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Exam 6: Cash and Internal Controls

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Question 61

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The following information is available to reconcile Hinckley Company's book balance of cash with its bank statement cash balance as of June 30. The June 30 cash balance according to the accounting records is $57,542, and the bank statement cash balance for that date is $67,047. a. The bank erroneously cleared a $295 check against the account in June that was not issued by Hinckley. The check documentation included with the bank statement indicates the check was actually issued by Dancer Co. b. On June 30, the bank issued a credit memorandum for $35 interest earned on Hinckley's account. c. When the June checks are compared with entries in the accounting records, it is found that Check No. 1727 had been correctly drawn for $1,450 to pay for advertising but was erroneously entered in the accounting records as $1,540. d. A credit memorandum indicates that the bank collected $9,000 cash on a note receivable for Hinckley, deducted a $30 collection fee, and credited the balance to the company's Cash account. Hinckley did not record this transaction before receiving the statement. e. A debit memorandum of $865 is enclosed with the bank statement for an NSF check for $840 received from a customer. The bank assessed a $25 fee for processing it. f. Hinckley's June 30 daily cash receipts of $6,425 were placed in the bank's night depository on that date, but do not appear on the June 30 bank statement. g. Hinckley's June 30 cash disbursements journal indicates that Check No. 1737 for $4,830 and Check No. 1740 for $3,280 were both written and entered in the accounting records, but are not among the canceled checks. h. A debit memorandum for $115.00 indicates the bank deducted the annual lock box fee for the company. 1. Prepare the bank reconciliation for this company as of June 30. 2. Prepare the journal entries necessary to bring the company's book balance of cash into conformity with the reconciled cash balance as of June 30.

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Question 62

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Discuss how the principles of internal control apply to cash receipts through the mail by giving several examples of good control measures that should be implemented.

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Internal control principles as applied t...

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Question 63

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The Sarbanes-Oxley Act (SOX) requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls. What are the specific requirements for auditors set forth by SOX?

On a bank reconciliation, the amount of an unrecorded bank service charge should be:

The means of recording purchases under the assumption that the cash discount for prompt payment will be taken is called the _________________________.

The document that the purchasing department prepares and sends to the vendor to place an order is called the

Internal control of cash receipts aims to ensure that all cash received is properly recorded and deposited.

A petty cash fund was originally established with a check for $100. On August 31, which is the period end, the petty cash fund included the following: $\begin{array} { | l | r | } \hline \text { Petty cash receipts: } & \\\hline \text { Postage } & \$ 43.50 \\\hline \text { Office supplies } & 11.85 \\\hline \text { Office equipment repair } & 39.00 \\\hline \text { Cash } & 4.25 \\\hline\end{array}$ Prepare the general journal entry to record the replenishment of the petty cash fund on August 31.

Signature cards, deposit tickets, checks, and bank statements are all examples of internal control devices for banking activities.

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 _______________.

Basic bank services such as bank accounts, bank deposits, and checking contribute to the control of cash.

A debit balance in the Cash Over and Short account reflects an expense and is reported on the income statement as part of general and administrative expenses.

A voucher system is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.

A company records purchases using the net method. On February 1, they purchased merchandise inventory on account for $7,300 with terms of 1/10, n/30. The February 1 journal entry to record this transaction would include a:

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

A check involves 3 parties: a maker who signs the check, a payee who is the recipient, and a bank on which the check is drawn.

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

The document the purchasing department sends to the vendor that is used to place an order is the __________________________.

Umber Company's bank reconciliation for September is presented below. Prepare the necessary adjusting journal entries based on the reconciliation report. UMBER COMPANY Bank Reconciliation September 30 $\begin{array}{|l|r|l|r|r|}\hline \text { Bank statement balance } & \$ 1,350 & \text { Book balanoe of cash } & & \$ 995 \\\hline \text { Add: } & & \text { Add: } & & \\\hline \text { Deposit in transit } & 1250 & \text { Proceeds of note } & 900 & \\\hline \text { Bank error } & 275 & \text { Less note oollection fee } & 25 & 875 \\\hline & \$ 2,875 & & 1,870 \\\hline \text { Deduct: } & & \text { Deduct: } & & \\\hline \text { Outstanding checks } & 1,145 & \text { NSF ched plus processing fee } & & 125 \\\hline & & \text { Bank service tharge } & & 15 \\\hline \text { Reconciled balance } & \$ 1,730 & \text { Reconciled balance } & & \$ 1,730 \\\hline\end{array}$

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: