Question 1

Internal controls are crucial to companies that convert from U.S. GAAP to IFRS because of all of the following risks except:

Accepted Answer

The other four risks listed are valid concerns when converting from U.S. GAAP to IFRS, but the differences in internal controls across the globe are not specifically related to the conversion process. While there may be some differences in internal controls between U.S. GAAP and IFRS, these differences are not significant enough to warrant specific concern in this context.

Question 2

Which of the following events would cause a bank to debit a depositor's account?

Accepted Answer

When a depositor orders new checks, the bank charges a fee for this service, which results in a debit to the depositor's account.

Question 3

Clayborn Company' bank reconciliation as of May 31 is shown below. $$\begin{array} { | l | r | l | r | } 
\hline \text { Bank balanee } & \$ 15,800 & \text { Book balance } & \$ 17,025 \
\hline \text { + Deposit in transit } & 5,200 & \text { Bank service fees } & - 25 \
\hline \text { - Outstanding checks } & - 4,600 & \text { NSF returned } & \underline { - 600 } \
\hline \text { Adjusted bank balanes } & \$ 16,400 & \text { Adjusted book balance } & \$ 16,400 \
\hline
\end{array}$$ One of the adjusting journal entries that Clayborn must record as a result of the bank reconciliation includes:

Accepted Answer

The NSF check of $600 needs to be recorded as a reduction in the cash account, which requires a credit to Cash.

Question 4

If a check correctly written and paid by the bank for $272 is incorrectly recorded in the company's books for $227, how should this error be treated on the bank reconciliation?

Accepted Answer

The answer of If a check correctly written and paid...

Question 5

The internal document prepared to notify the appropriate persons that goods ordered have been received, describing the quantities and condition of the goods is the:

Accepted Answer

The internal document prepared to notify the appropriate persons that goods ordered have been received, describing the quantities and condition of the goods is the Receiving report. The purchase requisition is a document that initiates the purchasing process, the invoice is a document sent by the supplier requesting payment for goods or services provided, the purchase order is a document sent by the buyer to the supplier indicating the goods or services to be purchased and the terms of the sale, and the invoice approval is the process of verifying and authorizing payment for a supplier's invoice.

Question 6

The internal document prepared by a department manager that informs the purchasing department of its merchandise needs and requests that the merchandise be purchased is the:

Accepted Answer

The internal document that informs the purchasing department of its merchandise needs and requests that the merchandise be purchased is called a purchase requisition. A purchase order is the external document prepared by the purchasing department to authorize a vendor to ship merchandise. A receiving report is prepared by the receiving department to confirm that the merchandise was received. Invoice approval is the process of reviewing and approving invoices for payment. An invoice is the document prepared by a vendor that requests payment for goods or services.

Question 7

In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information:
$\begin{array} { | l | l | } 
\hline \text { Cash balance per company books on January 30 } & \$ 4,725 \
\hline \text { Deposits in transit at month-end } &  { \$ 1,800 } \
\hline \text { Outstanding checks at month-end } & \$ 520 \
\hline \text { Bank service charges } & \$ 25 \
\hline \text { EFT automatically deducted monthly, not yet recorded by Maxi } & \$ 380 \
\hline \text { An NSF check returned on a customer account } &  \$ 265\
\hline \
\hline \text { An NSF check returned on a customer account } &  \$ 265\
\hline
\end{array}$

Accepted Answer

The correct cash balance after adjustments is $4,055. Starting with the book balance of $4,725, subtract the bank service charges ($25), the EFT ($380), and the NSF check ($265). The deposits in transit and outstanding checks do not affect the book balance.

Question 8

In the process of reconciling its bank statement for April, Donahue Enterprises' accountant compiles the following information: $$\begin{array} { | l | r | } 
\hline \text { Cash balance per company books on April 30 } & \$ 6,275 \
\hline \text { Deposits in transit at month-end } & \$ 1,300 \
\hline \text { Outstanding checks at month-end } & \$ 620 \
\hline \text { Bank charge for printing new checks } & \$ 45 \
\hline \text { Note receivable and interest collected by bank on Donahue's behalf } & \$ 770 \
\hline \text { A check paid to Donahue during the month by a eustomer is returned by the } & \$ 480 \
\text { bank as NSF } & \
\hline
\end{array}$$ The adjusted cash balance per the books on April 30 is:

Accepted Answer

Starting cash balance = $10,400
Add: Deposits in transit = $2,200
Total cash = $12,600
Less: Outstanding checks = $6,080
Adjusted cash balance per bank statement = $6,520

Starting cash balance according to the books = $10,110
Add: EFT collections = $1,490
Add: Interest earned = $50
Total cash = $11,650
Less: Service charge = $60
Less: NSF check = $20
Less: Checks returned = $600
Adjusted cash balance per books = $10,970

Therefore, the adjusted cash balance per the books on April 30 is $10,970.

The options given are not accurate.

Question 9

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

Accepted Answer

The document that the purchasing department prepares and sends to the vendor to place an order is called a purchase order. The other options are not the correct document for placing an order. An invoice approval is done after the purchase has been made, an invoice is a document sent by the vendor to bill for the purchase, a purchase requisition is an internal document used to request a purchase, and a receiving report is a document used to confirm receipt of the goods.

Question 10

Ryan Company deposits all cash receipts on the day they are received and makes all cash payments by check. Ryan's June bank statement shows $18,361 on deposit in the bank. Ryan's comparison of the bank statement to its cash account revealed the following: $$\begin{array} { | l | r | } 
\hline \text { Deposit in transit } & 1.450 \
\hline \text { Outstanding checks } & 8 3 7  \
\hline
\end{array}$$ Additionally, a $29 check written and recorded by the company correctly was recorded by the bank as a $92 deduction.
The adjusted cash balance per the bank records should be:

Accepted Answer

To find the adjusted cash balance per the bank records, we need to make the following adjustments:

1. Add deposits in transit ($10,890)
2. Deduct outstanding checks ($8,616 + $1,118 + $293)
3. Deduct the erroneous check deduction ($63)

So the calculation is:

$18,361 (bank statement balance) 
+ $10,890 (deposits in transit)
- $8,616 (outstanding check #1)
- $1,118 (outstanding check #2)
- $293 (outstanding check #3)
- $63 (erroneous check deduction)
= $19,037

Therefore, the answer is C) $19,037.

Question 11

During the month of July, Clanton Industries issued a check in the amount of $845 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

Accepted Answer

The check that did not clear means that the bank balance has not been reduced by $845. Therefore, the company should deduct the check amount from the bank balance when preparing the bank reconciliation, so the correct balance can be determined. The book balance of cash should not be adjusted until the bank balance is reconciled.

Question 12

Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on August 31, its Cash account shows a debit balance of $13,162. Franklin's August bank statement shows $14,237 on deposit in the bank. Determine the adjusted cash balance using the following information:
$$\begin{array} { | l | r | } 
\hline \text { Deposit in transit } & \$ 4,500 \
\hline \text { Outstanding checks } & \$ 3,900 \
\hline \text { Bank service fees, not yet recorded by company } & \$ 50 \
\hline \text { The bank collected on a note receivable, not yet recorded by the company } & \$ 1,725 \
\hline
\end{array}$$ The adjusted cash balance should be:

Accepted Answer

The adjusted cash balance is found by taking the balance per bank statement ($14,237) and adding deposits in transit ($2,000) while subtracting outstanding checks ($400).

Adjusted cash balance = $14,237 + $2,000 - $400 = $14,837.

Question 13

All of the following are considered effective cash management principles except:

Accepted Answer

Retaining excess cash for unexpected expenditures is not considered an effective cash management principle because it ties up funds that could be otherwise invested or used to pay down liabilities. Effective cash management typically involves optimizing cash flow and minimizing idle cash.

Question 14

The itemized statement of goods prepared by a vendor listing the customer's name, items sold, sales prices, and terms of the sale is called the:

Accepted Answer

The itemized statement of goods prepared by a vendor listing the customer's name, items sold, sales prices, and terms of the sale is called the invoice.

Question 15

A voucher system is a set of procedures and approvals:

Accepted Answer

A voucher system is used to control cash disbursements and the acceptance of obligations. It involves a set of procedures and approvals for verifying and authorizing payment of invoices and other expenses. This helps to prevent fraud, errors, and unauthorized expenditures.

Question 16

Clayborn Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on May 31, its Cash account shows a debit balance of $17,025. Clayborn's May bank statement shows $15,800 on deposit in the bank. Determine the adjusted cash balance using the following information:
$$\begin{array} { | l | r | } 
\hline \text { Deposit in transit } & \$ 5,200 \
\hline \text { Outstanding checks } & \$ 4,600 \
\hline \text { Bank service fees, not yet recorded by company } & \$ 25 \
\hline \text { A NSF check from a customer, not yet recorded by the company } & \$ 600 \
\hline
\end{array}$$ The adjusted cash balance should be:

Accepted Answer

The answer of Clayborn Company deposits all cash receipts on...

Question 17

A seller (or provider) of goods or services to a business organization is known as a:

Accepted Answer

A vendor is a person or company that sells goods or services to another company or entity. Therefore, they are the seller or provider of goods or services to a business organization. Payee, creditor, and debtor are all related to financial transactions but not directly related to providing goods or services. Vendee refers to the buyer or purchaser of goods or services, not the seller or provider.

Question 18

If a check correctly written and paid by the bank for $749 is incorrectly recorded in the company's books for $794, how should this error be treated on the bank reconciliation?

Accepted Answer

The error in the company's books means the check was recorded for $45 more than it should have been. To correct this, $45 should be added to the book balance.

Question 19

The checklist of steps necessary for approving an invoice for recording and payment, also known as the check authorization, is the:

Accepted Answer

The invoice approval is the step necessary for approving the invoice for recording and payment. While the other options (receiving report, purchase order, invoice, purchase requisition) are all related to the purchasing process, they are not the specific step needed for approving an invoice.

Question 20

Franklin Company's bank reconciliation as of August 31 is shown below. $$\begin{array} { | l | r | l | r | } 
\hline \text { Bank balance } & \$ 14,237 & \text { Book balance } & \$ 13,162 \
\hline \text { + Deposit in transit } & 4,500 & \text { Bank service fees } & - 50 \
\hline \text { - Outstanding checks } &  - 3 , 9 0 0 & \text { Note collected } & 1.725 \
\hline \text { Adjusted bank balance } & \$ 14,837 & \text { Adjusted book balance } & \$ 14,837 \
\hline
\end{array}$$ The adjusting journal entries that Clayborn must record as a result of the bank reconciliation include:

Accepted Answer

The answer of Franklin Company's bank reconciliation as of August...

Quiz 8: Cash and Internal Controls