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Exam 8: Cash and Internal Controls

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Question 21

Multiple Choice

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The number of days' sales uncollected is calculated by:

A) Dividing accounts receivable by net sales and multiplying by 365.
B) Dividing accounts receivable by net sales.
C) Multiplying net sales by accounts receivable and dividing by 365.
D) Dividing net sales by accounts receivable.
E) Dividing net sales by accounts receivable and multiplying by 365.

F) A) and E)
G) A) and C)

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Question 22

Multiple Choice

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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:

A) Debit Cash $1,010; credit Sales $1,000; credit Cash Over and Short $10.
B) Debit Cash Over and Short $10; credit Cash $10.
C) Debit Cash $1,010; credit Sales $1,010.
D) Debit Cash $1,000; credit Sales $1,000.
E) Debit Cash $1,000; debit Cash Over and Short for $10; credit Sales $1,010.

F) A) and E)
G) C) and E)

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Question 23

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The Sarbanes-Oxley Act (SOX) requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

The ________ requires the managers and auditors of companies whose stock is traded on an exchange (called public companies) to document and certify the system of internal controls.

A purchase order is a document the purchasing department sends to the vendor to place an order.

Describe a bank reconciliation and discuss its purpose.

A voucher system's control over cash disbursements begins when a company incurs an obligation that will result in eventual payment of cash.

A person who controls or has access to an asset must not keep that asset's accounting records. This describes the internal control principle of ________ .

Plenty Co. established a petty cash fund of $150 on October 1. On October 10, the petty cash fund was replenished when there was $49 remaining and there were petty cash receipts for: office supplies, $47; transportation-in on inventory purchased, $32; and postage, $22. On October 15, the petty cash fund was decreased to $125 in total. Plenty Co. uses the perpetual inventory system. Record the above transactions in general journal form.

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:

Internal control systems are subject to limitations that usually arise from either (1) human error or human fraud, or (2) the cost-benefit principle.

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:

Internal control policies and procedures have limitations not including:

The use of electronic communication to transfer cash from one party to another is called________ .

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:

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:

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?

Proper internal control would require that a department manager inform the purchasing department of its needs for additional merchandise by preparing and signing a purchase requisition which lists the merchandise needed and requests that it be purchased.

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:

Describe a petty cash account and its purpose.