of the following is an appropriate internal control activity for cash?
a. Record keeping and custodianship over cash should be performed by the same person.
b. Banking facilities should be used as little as possible.
c. All payments should be made with currency, not checks.
d. The amount of cash on hand should be kept to a minimum.
109. An exception to disbursements being made by check is acceptable when cash is paid
a. to an owner.
b. to employees as wages.
c. from petty cash.
d. to employees as loans.
110. Allowing only the treasurer to sign checks is an example of
a. documentation procedures.
b. segregation of duties.
c. other controls.
d. establishment of responsibility.
111. Blank checks
a. should be safeguarded.
b. should be pre-signed.
c. do not need to be safeguarded.
d. should not be pre-numbered.
112. An employee authorized to sign checks should not record
a. owner cash contributions.
b. mail receipts.
c. cash disbursement transactions.
d. sales transactions.
113. Examples of EFTs include all of the following except
a. online bill payments.
b. outstanding checks.
c. purchases made with debit cards.
d. direct deposits of payroll made to an employee’s account.
114. Which of the following statements is false regarding EFTs?
a. EFT reduces the opportunities for employees to misappropriate cash.
b. EFT enhances cash management.
c. EFT uses email to transfer funds from one location to another.
d. Online bill payments and direct deposits to employee’s accounts are examples of EFTs.
115. The term “float” refers to the
a. amount of cash that the operator of a cash register is given to make change.
b. maximum amount by which cash receipts can vary from the cash register tape.
c. allowable amount of cash short or over.
d. difference between the cash register total and sales for the day.
116. An advantage of a point-of-sale cash register is
a. employees do not handle cash.
b. it segregates duties between the cashier and supervisor.
c. perpetual inventory records can be updated at the time the sale is made.
d. cashiers can use float to make change for customers.
117. Which of the following policies enhances control over check receipts?
a. Checks received in the mail should be forwarded with the remittance advices to the accounts receivable clerk.
b. When a check is received at the point of sale, it should be included in the cash register and the daily sales total.
c. All checks should be segregated and a separate deposit should be made weekly.
d. Internal controls over check receipts are generally not necessary as few payments are made by check.
118. Which of the following statements is not true regarding check receipts?
a. The use of checks has diminished greatly with advances in technology.
b. Many businesses still use checks for business-to-business transactions.
c. The employee depositing the checks should update sales revenue and accounts receivable.
d. Independent internal verification of the deposit slip enhances control over cash receipts.
119. All of the following are items that would most likely be paid from a petty cash fund except
a. postage due.
b. taxi fares.
c. administrative wages.
d. freight-out.
120. Electronic funds transfer (EFT) is a disbursement system that transfers cash from one location to another using a
a. telephone only.
b. wire only.
c. computer only.
d. telephone, wire, or computer.
121. A bank statement
a. allows a depositor to know the financial position of the bank as of a certain date.
b. is a credit reference letter written by the depositor's bank.
c. is a bill from the bank for services rendered.
d. shows the activities that increased or decreased the depositor's account balance.
122. Which one of the following would not cause a bank to debit a depositor's account?
a. Bank service charge.
b. Collection of a note receivable.
c. Wiring of funds to other locations.
d. Checks marked NSF.
123. A company maintains the asset account, Cash, on its books, while the bank maintains a reciprocal account that is
a. a contra asset account.
b. a liability account.
c. also an asset account.
d. a stockholders' equity account.
124. A deposit made by a company will appear on the bank statement as a
a. debit.
b. credit.
c. debit memorandum.
d. credit memorandum.
125. All of the following are true regarding bank statements except the bank statement
a. will show a credit for deposits received from a company.
b. balance will always agree with the company reported balance.
c. is a copy of the bank's records sent to the customer for periodic review.
d. will show a debit if a check is paid for a company issuing the check.
126. Which of the following controls would best help detect the removal of a blank check by an employee from the back of a company's checkbook for subsequent misappropriation of funds?
a. An accounting policies manual.
b. Tracing any debit memorandums from the bank to the company's records.
c. The use of prenumbered checks.
d. A review of the cash budget.
127. On a bank statement, paid checks are shown as
a. credits.
b. debits
c. assets.
d. liabilities.
128. An NSF check should appear in which section of the bank reconciliation?
a. Addition to the balance per books.
b. Deduction from the balance per bank.
c. Addition to the balance per bank.
d. Deduction from the balance per books.
129. Which of the following would be deducted from the balance per books on a bank reconciliation?
a. Outstanding checks.
b. Deposits in transit.
c. Notes collected by the bank.
d. Service charges.
130. Which of the following would be added to the balance per books on a bank reconciliation?
a. Outstanding checks.
b. Deposits in transit.
c. Notes collected by the bank.
d. NSF check.
131. Which of the following would not be subtracted from the balance per books on a bank reconciliation?
a. Outstanding checks.
b. NSF checks.
c. Check printing charge.
d. Service charges.
132. Which of the following would be deducted from the balance per bank on a bank reconciliation?
a. Outstanding checks.
b. Deposits in transit.
c. Notes collected by the bank.
d. Service charges.
133. Which of the following would be added to the balance per bank on a bank reconciliation?
a. Outstanding checks.
b. Deposits in transit.
c. Notes collected by the bank.
d. Service charges.
134. A check returned by the bank marked "NSF" means
a. no service fee.
b. no signature found.
c. not satisfactorily filled out.
d. not sufficient funds.
135. A debit memorandum would not be issued by the bank for
a. a bank service charge.
b. the issuance of traveler's checks.
c. the wiring of funds.
d. the collection of notes receivable.
136. A bank reconciliation should be prepared
a. whenever the bank refuses to lend the company money.
b. when an employee is suspected of fraud.
c. to explain any difference between the depositor's balance per books with the balance per bank.
d. by the person who is authorized to sign checks.
137. Deposits in transit
a. have been recorded on the company's books but not yet by the bank.
b. have been recorded by the bank but not yet by the company.
c. have not been recorded by the bank or the company.
d. are customers’ checks that have not yet been received by the company.
138. In preparing a bank reconciliation, outstanding checks are
a. added to the balance per bank.
b. deducted from the balance per books.
c. added to the balance per books.
d. deducted from the balance per bank.
139. If a check correctly written and paid by the bank for $628 is incorrectly recorded on the company's books for $682, the appropriate treatment on the bank reconciliation would be to
a. add $54 to the book's balance.
b. subtract $54 from the book's balance.
c. deduct $54 from the bank's balance.
d. deduct $628 from the book's balance.
140. A check written by the company for $167 is incorrectly recorded by a company as $176. On the bank reconciliation, the $9 error should be
a. added to the balance per books.
b. deducted from the balance per books.
c. added to the balance per bank.
d. deducted from the balance per bank.
141. For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?
a. Check for $63 recorded by the company as $36.
b. Deposit of $600 recorded by the bank as $60.
c. A returned $300 check recorded by the bank as $30.
d. Check for $75 recorded by the company as $57.
142. For which of the following errors should the appropriate amount be subtracted from the balance per bank on a bank reconciliation?
a. Check for $63 recorded by the company as $36.
b. Deposit of $600 recorded by the bank as $60.
c. A returned $300 check recorded by the bank as $30.
d. Check for $75 recorded by the company as $57.
143. For which of the following errors would the appropriate amount be added to the balance per books on a bank reconciliation?
a. Check written for $63, but recorded by the company as $36.
b. Deposit of $600 recorded by the bank as $60.
c. A returned $300 check recorded by the bank as $30.
d. Check written for $57, but recorded by the company as $75.
144. For which of the following errors would the appropriate amount be subtracted from the balance per books on a bank reconciliation?
a. Check written for $63, but recorded by the company as $36.
b. Deposit of $600 recorded by the bank as $60.
c. A returned $300 check recorded by the bank as $30.
d. Check written for $57, but recorded by the company as $75.
145. Which of the following bank reconciliation items would not result in an adjusting entry?
a. Service charge
b. Deposits in transit
c. NSF check of a customer
d. Collection of a note by the bank
146. Which of the following items on a bank reconciliation would require an adjusting entry on the company’s books?
a. An error by the bank
b. Outstanding checks
c. A bank service charge
d. A deposit in transit
147. All of the following bank reconciliation items would result in an adjusting entry on the company’s books except
a. interest earned.
b. deposits in transit.
c. fee for collection of note by the bank.
d. NSF check of a customer.
148. Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry:
a. Accounts Receivable
Cash
b. Cash
Accounts Receivable
c. Miscellaneous Expense
Accounts Receivable
d. No adjusting entry is necessary.
149. Acme Construction Company had checks outstanding totaling $32,400 on its June bank reconciliation. In July, Acme issued checks totaling $233,400. The July bank statement shows that $157,800 in checks cleared the bank in July. A check from one of Acme's customers in the amount of $1,800 was also returned marked "NSF." The amount of outstanding checks on Acme’s July bank reconciliation should be
a. $75,600.
b. $108,000.
c. $106,200.
d. $43,200.
150. Ace Service Company had checks outstanding totaling $34,000 on its May bank reconciliation. In June, Ace issued checks totaling $212,800. The June bank statement shows that $158,400 in checks cleared the bank in June. A check from one of Ace’s customers in the amount of $1,600 was also returned marked "NSF." The amount of outstanding checks on Ace’s June bank reconciliation should be
a. $86,800.
b. $54,400.
c. $88,400.
d. $20,400.
151. A1 Service Company gathered the following reconciling information in preparing its August bank reconciliation:
Cash balance per books, 8/31 $28,000
Deposits in transit 1,200
Notes receivable and interest collected by bank 6,800
Bank charge for check printing 160
Outstanding checks 16,000
NSF check 1,360
The adjusted cash balance per books on August 31 is
a. $33,280.
b. $32,080.
c. $18,400.
d. $19,680.
152. Acme Marine Supply Company gathered the following reconciling information in preparing its April bank reconciliation:
Cash balance per books, 4/30 $17,600
Deposits in transit 2,400
Notes receivable and interest collected by bank 5,920
Bank charge for check printing 200
Outstanding checks 12,000
NSF check 1,120
The adjusted cash balance per books on April 30 is
a. $24,600.
b. $23,520.
c. $22,200.
d. $24,440.
153. Bank errors
a. occur because of time lags.
b. must be corrected by debits.
c. are infrequent in occurrence.
d. are corrected by making an adjusting entry on the depositor's books.
154. A1 Beauty Supply Company gathered the following reconciling information in preparing its June bank reconciliation:
Cash balance per books, 6/30 $12,600
Deposits in transit 900
Notes receivable and interest collected by bank 2,220
Bank charge for check printing 75
Outstanding checks 4,500
NSF check 420
The adjusted cash balance per books on June 30 is
a. $15,225.
b. $14,820.
c. $14,325.
d. $15,165.
155. An adjusting entry is not required for
a. outstanding checks.
b. collection of a note by the bank.
c. NSF checks.
d. bank service charges.
156. In the month of November, Acme Storage Company Inc. wrote checks in the amount of $55,500. In December, checks in the amount of $75,948 were written. In November, $50,808 of these checks were presented to the bank for payment and $65,298 in December. What is the amount of outstanding checks at the end of December, assuming that there were no checks outstanding on October 31?
a. $10,650.
b. $15,342.
c. $4,692.
d. $21,300.
157. In the month of November, A1 Beauty Supply Company Inc. wrote checks in the amount of $46,250. In December, checks in the amount of $63,290 were written. In November, $42,340 of these checks were presented to the bank for payment and $54,415 in December. What is the amount of outstanding checks at the end of December, assuming that there were no checks outstanding on October 31?
a. $8,875.
b. $3,910.
c. $12,785.
d. $17,750.
158. What causes the balance on the bank statement to differ from the cash balance in the general ledger?
a. Time lags only
b. Errors by the bank only
c. Errors by the company only
d. Time lags, and errors by the bank or company
159. Of the following employees, who should prepare the bank reconciliation?
a. Lionel, the bookkeeper, because she is aware of all transactions that affected cash.
b. Luke, the treasurer, because he has control of the checkbook and has taken more accounting courses than any other employee.
c. Katy, the cashier, because she does not pay bills.
d. Ryan, the purchasing agent, because he does not work in the accounting department.
160. While preparing the bank reconciliation, you notice that a check, written by the company for $750, has been outstanding for 5 months. What is the best action for you to take?
a. Void the check. If it has not been cashed in 5 months, it will never be cashed.
b. Issue a replacement check because you assume the original check has been lost.
c. Wait 3 more months to give the bank more time to clear the check.
d. Investigate to determine why the check has not cleared.
161. Which of the following items may cause the cash balance per bank to differ from the cash balance per books?
a. Time lags and bank or book errors
b. Bank errors and the existence of multiple bank accounts
c. Time lags and the existence of multiple bank accounts
d. Existence of amounts not yet paid by customers and time lags
162. Which of the following is an example of a bank reconciliation item that requires an adjusting entry?
a. NSF check.
b. Deposit in transit.
c. Bank error.
d. None of these items requires an adjusting entry.
163. At April 30, Ace Office Supply Company has the following bank information:
Cash balance per bank $6,900
Outstanding checks $420
Deposits in transit $825
Credit memo for interest $15
Bank service charge $30
What is Ace’s adjusted cash balance on April 30?
a. $7,290.
b. $7,320.
c. $6,495.
d. $7,305.
164. At April 30, A1 Resource Company has the following bank information:
Cash balance per bank $3,600
Outstanding checks $280
Deposits in transit $550
Credit memo for interest $10
Bank service charge $20
What is A1’s adjusted cash balance on April 30?
a. $3,860.
b. $3,880.
c. $3,330.
d. $3,870.
165. Ace Auto Supply Company wrote checks totaling $38,430 during October and $41,964 during November. $36,540 of these checks cleared the bank in October, and $40,995 cleared the bank in November. What was the amount of outstanding checks on November 30, assuming that there were no checks outstanding on September 30?
a. $2,859.
b. $519.
c. $1,374.
d. $4,455.
166. Acme Wholesale Company assembled the following information in completing its March bank reconciliation:
Balance per bank $19,100
Outstanding checks $3,875
Deposits in transit $6,250
NSF check $400
Bank service charges $125
Cash balance per books $22,000
As a result of this reconciliation, Acme will
a. reduce its cash account by $2,375.
b. reduce its cash account by $125.
c. increase its cash account by $275.
d. reduce its cash account by $525.
167. A1 Bicycle Company assembled the following information in completing its March bank reconciliation:
Balance per bank $12,224
Outstanding checks $2,480
Deposits in transit $4,000
NSF check $256
Bank service charges $80
Cash balance per books $14,080
As a result of this reconciliation, A1 will
a. reduce its cash account by $1,520.
b. reduce its cash account by $80.
c. increase its cash account by $176.
d. reduce its cash account by $336.
168. If a check correctly written and paid by the bank for $491 is incorrectly recorded on the company’s books for $419, the appropriate treatment on the bank reconciliation would be to
a. add $72 to the book’s balance.
b. subtract $72 from the book’s balance.
c. deduct $72 from the bank’s balance.
d. deduct $491 from the book’s balance.
169. A check written by the company for $275 is incorrectly recorded by a company as $257. On the bank reconciliation, the $18 error should be
a. added to the balance per books.
b. deducted from the balance per books.
c. added to the balance per bank.
d. deducted from the balance per bank.
170. In the month of May, a company wrote checks in the amount of $74,000. In June, checks in the amount of $101,264 were written. In May, $67,744 of these checks were presented to the bank for payment and $87,064 in June. What is the amount of outstanding checks at the end of May, assuming that there were no checks outstanding on April 30?
a. $14,200
b. $6,256
c. $20,456
d. $28,400
171. In the month of May, Ace Retail Company Inc. wrote checks in the amount of $64,750. In June, checks in the amount of $88,606 were written. In May, $59,276 of these checks were presented to the bank for payment and $76,181 in June. What is the amount of outstanding checks at the end of June, assuming that there were no checks outstanding on April 30?
a. $12,425
b. $5,474
c. $17,899
d. $24,850
172. Which statement regarding negative cash balances is true?
a. The amount is offset against other current assets because users need to know net current assets.
b. The amount is shown as a current liability because a company cannot report a cash balance below zero.
c. The company must obtain a loan to bring the cash balance to zero before financial statements are prepared.
d. The negative cash balance is included as a current asset and discussed in a footnote to the financial statements.
173. Which item is a current asset?
a. Cash – regardless of whether it has a positive or negative balance.
b. Cash equivalents.
c. Cash that will be used to close a plant in eighteen months.
d. Restricted cash that will not be used within the upcoming year.
174. Which of the following would be classified as current asset at December 31, 2025?
a. Cash balances of all checking accounts, regardless of positive or negative balances.
b. Cash equivalents.
c. Cash restricted for plant expansion in 2027.
d. Cash restricted for payment of long-term contingent liabilities.
175. Which of the following would not be considered a cash equivalent?
a. Money market fund.
b. Commercial paper.
c. Treasury bill.
d. Restricted cash.
176. Cash equivalents do not include
a. money market accounts.
b. commercial paper.
c. U.S. Treasury bills.
d. long-term investments.
177. Which of the following items is not considered to be a cash equivalent?
a. Short-term highly liquid investments maturing in 30 days
b. Commercial paper
c. Restricted cash funds
d. Money market funds
178. Which one of the following is not a key principle of cash management?
a. Plan the timing of major expenditures
b. Invest idle cash
c. Keep inventory levels low
d. Maintain as much cash as possible in order to pay obligations when due
179. Which of the following is not a method a company may use to accelerate cash receipts?
a. Decrease the turnover of receivables by more aggressive collections efforts
b. Sell receivables
c. Use national credit cards
d. Factoring
180. Which one of the following is not reported as part of ‘cash and cash equivalents’ on the balance sheet?
a. Money orders
b. Restricted cash
c. Treasury bills
d. Commercial paper
181. Restricted cash should be reported
a. always as a noncurrent asset.
b. separately on the income statement.
c. separately on the balance sheet.
d. always as a current asset.
182. All of the following are true regarding the management and monitoring of cash except
a. companies may have plenty of sales, but insufficient cash to support operations.
b. the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company.
c. manufacturers may experience a significant lag between the purchase of raw materials and the receipt of cash from customers.
d. companies should have sufficient cash to meet payments but minimize the amount of non-revenue-generating cash on hand.
183. Acme Company has implemented a just-in-time system, which relies on suppliers to deliver goods for resale as needed. This implementation is most consistent with which of the following basic principles of cash management?
a. Increasing the speed of receivables collection
b. Planning the timing of major expenditures
c. Keeping inventory levels low
d. Delaying the payment of liabilities
184. Which one of the following is provided by the cash budget?
a. It can indicate the profitability of a company.
b. It can identify projected expenses.
c. It can identify when a company will need additional financing.
d. It can identify if a company has adequate internal controls.
185. Management of cash is the responsibility of the company
a. accountant.
b. president.
c. treasurer.
d. vice-president.
186. Which of the following is not a basic principle of cash management?
a. Increase the speed of collection on receivables
b. Maintain idle cash
c. Keep inventory levels low
d. Delay payment of liabilities
187. Which of the following is not a basic principle of cash management?
a. Increase the collection of receivables
b. Keep inventory levels high
c. Delay payment of liabilities
d. Invest idle cash
188. Which of the following is not a basic principle of cash management?
a. Increase the collection of receivables
b. Keep inventory levels low
c. Pay all liabilities early
d. Invest idle cash
189. Which of the following does not appear as a separate section on the cash budget?
a. Cash receipts
b. Cash disbursements
c. Cash sales
d. Financing
190. The following information was taken from A1 Electrical Service Company cash budget for the month of July:
Beginning cash balance $125,000
Cash receipts 120,000
Cash disbursements 170,000
If the company has a policy of maintaining an end of the month cash balance of $125,000, the amount the company would have to borrow is
a. $50,000.
b. $25,000.
c. $75,000.
d. $36,000.
191. The following information was taken from Ace Auto Supply Company cash budget for the month of June
Beginning cash balance $69,000
Cash receipts 93,000
Cash disbursements 117,000
If the company has a policy of maintaining an end of the month cash balance of $60,000, the amount the company would have to borrow is
a. $36,000.
b. $15,000.
c. $24,000.
d. $0.
192. The following information was taken from Acme Building Supply Company cash budget for the month of April
Beginning cash balance $120,000
Cash receipts 108,000
Cash disbursements 136,000
Depreciation 20,000
If the company has a policy of maintaining an end of the month cash balance of $100,000, the amount the company would have to borrow is
a. $116,000.
b. $28,000.
c. $8,000.
d. $0.
193. Which one of the following sections would not appear on a cash budget?
a. Cash receipts.
b. Financing.
c. Investing.
d. Cash disbursements.
194. The following credit sales are budgeted by Ace Discount Retail Company:
January $306,000
February 450,000
March 630,000
April 540,000
The company’s past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of March is
a. $555,480.
b. $504,000.
c. $540,000.
d. $529,200.
195. The cash receipts section of a cash budget includes all of the following except
a. cash sales.
b. collections from customers.
c. receipts of interest and dividends.
d. expected borrowings.
196. The cash receipts section of a cash budget includes all of the following except
a. collections of accounts receivable.
b. expected borrowings.
c. receipts of dividends on stock investments.
d. proceeds from the sale of stock.
197. The cash receipts section of a cash budget includes all of the following except
a. collections of notes receivable.
b. receipt of income tax refund.
c. receipts of interest on notes receivable.
198. Which of the following is not included in the cash disbursements section of a cash budget?
a. Payments for materials
b. Payments for income taxes
c. Repayments of borrowed funds
199. Which of the following is not included in the cash disbursements section of a cash budget?
a. Payments to suppliers for inventory
b. Payments to employees for salaries
c. Payments for operating expenses, including depreciation
200. The following credit sales are budgeted by A1 Marine Supply Company:
February 200,000
March 280,000
April 240,000
The company’s past experience indicates that 80% of the accounts receivable are collected in the month of sale, 20% in the month following the sale. The anticipated cash inflow for the month of April is
a. $172,800.
b. $201,600.
c. $216,000.
d. $248,000.
201. The following credit sales are budgeted by Ace Wholesale Distributors Company:
January $170,000
February 250,000
March 350,000
The company’s past experience indicates that 80% of the accounts receivable are collected in the month of sale, 20% in the month following the sale. The anticipated cash inflow for the month of March is
a. $330,000.
b. $280,000.
c. $350,000.
d. $340,000.
202. If the cash budget showed a projected cash shortage at the end of one period, the company would most likely
a. make fewer purchases of inventory so they could control costs.
b. lay off workers for that period.
c. arrange to borrow the necessary cash for that period.
d. cut salaries for that period.
203. Ace Salon Supply Company is preparing a cash budget for September. The company’s cash balance on September 1 is $34,800. The company anticipates cash receipts of $167,700 and cash disbursements of $175,980. If Ace desires a cash balance of $36,000, it must acquire financing of
a. $1,200.
b. $9,480.
c. $7,080.
d. $27,720.
204. Which of the following is not a basic principle of cash management?
- Increase the speed of receivables collection
- Keep inventory levels high
- Monitor the payment of liabilities
- Defer the timing of major expenditures
205. A1 Integrated Health Company is preparing a cash budget for September. The company’s cash balance on September 1 is $23,200. The company anticipates cash receipts of $111,800 and cash disbursements of $117,320. If Petersen desires a cash balance of $24,000, it must acquire financing of
a. $800.
b. $6,320.
c. $4,720.
d. $18,480.
206. The following credit sales are budgeted by Acme Company:
May $476,000
June 700,000
July 980,000
August 840,000
The company’s past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of August is
a. $864,080.
b. $784,000.
c. $840,000.
d. $823,200.
207. Which one of the following items would never appear on a cash budget?
a. Payments for salaries
b. Borrowing repayments
c. Depreciation expense
d. Payments for inventory
208. Expected direct materials purchases in A1 Candy Company are $210,000 in the first quarter and $270,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are
a. $288,000.
b. $270,000.
c. $234,000.
d. $216,000.
209. Expected materials purchases in Acme Wholesale Grocery Supply Company are $630,000 in the first quarter and $810,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are
a. $864,000.
b. $810,000.
c. $702,000.
d. $648,000.
1. The same person opens the incoming mail and posts the accounts receivable subsidiary ledger.
2. Three people handle cash sales from the same cash register drawer.
3. A clothing store is experiencing a high level of inventory shortages because people try on clothing and walk out of the store without paying for the merchandise.
4. The person who is authorized to sign checks approves purchase orders for payment.
5. Some cash payments are not recorded because checks are not prenumbered.
6. Cash shortages are not discovered because there are no daily cash counts by supervisors.
7. The treasurer of the company has not taken a vacation for over 20 years.
Ex. 237
Jim Gant has worked for Dr. Katy Perry for several years. Jim demonstrates a loyalty that is rare among employees. He hasn't taken a vacation in the last three years. One of Jim's primary duties at the medical office is to open the mail and list the checks received. He also takes cash from patients at the cashier window as patients leave. At times it is so hectic that Jim doesn't bother with giving patients a receipt for the cash paid on their accounts. He assures them he will see to it that they receive the proper credit. When the traffic is slow in the office, Jim offers to help Kim post the payments to the patients' accounts receivable. She is always happy to receive his help because he is a very conscientious worker.
Instructions
Identify any principles of internal control that may be violated in this medical office situation.
Ex. 238
Listed below are seven errors or problems that might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem, write "None." If you think more than one principle is appropriate, list all principles that apply.
Possible Errors or Problems
1. An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise.
2. A small fire destroys 3 days of cash receipts.
3. The official designated to sign checks is able to steal blank checks and issue them without fear of detection.
4. A sales clerk in serving customers often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer.
5. Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand.
6. Each cashier counts his own register drawer each day and verbally reports the results to the supervisor.
7. Cashiers with over 5-years of experience are not bonded.
Internal Control Principles
a. Establishment of responsibility
b. Segregation of duties
c. Physical control devices
d. Documentation procedures
e. Independent internal verification
f. Human resource controls
Ex. 239
Using the following information, prepare a bank reconciliation for A1 Plumbing Company for July 31, 2025.
- The bank statement balance is $3,506.
- The cash account balance is $3,930
- Outstanding checks totaled $1,285.
- Deposits in transit are $1,670.
- The bank service charge is $30.
- A check for $98 for supplies was recorded as $89 in the ledger.
Ex. 240
Using the following information, prepare a bank reconciliation for Ace Beauty Supply Company for May 31, 2025.
a. The bank statement balance is $8,300.
- The cash account balance is $6,562
- Outstanding checks totaled $1,950.
- Deposits in transit are $600.
- The bank service charge is $12.
- Collection of note by the bank, $400.
Ex. 241
Using the following information, prepare a bank reconciliation for A1 Car Care Company for June 30, 2025.
a. The bank statement balance is $7,650.
b. The cash account balance is $6,422
c. Outstanding checks totaled $1,650.
d. Deposits in transit are $900.
e. The bank service charge is $22.
f. Collection of note by the bank, $500.
Ex. 242
The Acme Marine Supply Company's bank statement for the month of November showed a balance per bank of $7,000. The company's Cash account in the general ledger had a balance of $5,659 at November 30. Other information is as follows:
(1) Cash receipts for November 30 recorded on the company's books were $6,000 but this amount does not appear on the bank statement.
(2) The bank statement shows a debit memorandum for $40 for check printing charges.
(3) Check No. 119 payable to Maris Company was recorded in the cash payments journal and cleared the bank for $248. A review of the accounts payable subsidiary ledger shows a $36 credit balance in the account of Maris Company and that the payment to them should have been for $284.
(4) The total amount of checks still outstanding at November 30 amounted to $5,800.
(5) Check No. 138 was correctly written and paid by the bank for $409. The cash payment journal reflects an entry for Check No. 138 as a debit to Accounts Payable and a credit to Cash in Bank for $490.
(6) The bank returned an NSF check from a customer for $560.
(7) The bank included a credit memorandum for $2,060 which represents a collection of a customer's note by the bank for the company; the principal amount of the note was $2,000 and interest was $60. Interest has not been accrued.
Instructions
(a) Prepare a bank reconciliation for the Acme Marine Supply Company at November 30.
(b) Prepare any adjusting entries necessary as a result of the bank reconciliation.
Ex. 243
The bank statement for Ace Pet Supply Company indicates a balance of $1,730 on June 30. The cash balance per books was $799 on this date. The following information pertains to the bank transactions for the company.
- Deposit of $760, representing cash receipts of June 30, did not appear on the bank statement.
- Outstanding checks totaled $340.
- Bank service charges for June amounted to $25
- The bank collected a note receivable for the company for $1,400 plus $56 interest revenue.
- An NSF check for $80 from a customer was returned with the statement.
Instructions
- Prepare a bank reconciliation for June 30.
- Prepare any adjusting entries necessary as a result of the bank reconciliation.
Ex. 244
The bank statement for Ace Exchange Company indicates a balance of $830 on July 31. The cash balance per books had a balance of $390 on this date. The following information pertains to the bank transactions for the company.
- Deposit of $840, representing cash receipts of July 31, did not appear on the bank statement.
- Outstanding checks totaled $390.
- Bank service charges for July amounted to $30.
- The bank collected a note receivable for the company for $1,200 plus $48 interest revenue.
- An NSF check for $328 from a customer was returned with the statement.
Instructions
- Prepare a bank reconciliation for July 31.
- Prepare any adjusting entries necessary as a result of the bank reconciliation.
Ex. 245
Acme Food Store used the following information in preparing its bank reconciliation for the month of April.
Balance per books April 30 $ 905
Balance per bank statement April 30 $11,300
(1) Checks written in April but still outstanding $6,300.
(2) Checks written in March but still outstanding $2,800.
(3) Deposits of April 30 not yet recorded by bank $4,900.
(4) NSF check of customer returned by bank $500.
(5) Check No. 210 for $594 was correctly issued and paid by the bank but incorrectly entered in the cash payments journal as payment on account for $549.
(6) Bank service charge for April was $40.
(7) A payment on account was incorrectly entered in the cash payments journal and posted to the accounts payable subsidiary ledger for $824 when Check No. 318 was correctly prepared for $284. The check cleared the bank in April.
(8) The bank collected a note receivable for the company of $6,000 plus $240 interest revenue.
Ex. 245 (Cont.)
Instructions
Prepare a bank reconciliation at April 30.
Ex. 246
Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.
Code
A Add to cash balance per books
B Deduct from cash balance per books
C Add to cash balance per bank
D Deduct from cash balance per bank
E Does not affect the bank reconciliation
Items:
1. Outstanding checks
2. Bank service charge
3. Check for $320 correctly written and paid by the bank but incorrectly entered in the cash payments journal for $230
4. Deposit in transit
5. Bank returns customer deposited check marked NSF
6. Bank collects notes receivable and interest for the depositor
7. Bank debit memorandum for check printing fees
8. Petty cash custodian has $86 in paid petty cash vouchers that have not been reimbursed.
Ex. 246 (Cont.)
9. The bank charged a check against the company, which should have been charged to
another company.
10. A check for $236 was correctly paid by the bank but was incorrectly entered in the cash payments journal for $263
Ex. 247
The adjusted cash balance per books for Ace Landscaping Company on November 30, 2025 is $10,740.93. The following checks and receipts were recorded for the month of December 2025:
Checks Receipts
No. Amount No. Amount Amount Date
17 $372.96 22 $ 578.84 $ 843.86 12/5
18 780.62 23 1,687.50 941.54 12/21
19 157.00 24 921.30 808.58 12/27
20 587.50 25 246.03 1,367.00 12/31
21 234.15
In addition, the bank statement for the month of December is presented below:
Balance Deposits and Credits Checks and Debits Balance
Last Statement No. Total Amount No. Total Amount This Statement
$5,404.84 5 $9,578.36 10 $3,632.19 $11,351.01
Checks and other debits Deposits Date Balance
No. Amount No. Amount No. Amount
14 148.29 17 372.96 22 578.84 5,484.38 12/1 $9,789.13
18 708.62 24 921.30 843.86 12/8 $9,003.07
19 157.00 25 246.03 941.54 12/23 $9,541.58
21 234.15 15.00 SC 808.58 12/29 $10,101.01
250.00 NSF 1,500.00 CM 12/31 $11,351.01
Symbols: NSF (Not sufficient funds) SC (Service charge) CM (Credit Memo)
Ex. 247 (Cont.)
Check No. 18 was correctly written for $708.62 for a payment on account. Check No. 14 was the only outstanding check at the end of November. There was also one deposit in transit at the end of November. The NSF check was from S. Gill, a customer, in settlement of an account receivable. An entry has not been made for the NSF check. The credit memo is for the collection of a note receivable including interest of $60 that has not been accrued. The bank service charge is $15.00.
Instructions
(a) Prepare a bank reconciliation at December 31.
(b) Prepare the adjusting journal entries required by the bank reconciliation.
Ex. 248
Acme Salon received a notice with its bank statement that the bank had collected a note receivable for $18,000 plus $600 of interest. The bank had credited these amounts to the company's account..
(a) How will these items affect Acme Salon Company's bank reconciliation?
(b) Prepare the journal entry that Acme Salon Company will make to record this information on its books.
Ex. 249
The cash records of the A1 Restaurant Supply Company show the following:
1. The July 31 bank reconciliation indicated that deposits in transit totaled $390. During August the general ledger account, Cash shows deposits of $11,800, but the bank statement indicates that only $9,540 in deposits were received during the month.
2. The July 31 bank reconciliation also reported outstanding checks of $850. During the month of August, the company’s books show that $11,670 of checks were issued, yet the bank statement showed that $10,500 of checks cleared the bank in August.
There were no bank debit or credit memoranda and no errors were made by either the bank or the A1 Restaurant Supply Company.
(a) What were the deposits in transit at August 31?
(b) What were the outstanding checks at August 31?
Ex. 250
The cash records of Ace Discount Company show the following:
1. In February, deposits per the bank statement totaled $37,700; deposits per books $38,000; and deposits in transit at February 28 were $3,550.
2. In February cash disbursements per books were $37,500; checks clearing the bank were $37,300, and outstanding checks at February 28 were $2,500.
There were no bank debit or credit memoranda and no errors were made by either the bank or Ace Discount Company.
(a) What were the deposits in transit at January 31?
(b) What were the outstanding checks at January 31?
Ex. 251
Listed below are items that may be useful in preparing the March 2025 bank reconciliation for the Acme Machine Works.
Using the code letters below, insert in the space before each item the letter where the amount would be located or otherwise treated in the bank reconciliation process.
Code Located or Treated
A Add to the cash balance per books
B Deduct from the cash balance per books
C Add to the cash balance per bank
D Deduct from the cash balance per bank
E Does not affect the bank reconciliation
1. Included with the bank statement materials was a check from Joe Terrell for $40 stamped "account closed”.
2. A personal deposit by Ron Carrinton to his personal account in the amount of $300 for dividends on his General Electric common stock was credited to the company account.
3. The bank statement included a debit memorandum for $22.00 for four books of blank checks for Acme Machine Works.
4. The bank statement contains a credit memorandum for $42.75 interest on the average checking account balance.
5. The daily deposits of March 30 and March 31 for $3,362 and $3,125, respectively, were not included in the bank statement postings.
6. Two checks totaling $316.86, which were outstanding at the end of February, cleared in March and were returned with the March statement.
7. The bank statement included a credit memorandum dated March 28, 2025 for $62.00 for the monthly interest on a 6-month, $15,000 certificate of deposit that the company owns.
8. Four checks, #8712, #8716, #8718, #8719, totaling $5,369.65, did not clear the bank during March.
9. On March 24, 2025, the bank collected a $3,400, 3-month note from Tom Jacobs. A credit memorandum dated March 29, 2025 indicated the collection of the note and $102 of interest.
10. The bank statement included a debit memorandum for $20.00 for the collection service on the above note and interest.
Ex. 252
A1 Car Care Company expects to have a cash balance of $43,000 on January 1, 2025. These are the relevant monthly budget data for the first two months of 2025.
1. Collections from customers: January $85,000, February $132,000
2. Payments to suppliers: January $40,000, February $50,000
3. Wages: January $34,000, February $40,000. Wages are paid in the month they are incurred.
4. Administrative expenses: January $24,000, February $31,000. These costs include depreciation of $1,000 per month. All other costs are paid as incurred.
5. Selling expenses: January $15,000, February $20,000. These costs are exclusive of
depreciation. They are paid as incurred.
6. Sales of short-term investments in January are expected to realize $12,000 in cash.
A1 Car Care Company has a line of credit at a local bank that enables it to borrow up to $40,000. The company wants to maintain a minimum monthly cash balance of $25,000.
Instructions
Prepare a cash budget for January and February. There were no outstanding borrowings at the end of 2024.
Ex. 253
A1 Garden Supply Company has budgeted monthly sales revenue for the first 6 months of 2025 as follows:
Budgeted Sales Revenues
January $55,000
February 80,000
March 90,000
April 65,000
May 50,000
June 15,000
Past experience has indicated that 80% of sales each month are on credit and that collection of credit sales occurs as follows: 60% in the month of sale, 30% in the month following the sale, and 5% in the second month following the sale. The other 5% is uncollectible.
Instructions
Prepare a schedule which shows expected cash receipts from sales for the months of April, May, and June 2025.
Ex. 254
Ace Restaurant Supply Company has budgeted sales revenues as follows:
June July August
Credit sales $35,000 $30,000 $28,000
Cash sales 18,000 51,000 39,000
Total sales $53,000 $81,000 $67,000
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.
Purchases of inventory are all on credit and 50% is paid in the month of purchase and the remaining 50% in the month following purchase. Budgeted inventory purchases are as follows:
June $65,000
July 53,000
August 21,000
Other budgeted cash disbursements: (a) selling and administrative expenses of $7,000 each month will be paid in cash, exclusive of depreciation, (b) dividends of $19,000 will be paid in July and (c) purchase of a computer in August for $6,000 cash.
The company wishes to maintain a minimum cash balance of $10,000 at the end of each month. The company borrows money from the bank at 9% interest, if necessary, to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $10,000. Assume that borrowed money, in this case, is for one month.
Instructions
Prepare a cash budget for the months of July and August. Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.
Ex. 255
The management of Acme Discount Supply Company estimates that credit sales for August, September, October, and November will be $180,000, $200,000, $230,000, and $160,000, respectively. Experience has shown that collections are made as follows:
In month of sale 25%
In first month after sale 60%
In second month after sale 10%
Instructions
Determine the collections from customers in October and November. Show all computations.
Ex. *256
On October 1, 2025, A1 Nail Bar Company establishes a petty cash fund by issuing a check for $200 to Sara Mead, the custodian of the petty cash fund. On October 31, 2025, Sara Mead submitted the following paid petty cash vouchers for replenishment of the petty cash fund when there is $7 cash in the fund:
Freight-In $70
Supplies Expense 35
Entertainment of Clients 60
Postage Expense 23
Instructions
Prepare the journal entries required to establish the petty cash fund on October 1 and the replenishment of the fund on October 31.
Ex. *257
On September 1, 2025, Ace Auto Supply Company establishes a petty cash fund by issuing a check for $250 to Mike Martz, the custodian of the petty cash fund. On September 30, 2025, Mike Martz submitted the following paid petty cash vouchers for replenishment of the petty cash fund when there is $35 cash in the fund:
Freight-In $25
Supplies Expense 75
Entertainment of Clients 37
Postage Expense 80
Instructions
Prepare the journal entries required to establish the petty cash fund on September 1 and the
replenishment of the fund on September 30.
Ex. *258
The petty cash fund of $200 for Acme Beauty Supply Company appeared as follows on December 31, 2025.:
Cash $50.60
Petty cash vouchers
Freight-in $58.40
Postage 40.00
Balloons for a special occasion (Misc. Exp.) 20.00
Meals (Misc. Exp.) 25.00
Instructions
1. Briefly describe when the petty cash fund should be replenished. Because there is cash on hand, is there a need to replenish the fund at year end on December 31? Explain.
2. Prepare the general journal entry to replenish the fund.
3. On December 31, the office manager gives instructions to increase the petty cash fund by $50. Make the appropriate journal entry.
Ex. *259
During October, Ace Lighting Company experiences the following activities related to a petty cash fund:
Oct. 1 A petty cash fund is established with a check for $150 issued to the petty cash custodian.
31 A count of the petty cash fund disclosed the following items used for replenishment:
Currency $19.00
Coins 0.40
Expenditure receipts (vouchers):
Office supplies (asset) $28.10
Telephone, Internet, and fax (Misc. Exp.) 16.40
Postage 75.00
Freight-out 6.80
31 The fund was increased to $300.
Instructions
Journalize the entries in October that pertain to the petty cash fund.