18) Regarding Electronic Data Interchange (EDI), which of the following statements is incorrect?
A) A manager approves the invoice, and then an electronic fund transfer sends the retailer‘s payment to
the supplier.
B) The retailer electronically sends an invoice to the supplier.
C) EDI procedures are used for both cash payments and cash receipts in many companies.
D) When a retailer‘s inventory reaches a low level, the computer creates and sends an electronic purchase
order to the supplier.
19) Which of the following is NOT a reason why paying by check is an important internal control?
A) The check provides a record of the payment.
B) The check must be signed by an authorized official.
C) Before signing the check, the purchasing agent reviews the invoice or other evidence supporting the
payment.
D) All of the above statements are correct.
20) For the following situation, state whether it represents a strength or weakness in internal control and
give the reason for your answer.
Baker Auto Supply purchases merchandise inventory from A & B Company. The accountant places the
order, verifies receipt of the merchandise, and records the transaction in the general journal.
21) Before sending the check for payment of goods, the controller should examine the payment pack. List
the documents that are included in the payment pack and describe the information provided by each
document.
22) List the four steps, the proper order, of the purchasing and payment process.
33
Copyright © 2018 Pearson Education, Inc.
Match each term with its description.
A) Sent by the vendor after the inventory has been shipped to the purchaser.
B) Sent to the vendor when goods are ordered.
C) Prepared by the purchaser when the goods are received.
D) Sent to the vendor after all approving documents have been submitted.
23) Invoice
Diff: 2
24) Purchase Order
Diff: 2
25) Receiving Report
Diff: 2
26) Check
Diff: 2
LO: 7-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Controls Over Payment by Check
34
Copyright © 2018 Pearson Education, Inc.
7.4 Learning Objective 7-4
1) Cash in the bank is more liquid than a petty cash fund.
2) Petty cash is a fund containing a small amount of cash that is used to pay for minor expenditures.
3) A key to strong control over petty cash is to ensure that several persons serve as custodian at one time.
4) All petty cash fund payments should be supported with sequentially numbered petty cash tickets.
5) Which is the most liquid form of asset?
A) cash
B) accounts receivable
C) inventory
D) supplies
6) Which of the following is NOT an internal control over the petty cash fund?
A) Petty cash tickets are sequentially numbered.
B) A specific amount of cash is designated to be kept in the petty cash fund.
C) Petty cash tickets serve as the authorization voucher and explanation.
D) Two custodians should be assigned responsibility for the petty cash fund.
7) The journal entry to open a new petty cash fund includes a debit to the Petty Cash account and a credit
to the Cash account.
8) An imprest system is a way to account for petty cash by maintaining a constant balance in the petty
cash account.
9) The imprest system requires that the petty cash box contain cash and petty cash tickets that total the
amount of the imprest balance only at the end of each month.
10) Mercury Company established a petty cash fund with a $500 balance. Which of the following
statements is incorrect?
A) A journal entry is needed to debit the Cash account and credit the Petty Cash account for $500.
B) There is no net effect on current assets.
C) The sum of the cash plus the total of the petty cash tickets should equal $500 at all times.
D) The petty cash custodian cashes a check for $500 and places the currency in the petty cash fund box.
11) A way to account for petty cash by maintaining a constant balance in the petty cash account and
which at any time requires that cash plus petty cash tickets must total the amount allocated to the petty
cash fund, is known as the ________.
A) control system
B) voucher system
C) balanced system
D) imprest system
12) The journal entry to replenish a petty cash fund includes a debit to the Petty Cash account and a credit
to the proper expense account(s).
13) When replenishing the petty cash fund, the company debits the Petty Cash account and credits the
Cash account.
14) When replenishing the petty cash fund, the company debits either the associated expense incurred or
the asset purchased with the fund.
15) For each petty cash payment, the custodian prepares a petty cash ticket.
16) A company has a petty cash fund amount of $200. When replenished, it has petty cash tickets of $33
for gas expense, $31 for postage expense, $16 for supplies expense, and $12 for miscellaneous expenses.
Assume the cash balance is not over or short. In the journal entry, Cash would be credited for ________.
A) $92
B) $76
C) $64
D) $80
17) The petty cash fund had an initial imprest balance of $230. It currently has $15 in cash, $3 in
miscellaneous petty cash tickets, and an additional $207 in specific petty cash tickets. The debit to Cash
Short & Over would be ________.
A) $5
B) $15
C) $207
D) $210
18) Which of the following would be included in the entry to record the replenishment of a petty cash
fund?
A) a credit to Petty Cash
B) a debit to Accounts Receivable
C) a credit to Cash
D) a credit to Miscellaneous Expense
19) A petty cash fund was established with a $350 balance. It currently has cash of $45 and petty cash
tickets totaling $305. Which of the following would be included in the entry to replenish the fund?
A) a credit to Petty Cash for $305
B) a debit to Petty Cash for $45
C) a credit to Cash for $45
D) a debit to various expenses for $305
20) A petty cash fund was established with a $400 balance. It currently has cash of $41 and petty cash
tickets totaling $359. Which of the following would be included in the entry to replenish the fund?
A) a credit to Petty Cash for $359
B) a debit to Petty Cash for $41
C) a credit to Cash for $41
D) a credit to Cash for $359
21) A petty cash fund was established with a $525 balance. It currently has cash of $65 and petty cash
tickets as shown below:
Travel expense
$120
Office supplies expense
310
Equipment rental expense
30
Which of the following would be the journal entry to replenish the Petty Cash account?
A) debit various expenses $460; credit Cash $460
B) debit various expenses $460; credit Petty Cash $460
C) debit Cash $65; credit various expenses $65
D) credit Petty Cash $460; debit Cash $460
22) A petty cash fund was established with a $600 balance. It currently has cash of $17 and petty cash
tickets as shown below:
Travel expense
$102
Office supplies expense
285
Equipment rental expense
80
Which of the following would be included in the journal entry to replenish the Petty Cash fund?
A) debit to Cash Short & Over for $116
B) credit to Cash Short & Over for $116
C) debit to Petty Cash for $116
D) credit to Petty Cash for $116
23) A petty cash fund was established with a $525 balance. It currently has cash of $45 and petty cash
tickets as shown below:
Travel expense
$105
Office supplies expense
250
Equipment rental expense
110
Which of the following would be included in the journal entry to replenish the Petty Cash fund?
A) debit to Cash Short & Over for $15
B) credit to Cash Short & Over for $15
C) debit to Petty Cash for $15
D) credit to Petty Cash for $15