Question 1

Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on the bank's records.

Accepted Answer

Bank customers who deposit money into their accounts are essentially lending money to the bank, thus making them creditors. As a result, the bank shows their accounts with credit balances on the bank's records.

Question 2

All bank memos reported on the bank reconciliation require entries in the company's accounts.

Accepted Answer

Bank memos represent transactions that have not yet cleared in the bank statement but have been recorded in the company's accounting records. Therefore, adjustments must be made to the company's accounts to reflect the actual balance and to ensure accuracy in the financial statements.

Question 3

In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is added to the balance per company's records.

Accepted Answer

In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is subtracted from the balance per company's records, not added, to adjust for expenses the bank has charged to the account.

Question 4

In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal for an amount larger than the amount of the check is added to the balance per company's records.

Accepted Answer

The answer of In preparing a bank reconciliation, the amount...

Question 5

In preparing a bank reconciliation, the amount indicated by a credit memo for a note receivable collected by the bank is added to the balance per company's records.

Accepted Answer

Credit memos represent an increase in the company's account balance. Therefore, when a credit memo is received from the bank for a note receivable collected, it is added to the balance per company's records on the bank reconciliation.

Question 6

A payment system that uses computerized electronic impulses to effect a cash transaction is called electronic funds transfer (EFT).

Accepted Answer

Electronic funds transfer (EFT) is a payment system that uses computerized electronic impulses to effect a cash transaction.

Question 7

In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank statement.

Accepted Answer

The amount of deposits in transit is added to the balance per bank statement, not deducted. This is because these are funds that have been received by the bank but have not yet been recorded or cleared.

Question 8

In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank statement.

Accepted Answer

In preparing a bank reconciliation, the amount of outstanding checks is subtracted from the balance per bank statement to adjust for checks that have been written but not yet cleared by the bank.

Question 9

For efficiency of operations and better control over cash, a company should maintain only one bank account.

Accepted Answer

Maintaining only one bank account can lead to difficulties in segregating funds, tracking expenses, and can increase the risk of errors and fraud. It is recommended for companies to have multiple bank accounts for different purposes such as payroll, vendor payments, and working capital. This allows for better cash management and control.

Question 10

A check for $342 was erroneously charged by the bank as $432. In order for the bank reconciliation to balance, you must add $90 to the bank statement balance.

Accepted Answer

The error resulted in an overcharge of $90 ($432 - $342 = $90), which means the bank statement balance is $90 too high. To balance the reconciliation, you would need to add that $90 to the bank statement balance.

Question 11

The bank reconciliation is an important part of the system of internal controls.

Accepted Answer

The bank reconciliation process helps to ensure the accuracy and completeness of the company's cash accounts and helps to detect any errors or fraudulent activities. Therefore, it is a vital component of the internal control system.

Question 12

If an adjustment for an NSF check is made in a company's bank reconciliation, then the company must have written a bad check during the month.

Accepted Answer

An NSF (Non-Sufficient Funds) check adjustment in a company's bank reconciliation typically means a check received by the company from a customer bounced due to insufficient funds in the customer's account, not that the company wrote a bad check.

Question 13

The bank reconciles its statement to the company's records.

Accepted Answer

The answer of The bank reconciles its statement to the...

Question 14

A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice being paid.

Accepted Answer

A remittance advice is indeed the notification accompanying the check issued to a creditor that states the specific invoice being paid.

Question 15

The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date.

Accepted Answer

The adjusted balance on the bank reconciliation takes into account any outstanding checks or deposits that have not yet been cleared by the bank. This adjusted balance is the amount that should be used on the balance sheet for that date.

Question 16

Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash.

Accepted Answer

Depositing all cash, checks, etc. in a bank and paying with checks reduces the amount of physical cash being handled, which decreases the risk of theft or loss of cash. It also creates a paper trail of transactions, making it easier to track and monitor cash flow. Therefore, it is an effective internal control procedure over cash.

Question 17

In preparing a bank reconciliation, the amount of a canceled check omitted from the journal is added to the balance per company's records.

Accepted Answer

In preparing a bank reconciliation, the amount of a canceled check omitted from the journal should be subtracted from the balance per company's records, as it represents an amount that has been paid out by the bank but not yet recorded by the company.

Question 18

A voucher is a written authorization to make a cash payment.

Accepted Answer

A voucher is a written document that authorizes a cash payment to a certain person or party. It serves as a proof of the transaction and can be used for accounting and auditing purposes.

Question 19

The bank often informs the company of bank service charges by including a credit memo with the monthly bank statement.

Accepted Answer

The bank informs the company of bank service charges by including a debit memo, not a credit memo, with the monthly bank statement, as these charges reduce the company's bank account balance.

Question 20

The main reason that the bank statement cash balance and the company's cash balance do  not initially balance is due to timing differences.

Accepted Answer

The bank statement cash balance is as of a particular date, whereas the company's cash balance may include transactions that have not yet been processed by the bank. Additionally, there may be outstanding checks or deposits in transit that have not been reflected on the bank statement yet. These timing differences can cause the two balances to initially not match.

Quiz 7: Sarbanes-Oxley, Internal Control, and Cash