Question 1

The following information is taken from Reagan Company's December 31 balance sheet: $$\begin{array} { | l | r | } 
\hline \text { Cash and cash equivalents } & \$ 8,419 \
\hline \text { Accounts receivable } & 70,422 \
\hline \text { Merchandise inventories } & 60,362 \
\hline \text { Prepaid expens es } & 4,100 \
\hline \text { Accounts payable } & \$ 14,950 \
\hline \text { Notes payable } & 8 6 , 6 3 8  \
\hline \text { Other current liabilities } & 9,500 \
\hline
\end{array}$$ If net credit sales for the current year were $612,000, the firm's days' sales uncollected for the year is: (Use 365 days a year.)

Accepted Answer

The answer of The following information is taken from Reagan...

Question 2

The number of days' sales uncollected is calculated by:

Accepted Answer

The number of days' sales uncollected is calculated by dividing accounts receivable by net sales and multiplying the result by 365. This gives an estimate of how many days it takes, on average, for a company to collect its accounts receivable. Choice A represents this calculation correctly.

Question 3

A set of procedures and approvals for verifying, approving, and recording obligations for eventual cash disbursement, and for issuing checks for payment only of verified, approved, and recorded obligations is referred to as a(n):

Accepted Answer

A voucher system is a set of procedures and approvals for verifying, approving, and recording obligations for eventual cash disbursement, and for issuing checks for payment only of verified, approved, and recorded obligations. The other choices refer to different aspects of cash management and control but do not specifically describe the process of verifying and approving transactions for payment through a voucher system.

Question 4

The number of days' sales uncollected is used to:

Accepted Answer

The number of days' sales uncollected is a measure of how long it takes for a company to collect its accounts receivable. It estimates how much time is likely to pass before the current amount of accounts receivable is received in cash. This measure is calculated by dividing accounts receivable by the average daily sales which indicates the average number of days it takes a company to collect its accounts receivable.

Question 5

A bank statement provided by the bank includes:

Accepted Answer

A bank statement provided by the bank typically includes the beginning and ending balance of the depositor's account, which is necessary information for the depositor to reconcile their own cash account. While the bank may provide information about outstanding checks, deposits in transit, and other transactions, these are not always included on every bank statement. Petty cash amounts are typically not included on a bank statement.

Question 6

A bank does not issue a debit memorandum to notify the depositor of which of the following?

Accepted Answer

A debit memorandum is issued by a bank to notify the depositor of any deductions from their account such as a fee or an uncollectible check. However, a deposit to the account is not a deduction, so there is no need for a debit memorandum to be issued in this case.

Question 7

The number of days' sales uncollected:

Accepted Answer

The number of days' sales uncollected is used to evaluate the liquidity of receivables. It measures how long it takes for a company to convert its accounts receivable into cash. It is calculated by dividing accounts receivable by average daily sales. It is also known as the accounts receivable turnover ratio. Choices A and E are incorrect because they have the calculation formula reversed. Choice B is incorrect because it refers to the accounts payable turnover ratio, which measures a company's ability to pay its bills on time. Choice D is incorrect because it refers to the debt-to-income ratio, which measures a person's debt in relation to their income.

Question 8

A remittance advice is a(n):

Accepted Answer

A remittance advice is a document sent by a customer to a business to inform them of a payment made via check. It typically includes information such as the check number, payment date, and amount.

Question 9

An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

Accepted Answer

The correct income statement account used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled "Cash Over and Short." This account reflects the difference between the actual amount of cash on hand and the recorded amount of cash. It is used to adjust the balance of the petty cash fund or cash drawer to the correct amount. None of the other answer choices accurately reflect this type of account.

Question 10

Preparing a bank reconciliation on a monthly basis is an example of:

Accepted Answer

Preparing a bank reconciliation on a monthly basis is a way of protecting assets by proving the accuracy of cash records. It helps to identify any discrepancies between the bank statement and the company's cash records, such as errors, omissions, or fraudulent activity. By reconciling cash balances, companies can ensure that they have a true and accurate representation of their cash position. Therefore, it is an important internal control procedure.

Question 11

Which of the following procedures would weaken control over cash receipts that arrive through the mail?

Accepted Answer

Having only one person open the mail and deposit cash weakens control because it increases the risk of theft or fraud without additional oversight or verification.

Question 12

Internal control procedures for cash receipts do not require that:

Accepted Answer

While it is ideal to collect all cash immediately upon making the sale, it may be impractical or not feasible in certain situations (e.g. online sales, prepaid orders, etc.). Therefore, not all collections for sales need to be received immediately. However, all other options listed are valid internal control procedures for cash receipts.

Question 13

Freeman Co. had net sales of $4.2 million and ending accounts receivable of $0.8 million. Its days' sales uncollected equals:

Accepted Answer

Days' sales uncollected is calculated as (Ending Accounts Receivable / Net Sales) * 365. For Freeman Co., it is ($0.8 million / $4.2 million) * 365 = 69.5 days.

Question 14

A company had net sales of $21,500 and ending accounts receivable of $2,700 for the current period. Its days' sales uncollected equals: (Use 365 days a year.)

Accepted Answer

Days' sales uncollected is calculated as (Ending Accounts Receivable / Net Sales) * 365. So, ($2,700 / $21,500) * 365 = 45.8 days.

Question 15

The Cash Over and Short account:

Accepted Answer

The Cash Over and Short account is used to record any differences between the actual cash on hand and the expected cash on hand, due to errors or discrepancies in making change or processing petty cash transactions. These differences can result in either a debit or credit balance in the account. Therefore, options B, C, and E are incorrect. While a computerized accounting system may make it easier to track cash and identify errors, having a Cash Over and Short account is still necessary to accurately reflect the income effects of cash discrepancies.

Question 16

At the end of the day, the cash register's record shows $2,050, but the count of cash in the cash register is $2,058. The correct entry to record the cash sales is

Accepted Answer

The cash register shows $2,050 in sales, but there is $2,058 in cash, indicating an $8 overage. The correct entry is to debit Cash for the actual amount received ($2,058), credit Sales for the recorded sales amount ($2,050), and credit Cash Over and Short for the difference ($8).

Question 17

At the end of the day, the cash register tape shows $1,000 in cash sales but the count of cash in the register is $1,010. The proper entry to account for this excess is:

Accepted Answer

This entry acknowledges the excess $10 in cash as a Cash Over and Short account, which is a contra asset account used to record discrepancies in cash balances. The $1,000 in cash sales is correctly credited to the Sales account, while the $1,010 debit to the Cash account reflects the actual amount of cash in the register.

Question 18

A voucher is an internal document or file:

Accepted Answer

A voucher is used to accumulate information needed to control cash disbursements and ensure that transactions are properly recorded.

Question 19

All of the following are true of the number of days' sales uncollected ratio except:

Accepted Answer

The number of days' sales uncollected ratio is not effective in evaluating cash sales, as it measures how long it will take for the current amount of accounts receivable to be received in cash.

Question 20

The voucher system of control:

Accepted Answer

The voucher system of control establishes procedures for verifying, approving, and recording obligations for eventual cash disbursement. It is a way for companies to control cash receipts and the acceptance of obligations. It is beneficial for companies of all sizes.

Quiz 8: Cash and Internal Controls