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Exam 6: Cash,fraud,and Internal Controls

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Question 31

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A ________ is a report explaining any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement.

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Question 32

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Which internal control principle prescribes the use of pre-numbered printed checks?

A) Technological controls.
B) Maintain adequate records.
C) Perform regular and independent reviews.
D) Establish responsibilities.
E) Divide responsibility for related transactions.

F) A) and E)
G) A) and D)

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Question 33

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________ includes currency,coins,and amounts on deposit in checking accounts and savings accounts.

Maintaining adequate records is an important internal control principle.

For each of the independent cases below,identify the principle of internal control that is violated,and recommend what should be done to remedy the violation. 1.In order to save money,Indigo Company has decided to drop its property insurance on assets; and stop bonding the cashiers who handle upwards of $5,000 in cash each day. 2.Jobs Company records each sale on a preprinted invoice.Because invoices are sometimes damaged in the process of preparation,the invoices are not prenumbered.Instead,the sales clerk writes the next number on each invoice as it is prepared. 3.Keegan Company is a very small business.Dylan Epps,one of the two office clerks,opens the mail each day and removes the cash receipts that come in the mail.Dylan also records the receipts in the cash records and the customer's account and deposits the cash in the bank. 4.Ludwig Company prides itself on hiring only the most competent employees.The owner,Jeremy Ludwig,believes that since the employees are highly competent he can show he trusts them completely by not checking up on their performance. 5.Maple Industries is a small business with three accounting employees.Each employee is well-trained and able to perform any of the accounting tasks,including handling cash receipts and cash payments,and preparing the bank reconciliation.Because of this cross-training,the employees share responsibilities for all of the tasks.

Describe a bank reconciliation and discuss its purpose.

Document used to place an order with a vendor is a ________.

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

The payee is the person who signs a check,authorizing its payment.

________ reflects the liquidity of a company's accounts receivable.

What is the purpose of the days' sales uncollected ratio?

Cash equivalents

The following information is available for the Savvy Company for the month of June. a.On June 30,after all transactions have been recorded,the balance in the company's Cash account has a balance of $17,202. b.The company's bank statement shows a balance on June 30 of $19,279. c.Outstanding checks at June 30 total $2,984. d.The bank collected $770 on a note receivable that is not yet recorded by Savvy Company. e.A $67 NSF check from a customer,J.Maroon is shown on the bank statement but not yet recorded by the company. f.A deposit placed in the bank's night depository on June 30 totaling $1,675 did not appear on the bank statement. g.Comparing the checks on the bank statement with the entries in the accounting records reveals that check #3445 for the payment of an account payable was correctly written for $2,450,but was recorded in the accounting records as $2,540. h.Included with the bank statement was a bank service charge in the amount of $25 .It has not been recorded on the company's books. 1.Prepare the June bank reconciliation for the Savvy Company. 2.Prepare the general journal entries to bring the company's book balance of cash into conformity with the reconciled balance as of June 30.

After preparing a bank reconciliation,adjustments must be made for items reconciling the book balance.

According to good internal control policies,a person who controls an asset also maintains that asset's accounting records.

The Sarbanes-Oxley Act (SOX)requires managers and auditors of companies whose stock is traded on an exchange to document and verify the system of internal controls.

Assume that the custodian of a $450 petty cash fund has $65 in coins and currency plus $382 in receipts at the end of the month.The entry to replenish the petty cash fund will include:

Liquidity refers to a company's ability to pay its long-term obligations.

The use of electronic communication to transfer cash from one party to another is called ________.

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.