Question 1

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:
A)Add the check amount to the bank balance.
B)Deduct the check amount from the book balance of cash.
C)Add the check amount to the book balance of cash.
D)Make a journal entry in the company records for an error.
E)Deduct the check amount from the bank balance.

Accepted Answer

The check did not clear the bank during July, which means it is outstanding. Outstanding checks should be deducted from the bank balance when preparing a bank reconciliation. Therefore, the company should deduct the check amount from the bank balance.

Question 2

The checklist of steps necessary for approving an invoice for recording and payment, also known as the check authorization, is the:
A)Receiving report.
B)Purchase order.
C)Invoice approval.
D)Invoice.
E)Purchase requisition.

Accepted Answer

The invoice approval is the checklist of steps necessary for approving an invoice for recording and payment. The receiving report, purchase order, and purchase requisition may be included in this process, but they do not encompass all necessary steps for approval and payment. The invoice is the document being approved, not the checklist of steps.

Question 3

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?
A)Subtract $45 from the bank's balance and add $45 to the book's balance.
B)Subtract $45 from the bank's balance.
C)Add $45 to the book balance.
D)Subtract $45 from the book balance.
E)Add $45 to the bank's balance.

Accepted Answer

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

Question 4

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:
A)Purchase requisition.
B)Invoice.
C)Purchase order.
D)Invoice approval.
E)Receiving report.

Accepted Answer

A receiving report is the document that is prepared to notify the appropriate persons that goods ordered have been received, describing the quantities and condition of the goods. The other options listed are different types of purchasing or invoice documents.

Question 5

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:
A)$10,337
B)$18,737
C)$14,887
D)$14,837
E)$13,112

Accepted Answer

The adjusted cash balance is calculated by adjusting the bank statement balance for deposits in transit and outstanding checks, and adjusting the book balance for bank service fees and collections. The calculation is: $13,162 (book balance) - $50 (service fees) + $1,725 (note collected) = $14,837.

Question 6

Clayborn Company' bank reconciliation as of May 31 is shown below. $$\begin{array} { | l | r | r | r | } 
\hline \text { Bank balance } & \$ 15,800 & \text { Book balance } & \$ 17,025 \
\hline \text { + Deposit in transit } & 5,200 & \text { Bank service fees } & - 25 \
\hline \text { - Outstanding checks } & \underline { 4,600 } & \text { NSF returned } & \underline { - 600 } \
\hline \text { Adjusted bank balance } & \$ 16,400 & \text { Adjusted book balance } & \$ 16,400 \
\hline
\end{array}$$ One of the adjusting journal entries that Clayborn must record as a result of the bank reconciliation includes:
A)A credit to Cash of $4,600
B)A debit to Cash of $625
C)A credit to Cash of $600
D)A debit to cash of $25
E)A debit to Cash of $5,200

Accepted Answer

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

Question 7

Franklin Company's bank reconciliation as of August 31 is shown below. $$\begin{array} { | l | r | l | r | } 
\hline \text { Bark balance } & \$ 14,237 & \text { Book balance } & \$ 13,162 \
\hline + \text { Deposit in transit } & 4,500 & \text { Bank service fees } & - 50 \
\hline \text { - Outstanding checks } & \underline { - 3,900 } & \text { Note collected } & \underline { 1,725 } \
\hline \text { Adjusted bank balance } & \$ 14,837 & \text { Adjusted book balance } & \$ 14,837 \
\hline
\end{array}$$ The adjusting journal entries that Clayborn must record as a result of the bank reconciliation include:
A)Debit Cash $1,725; credit Notes Receivable $1,725.
B)Debit Cash $4,500; credit Sales $4,500.
C)Debit Notes Receivable $1,725; credit Cash $1,725.
D)Debit Misc. Expense $3,900; credit Cash $3,900.
E)Debit Cash $50; credit Bank Service Fee Expense $50.

Accepted Answer

The correct journal entry is to debit Cash and credit Notes Receivable for the note collected by the bank, which increases the cash balance.

Question 8

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:
A)Purchase requisition.
B)Invoice approval.
C)Purchase order.
D)Invoice.
E)Receiving report.

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 an invoice. The other options listed are not a description of an invoice.

Question 9

All of the following are considered effective cash management principles except:
A)Keeping only necessary levels of assets.
B)Planning expenditures.
C)Delaying payment of liabilities until the last possible day.
D)Encouraging collection of receivables by offering discounts for early payments.
E)Retaining excess cash for unexpected expenditures.

Accepted Answer

The answer of All of the following are considered effective...

Question 10

Internal controls are crucial to companies that convert from U.S. GAAP to IFRS because of all of the following risks except:
A)Ineffective communication of the change to investors, creditors, and others.
B)Possible misstatement of financial information.
C)Management's inability to certify the effectiveness of the controls.
D)Possible fraud.
E)Controls are significantly different across the globe.

Accepted Answer

The other risks mentioned (ineffective communication, misstatement of financial information, management's inability to certify effectiveness, and possible fraud) are all potential risks that companies face when converting to IFRS and implementing new internal controls. However, the fact that controls are significantly different across the globe is not a risk, but rather a fact that companies must consider when implementing controls under IFRS.

Question 11

A seller (or provider)of goods or services to a business organization is known as a:
A)Payee.
B)Vendee.
C)Creditor.
D)Debtor.
E)Vendor.

Accepted Answer

The term "vendor" refers to a seller or provider of goods or services to a business organization. The other options are not as appropriate, as a payee can be anyone receiving payment (not necessarily a seller), a vendee refers to the buyer (not the seller), a creditor is owed money (not necessarily a seller), and a debtor owes money (not necessarily a seller).

Question 12

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:
A)Purchase order.
B)Receiving report.
C)Purchase requisition.
D)Invoice approval.
E)Invoice.

Accepted Answer

A purchase requisition is an internal document used to communicate merchandise needs from one department to the purchasing department. It does not serve as a purchase order, receiving report, invoice approval, or invoice.

Question 13

The document that the purchasing department prepares and sends to the vendor to place an order is called the:
A)Purchase order.
B)Invoice approval.
C)Invoice.
D)Purchase requisition.
E)Receiving report.

Accepted Answer

A purchase order is a formal document that is prepared by the purchasing department to request a vendor to supply goods or services. It lists details such as the quantity, price, delivery date, and terms of payment. The vendor uses the purchase order as a reference when preparing the goods for delivery and also to issue an invoice.

Question 14

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?
A)Add $45 to the bank's balance.
B)Add $45 to the book balance.
C)Subtract $45 from the bank's balance.
D)Subtract $45 from the bank's balance and add $45 to the book's balance.
E)Subtract $45 from the book balance.

Accepted Answer

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

Question 15

Which of the following events would cause a bank to debit a depositor's account?
A)There are deposits in transit on the account at month-end.
B)The bank corrects an error from previous month by adding $75 to the depositor account.
C)The depositor orders new checks through the bank at a cost of $50.
D)There are outstanding checks drawn on the account at month-end.
E)The bank collects a note receivable and related interest on the depositor's behalf.

Accepted Answer

The answer of Which of the following events would cause...

Question 16

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: $\begin{array}{|l|r|}
\hline \text { Deposit in transit } & 1,450 \
\hline \text { Outstanding checks } & 837\\hline
\end{array}$ 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:
A)$18,974
B)$20,711
C)$19,037
D)$18,911
E)$16,137

Accepted Answer

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

Question 17

A voucher system is a set of procedures and approvals:
A)Designed to determine if the company is operating profitably.
B)Used almost exclusively by small companies.
C)Designed to eliminate the need for subsidiary ledgers.
D)Used to ensure that the company sells on credit only to creditworthy customers.
E)Designed to control cash disbursements and the acceptance of obligations.

Accepted Answer

A voucher system is designed to control cash disbursements and ensure the acceptance of obligations. It involves a set of procedures and approvals to verify the legitimacy and accuracy of each payment before it is made. This helps prevent fraud and errors in the payment process.

Question 18

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:
A)$17,000
B)$16,400
C)$16,425
D)$11,200
E)$21,000

Accepted Answer

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

Question 19

In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information:
$\begin{array}{|l|l|r|}
\hline \text { December } 4 & \text { Freight charge for merchandise purchased } & \$ 62 \
\hline \text { December } 7 & \text { Delivery charge for shipping to customer } & \$ 46 \
\hline \text { December } 12 & \text { Purchase of office supplies } & \$ 30 \
\hline \text { December } 18 & \text { Donation to charitable oigganization } & \$ 51 \\hline \text { December 18 } & \text { Donation to charitable organization } & \$ 51 \
\hline
\end{array}$
The adjusted cash balance per the books on January 31 is:
A) $ \$ 4,055 $
B) $ \$ 4,585 $
C) $ \$ 5,335 $
D) $ \$ 4,815 $
E) $ \$ 5,855 $

Accepted Answer

The answer of In the process of reconciling its bank...

Question 20

In the process of reconciling its bank statement for April, Donahue Enterprises' accountant compiles the following information: $$\begin{array} { | l | r | } 
\hline \text { Cash balance per company books on April } 30 & \$ 6,275 \
\hline \text { Deposits in transit at month-end } & \$ 1,300 \
\hline \text { Outstanding checks at month-end } & \$ 620 \
\hline \text { Bark charge for printing new checks } & \$ 45 \
\hline \text { Note receivable and interest collected by bank on Donahue's behalf } & \$ 770 \
\hline \text { A check paid to Donahue during the month by a customer is returned by the } &\$480\
\text { bank as NSF }\\hline
\end{array}$$ The adjusted cash balance per the books on April 30 is:
A)$6,900
B)$5,840
C)$4,600
D)$6,520
E)$8,160

Accepted Answer

The answer of In the process of reconciling its bank...

Quiz 8: Cash and Internal Controls

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:

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

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?

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:

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:

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

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

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

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:

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

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?

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

A voucher system is a set of procedures and approvals: