Question 1

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

Accepted Answer

This separation of responsibilities helps to maintain a system of checks and balances and reduce the risk of fraud or errors in the records. It also ensures that the records are accurate and up-to-date, even if the physical custodian changes.

Question 2

An authorized signing oﬃcer should sign a cheque only after reviewing the appropriate supporting documentation.

Accepted Answer

An authorized signing officer should review the appropriate supporting documentation before signing a cheque to ensure that the payment is legitimate and accurate.

Question 3

Deposits in transit to the bank have not been recorded in the depositor's books but they have been recorded by the bank.

Accepted Answer

Deposits in transit have been recorded in the depositor's books but have not yet been recorded by the bank.

Question 4

Under the completed contracted method of accounting for long-term construction projects, revenue is not recognized until the project is complete.

Accepted Answer

Under the completed contracted method, revenue is only recognized once the project has been completed, regardless of the amount of work done or the costs incurred during the construction process. This method is commonly used in the construction industry to ensure that revenue is only recognized once the project has been completed and all risks associated with the project have been fully mitigated.

Question 5

The December 31, 20X3 statement of financial position of Howson Limited showed Trade Accounts Receivable of $450,000 and a credit balance in Allowance for Doubtful Accounts of $45,000. During 20X3, the following transactions occurred: service revenue billed on account, $1,500,000; collections from customers, $1,300,000; accounts written off $37,000; previously written off accounts of $4,000 were collected. Required: (a) Record the 20X3 transactions. (b) If the company uses the percentage of receivables basis to estimate bad debts expense and determines that uncollectible accounts are expected to be 5% of trade accounts receivable, what is the adjusting entry at December 31, 20X3?

Accepted Answer

The answer of The December 31, 20X3 statement of financial...

Question 6

When completing a bank reconciliation, bank service charges should be added to the cash balance appearing on the bank statement.

Accepted Answer

Bank service charges are deducted from the cash balance appearing on the bank statement, not added to it. This is because the bank has already subtracted these charges from the account balance before issuing the statement. Therefore, when completing a bank reconciliation, the bank service charges should be subtracted from the bank statement balance to arrive at the adjusted balance.

Question 7

Control over cash disbursements is improved if all expenditures are paid by cheque or through use of electronic funds transfers.

Accepted Answer

Payments made by cheque or electronic funds transfers leave a paper trail and can be easily tracked and recorded, providing better control over cash disbursements. Cash payments, on the other hand, are difficult to track and can increase the risk of fraud or embezzlement.

Question 8

Deposits in transit that appear on a bank reconciliation are those deposits that were made during the current month but which were not included by the bank on the current bank statement.

Accepted Answer

Deposits in transit are deposits made by the company but not yet processed by the bank or not yet included on the current bank statement. They will therefore need to be added to the bank balance on the reconciliation to show the correct balance of cash.

Question 9

When a company records adjusting entries following the completion of a bank reconciliation, the cash account is debited for the amount of any deposit in transit.

Accepted Answer

The cash account should not be debited for a deposit in transit in adjusting entries following a bank reconciliation. This adjustment would have already been made during the bank reconciliation process. Instead, the company may need to make other adjustments such as recording bank fees, interest income, or outstanding checks.

Question 10

Journal entries made to update the cash account, after a bank reconciliation has been prepared, should affect the "Bank Statement" part of the reconciliation rather than the "Depositor's Books" part of the reconciliation.

Accepted Answer

Journal entries made after a bank reconciliation adjust the depositor's books to align with the reconciled balance, not the bank statement part, which reflects the bank's records.

Question 11

A bank reconciliation compares the ending cash balance in the company's records to the ending cash balance reported by the bank on the monthly bank statement.

Accepted Answer

A bank reconciliation is used to compare the company's ending cash balance to the bank's ending cash balance on the statement. This is done in order to identify any discrepancies or errors that need to be corrected.

Question 12

When using the percentage of completion method, revenue is recognized when work on the contract is completed.

Accepted Answer

The percentage of completion method recognizes revenue and profits as a project progresses, not only when the work is completed.

Question 13

External auditors are usually employees of the company.

Accepted Answer

External auditors are not employees of the company, but rather independent third-party professionals hired to assess and report on the company's financial statements and practices.

Question 14

An example of separation of duties is having a cheque signer record cash disbursements.

Accepted Answer

Separation of duties involves dividing tasks and responsibilities among different individuals to prevent fraud, errors, or other improprieties. In this case, having the same person who signs cheques also record cash disbursements would not constitute an adequate separation of duties as it could create opportunities for fraud or errors to go undetected. A better approach would be to have different individuals responsible for these tasks to provide checks and balances and increase accountability.

Question 15

Errors give rise to unintentional misstatements in the ﬁnancial statements.

Accepted Answer

Errors can result in unintentional misstatements in the financial statements. These errors can include mathematical mistakes, incorrect accounting principles being applied, or overlooking important information. It is important for companies to regularly review their financial statements to ensure accuracy and identify any errors that may have occurred.

Question 16

Outstanding cheques that appear on a bank reconciliation are those cheques written during the current and previous periods that have not yet cleared the bank during the current period.

Accepted Answer

Outstanding cheques are defined as cheques that have been written but have not cleared the bank yet in the current period. These cheques can be found on a bank reconciliation statement.

Question 17

A good system of internal control does not require monitoring.

Accepted Answer

A good system of internal control requires monitoring to ensure that it is operating effectively and efficiently. Regular monitoring helps to identify and address any weaknesses or deficiencies in the system, and to prevent errors, fraud or other issues from occurring. Monitoring can be done through regular audits, internal reviews, risk assessments, and other measures that assess the effectiveness of the control system. Without monitoring, it is difficult to ensure that the internal control system is fulfilling its objectives and protecting the organization from harm.

Question 18

Control activities are most effective when several people are responsible for a given task.

Accepted Answer

Control activities are most effective when there is clear accountability and responsibility for each task. When too many people are responsible, there is a risk of confusion, duplication of efforts, and lack of clarity in decision-making. Therefore, it is best to have a clear line of responsibility and accountability for each control activity.

Question 19

All documents should be pre-numbered.

Accepted Answer

Prenumbering documents helps in tracking, preventing fraud, and ensuring that all documents are accounted for, which is a key control in both accounting and document management systems.

Question 20

Indicate the effect on a monthly bank reconciliation of each of the items listed below by placing the appropriate letter to the left of each item.
A. Addition to the balance in the company's Cash account.
B. Deduction from the balance in the company's Cash account.
C. Addition to the balance on the bank statement.
D. Deduction from the balance on the bank statement.
E. Does not affect the reconciliation. \[\begin{array} { | c | l | } 
\hline \underline{\quad\quad}1 . & \text { The monthly service fee charged by the bank. } \
\hline\underline{\quad\quad} 2 . & \begin{array} { l } 
\text { Another company's cheque erroneously charged against the company's bank } \
\text { balance on the bank statement. }
\end{array} \
 \hline \underline{\quad\quad}3 . & \text { A customer's cheque returned by the bank marked NSF. } \
 \hline\underline{\quad\quad} 4 . & \text { A deposit in transit. } \
\hline \underline{\quad\quad}5 . & \text { A note collected by the bank during the month on behalf of the company. } \
 \hline \underline{\quad\quad}6 . & \text { An outstanding cheque. } \
\hline \underline{\quad\quad}7 . & \begin{array} { l } 
\text { A company recorded a cheque as a credit to its cash account in the books. The } \
\text { cheque was recorded for } \$ 360 \text { but it was actually written to a supplier for } \$ 630 . \
\text { Assume the bank correctly recorded this cheque for } \$ 630 \text { when cleared. }
\end{array} \
\hline
\end{array}\]

Accepted Answer

The answer of Indicate the effect on a monthly bank...

Quiz 6: Merchandising Operations and the Multistep Income Statement