Question 1

Outstanding checks refer to checks that have been:
A) Held as blank checks.
B) Written, recorded, sent to payees, and received and paid by the bank.
C) Issued by the bank.
D) Written and not yet recorded in the company books.
E) Written, recorded on the company books, sent to the payee, but not yet paid by the bank.

Accepted Answer

Outstanding checks are checks that have been recorded in the company's books but have not yet been cleared or paid by the bank. Option E is the only option that matches this definition. Options A and C are incorrect because the checks have not been written by the company and issued by the bank. Option B is incorrect because these checks have already been paid by the bank. Option D is incorrect because the checks have been written but not yet recorded in the company books.

Question 2

Spencer Co. decides to establish a petty cash fund with a beginning balance of $200. The company decides that any purchase under $25 can be processed through petty cash instead of the voucher system. The journal entry to record establishing the account is:
A) Debit Petty Cash $200 and credit Cash $200.
B) Debit Cash $200 and credit Cash Over and Short $200.
C) Debit Cash $200 and credit Petty Cash Over and Short $200.
D) Debit Cash $200 and credit Petty Cash $200.
E) Debit Petty Cash $200; credit Cash $175; and credit Cash Over and Short $25.

Accepted Answer

The correct journal entry to establish a petty cash fund is to debit Petty Cash and credit Cash for the amount of the fund.

Question 3

A debit memorandum on a bank statement indicates:
A) A decrease in the bank's asset account.
B) An increase in the bank's asset account.
C) A decrease in the bank's liability account.
D) An increase in the bank's expense account.
E) An increase in the bank's liability account.

Accepted Answer

A debit memorandum on a bank statement indicates a decrease in the bank's liability account, as it reflects a reduction in the amount the bank owes to the account holder.

Question 4

The entry to record reimbursement of the petty cash fund for postage expense should include:
A) A debit to Petty Cash.
B) A debit to Cash Short and Over.
C) A debit to Supplies.
D) A debit to Postage Expense.
E) A debit to Cash.

Accepted Answer

The entry to record reimbursement of the petty cash fund for postage expense will involve increasing the postage expense account, which is an expense account, because the petty cash was used for that expense. Therefore, a debit to Postage Expense account will be made. Petty Cash account is not involved in the entry because the fund is being replenished - it is not an expense, so option A is incorrect. Cash Short and Over is used to record differences in petty cash that cannot be explained, so option B is also wrong. Supplies are not involved in postage expenses, so option C is incorrect. Since the reimbursement involves giving cash, there is a credit to Cash account which is not listed as an option, therefore, the best option is D.

Question 5

If a check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period, in preparing this period's reconciliation, the amount of this check should be:
A) Added to the book balance of cash as an outstanding check.
B) Deducted from the bank balance of cash as an outstanding check.
C) Deducted from the book balance of cash as an outstanding check.
D) Ignored in preparing the period's bank reconciliation as an outstanding check.
E) Added to the bank balance of cash as an outstanding check.

Accepted Answer

The check is still outstanding, so it should be deducted from the bank balance of cash as it has not yet cleared the bank.

Question 6

The entry to establish a petty cash fund includes:
A) A debit to Petty Cash and a credit to Accounts Receivable.
B) A debit to Petty Cash and a credit to Cash.
C) A debit to Cash and a credit to Petty Cash.
D) A debit to Cash and a credit to Petty Cash Over and Short.
E) A debit to Cash and a credit to Cash Over and Short.

Accepted Answer

When establishing a petty cash fund, the entry should record a debit to the Petty Cash account and a credit to the Cash account. This reflects the decrease in the checking account and the increase in the cash on hand in the petty cash fund. Option A is incorrect because Accounts Receivable is not involved in petty cash transactions. Option C is incorrect because cash is not being transferred from petty cash to the bank account, so a debit to Cash would not be appropriate. Option D is incorrect because Petty Cash Over and Short is only used when balancing the petty cash fund at the end of a period. Option E is incorrect because a Cash Over and Short account is not necessary when establishing a petty cash fund.

Question 7

A company had $43 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to:
A) Debit Cash Over and Short for $43.
B) Debit Petty Cash for $43.
C) Credit Cash Over and Short for $43.
D) Credit Petty Cash for $43.
E) Credit Cash for $43.

Accepted Answer

When there is a cash shortage or overage in the petty cash account, it should be recorded in a separate account called Cash Over and Short. This account is used to record the difference between the amount of cash in the petty cash box and the total of the receipts. Since there is a $43 shortage in this case, we would debit Cash Over and Short for $43 to record the shortage.

Question 8

A company wants to decrease its $200 petty cash fund to $175. The entry to reduce the fund is:
A) Debit to Cash $25; credit Petty Cash $25.
B) Debit Cash Over and Short for $25; credit Petty Cash $25.
C) Debit Petty Cash $25; credit Cash $25.
D) Debit Petty Cash for $175; debit Cash Over and Short $25; credit Cash $200.
E) Debit Miscellaneous Expenses $25; credit Cash $25.

Accepted Answer

To decrease the petty cash fund, you need to reduce the Petty Cash account and increase the Cash account by the amount of the decrease, which is $25.

Question 9

Childers Company, which uses a perpetual inventory system, has an established petty cash fund in the amount of $400. The fund was last reimbursed on November 30. At the end of December, the fund contained the following petty cash receipts: $\begin{array} { | l | l | r | } 
\hline \text { December } 4 & \text { Freight charge for merchandise purchased } & \$ 62 \
\hline \text { December 7 } & \text { Delivery charge for shipping to customer } & \$ 46 \
\hline \text { December 12 } & \text { Purchase of office supplies } & \$ 30 \
\hline \text { December 18 } & \text { Donation to charitable organization } & \$ 51 \
\hline \text { December 18 } & \text { Donation to charitable organization } & \$ 51 \
\hline
\end{array}$
If, in addition to these receipts, the petty cash fund contains $201 of cash, the journal entry to reimburse the fund on December 31 will include:
A) A credit to Cash of $199.
B) A credit to Cash Over and Short of $10.
C) A debit to Petty Cash of $189.
D) A debit to Transportation-In of $62.
E) A credit to Office Supplies of $30.

Accepted Answer

The total expenses from receipts are $240 ($62 + $46 + $30 + $51 + $51). With $201 cash remaining, the total should be $441 ($240 + $201). Since the fund is $400, the reimbursement needed is $199 ($441 - $400), which is credited to Cash.

Question 10

When a petty cash fund is in use:
A) Cash is debited when funds are replenished.
B) Expenses are not recorded.
C) Petty Cash is credited when funds are replenished.
D) Expenses paid with petty cash are recorded when the fund is replenished.
E) Petty Cash is debited when funds are replenished.

Accepted Answer

When a petty cash fund is in use, expenses paid with petty cash are recorded when the fund is replenished. Petty cash is debited and the appropriate expense accounts are credited when funds are replenished.

Question 11

If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30, in preparing the September 30 bank reconciliation, the company should:
A) Deduct the deposit from the bank statement balance.
B) Add the deposit to the bank statement balance.
C) Send the bank a debit memorandum.
D) Deduct the deposit from the September 30 book balance and add it to the October 1 book balance.
E) Add the deposit to the book balance of cash.

Accepted Answer

The deposit was made on September 30 but did not appear on the bank statement dated September 30. Therefore, it is likely that the deposit was made too late or the bank did not process it yet. In either case, the deposit should be added to the bank statement balance to reconcile it with the book balance of cash. Option A is incorrect because deducting the deposit from the bank statement balance would make the reconciliation inaccurate. Option C is also incorrect because a debit memorandum is used to inform the company of a decrease in its bank account, not a deposit. Option D is incorrect because it implies carrying over the deposit to the next month, which is unnecessary. Option E is partially correct because the deposit should be added to the book balance of cash, but it should also be added to the bank statement balance.

Question 12

When reimbursing the petty cash fund:
A) Appropriate expense accounts are debited.
B) Cash is debited.
C) Petty Cash is debited.
D) Petty Cash is credited.
E) No expenses are recorded.

Accepted Answer

When reimbursing the petty cash fund, appropriate expense accounts are debited because the petty cash fund is used to pay for small expenses that are not recorded immediately in the accounting system. Therefore, when reimbursing the fund, the expenses that were paid for using the fund are recorded as debits to the respective expense accounts. Petty Cash is credited with the amount of the reimbursement. Cash is not debited, as the reimbursement is not a cash transaction, but rather a transfer from a liability account (Petty Cash) to an expense account. No expenses are recorded in the reimbursement entry itself, as they were already recorded when the petty cash was disbursed.

Question 13

On a bank reconciliation, the amount of an unrecorded bank service charge should be:
A) Deducted from the bank balance of cash.
B) Added to the bank balance of cash.
C) Added to the book balance of cash.
D) Noted in memorandum form only.
E) Deducted from the book balance of cash.

Accepted Answer

The unrecorded bank service charge should be deducted from the book balance of cash because it represents an expense that reduces the cash balance in the company's records.

Question 14

A key factor in a voucher system includes all of the following except:
A) It is applied to purchases of merchandise inventory and all other expenses.
B) Procedures for purchasing, receiving, and paying for merchandise are divided among several departments.
C) It is not necessary if the supplier provides both receiving report and invoice with the merchandise shipped.
D) The system limits the individuals that can incur cash payment obligations for a company.
E) Only approved departments and individuals are authorized to incur an obligation that will result in the payment of cash.

Accepted Answer

All of the other options are key factors in a voucher system, but option C is not a key factor because a voucher is still necessary even if the supplier provides both a receiving report and invoice with the merchandise shipped. The voucher is a document that records the details of the transaction, such as the amount owed and the payment terms, and provides authorization for the payment.

Question 15

Spencer Co. has a $200 petty cash fund. At the end of the first month the accumulated receipts represent $43 for delivery expenses, $127 for merchandise inventory, and $12 for miscellaneous expenses. The fund has a balance of $18. The journal entry to record the reimbursement of the account includes a:
A) Credit to Inventory for $127.
B) Credit to Cash for $182.
C) Debit to Cash Over and Short for $18.
D) Debit to Petty Cash for $200.
E) Credit to Cash Over and Short for $18.

Accepted Answer

The journal entry to record the reimbursement of the petty cash fund should include a debit to the appropriate expense accounts (i.e. Delivery Expenses for $43 and Miscellaneous Expenses for $12) and a credit to the Petty Cash account for $200. The total credit should equal the total amount of the receipts, which is $182 in this case ($43 + $12 + $127). Therefore, the correct answer is B – Credit to Cash for $182. The other options are not necessary for the journal entry.

Question 16

On a bank reconciliation, an unrecorded debit memorandum for printing checks is:
A) Added to the book balance of cash.
B) Deducted from the book balance of cash.
C) Deducted from the bank balance of cash.
D) Noted as a memorandum only.
E) Added to the bank balance of cash.

Accepted Answer

An unrecorded debit memorandum for printing checks indicates that the bank has charged the company's account for the cost of printing checks. This means that the book balance of cash is higher than it should be because the company has not yet recorded this expense. Therefore, the unrecorded debit memorandum should be deducted from the book balance of cash in order to reconcile the two balances.

Question 17

Assume that the custodian of a $450 petty cash fund has $62 in coins and currency plus $383 in receipts at the end of the month. The entry to replenish the petty cash fund will include:
A) A credit to Cash Over and Short for $5.
B) A debit to Cash Over and Short for $5.
C) A debit to Cash for $378.
D) A debit to Petty Cash for $383.
E) A credit to Cash for $383.

Accepted Answer

The total of coins, currency, and receipts is $445, which is $5 short of the $450 fund. Therefore, a debit to Cash Over and Short for $5 is needed to account for the shortage.

Question 18

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:
A) A credit to Cash Over and Short for $3.
B) A debit to Cash for $382.
C) A debit to Petty Cash for $385.
D) A credit to Cash for $385.
E) A debit to Cash for $450.

Accepted Answer

To replenish the petty cash fund, we need to debit the Petty Cash account for the amount spent during the month, which is $385 ($65 in coins and currency + $382 in receipts). We also need to credit the Cash account for the same amount, as we are reducing the amount of cash on hand. Therefore, the correct entry to replenish the petty cash fund would be a debit to Petty Cash for $385 and a credit to Cash for $385. The other options are not applicable as there is no Cash Over and Short and the total amount spent is not equal to $450.

Question 19

A credit memorandum on a bank statement indicates:
A) A decrease in the bank's asset account.
B) A decrease in the bank's liability account.
C) An increase in the bank's asset account.
D) An increase in the bank's liability account.
E) An increase in the bank's expense account.

Accepted Answer

A credit memorandum indicates that the bank has credited the customer's account, which means the bank's liability (the amount it owes to the customer) has increased.

Question 20

An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):
A) Bank audit.
B) Internal audit.
C) Analysis of debits and credits.
D) Bank reconciliation.
E) Trial reconciliation.

Accepted Answer

A bank reconciliation is the process of comparing and adjusting the balance of the depositor's records with the balance shown on the bank statement. This helps to identify any discrepancies between the two balances, which could be due to various reasons such as outstanding checks, deposits in transit, fees or interest charges, and errors. The other options (A, B, C, E) are not specific to reconciling the checking account balance and do not address the differences between the depositor's records and bank statement.

Quiz 8: Cash and Internal Controls

Outstanding checks refer to checks that have been:

Spencer Co. decides to establish a petty cash fund with a beginning balance of $200. The company decides that any purchase under $25 can be processed through petty cash instead of the voucher system. The journal entry to record establishing the account is:

A debit memorandum on a bank statement indicates:

The entry to record reimbursement of the petty cash fund for postage expense should include:

If a check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period, in preparing this period's reconciliation, the amount of this check should be:

The entry to establish a petty cash fund includes:

A company had $43 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to:

A company wants to decrease its $200 petty cash fund to $175. The entry to reduce the fund is:

When a petty cash fund is in use:

If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30, in preparing the September 30 bank reconciliation, the company should:

When reimbursing the petty cash fund:

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

A key factor in a voucher system includes all of the following except:

On a bank reconciliation, an unrecorded debit memorandum for printing checks is:

Assume that the custodian of a $450 petty cash fund has $62 in coins and currency plus $383 in receipts at the end of the month. The entry to replenish the petty cash fund will include:

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:

A credit memorandum on a bank statement indicates:

An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n) :