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151) Match the following terms with the appropriate definition.
1.The set of policies and procedures
managers use to monitor and control
business activities.
Cash
2.The organization that lists five
ingredients of internal controls that
adds to the quality of accounting
information.
Cash equivalent
3.Principle that costs of internal
controls must not exceed their
benefits.
Canceled checks
4.Currency, coins, and amounts on
deposit in bank accounts.
Cost-benefit principle
5.An asset such as cash that can be
readily used to settle near-term
obligations.
Liquid assets
6.Regulation requiring public
companies to document and certify
their system of internal controls.
Internal control system
7.Set of procedures and approvals
designed to control cash payments.
Sarbanes-Oxley Act
8.Short-term, highly liquid
investments that are readily
convertible to a known cash amount
and are sufficiently close to their
maturity date so that the market value
is not sensitive to interest rate
changes.
Committee of Sponsoring
Organizations
9.Internal document used to collect
information to control cash payments
and to ensure that a transaction is
properly recorded.
Voucher system
10.Checks the bank has paid and
deducted from a customer’s account.
Voucher
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152) Match each of the following transactions with the applicable internal control principle that
is being violated.
A. Establish responsibility
B. Maintain adequate records
C. Insure assets and bond employees
D. Separate recordkeeping from custody of assets
E. Divide responsibility for related transactions
F. Apply technological controls
G. Perform regular and independent reviews
_____ 1. Cashiers have access to the cash register recorded tape or file.
_____ 2. A company uses a voucher system, but the cash disbursement clerk pays directly from
invoices received.
_____ 3. Only sales clerks use the cash register, but they all share the same cash drawer.
_____ 4. The bookkeeper prepares and signs checks and completes the bank reconciliation.
_____ 5. A restaurant allows servers to keep cash collected in their aprons and ring in all sales at
the end of the night.
_____ 6. A company fails to hire a CPA to perform an annual audit.
_____ 7. A company does not bond its key cash-handling employees.
_____ 8. A company has a single department that handles purchasing, receiving, and inventory
management.
_____ 9. A company fails to have financial records tested and evaluated for the effectiveness of
internal control.
_____ 10. A company manager keeps pre-signed checks in his desk drawer for employees to
hand write when the accountant is out of the office.
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153) Identify each of the following items 1 through 10 as either (A) cash or (B) cash equivalent.
_____ 1. Coins
_____ 2. Petty cash
_____ 3. Three-month certificate of deposit
_____ 4. Short-term investment in commercial paper
_____ 5. Currency
_____ 6. Certified check
_____ 7. Cashier’s check
_____ 8. Sixty-day certificate of deposit
_____ 9. Money orders
_____ 10. U.S. treasury bills
154) Identify whether each of the following items 1 through 8 would on appear on the bank side
or the book side of a bank reconciliation.
____ 1. Bank service charges
____ 2. Outstanding checks
____ 3. Deposits in transit
____ 4. NSF check
____ 5. Interest on a checking account
____ 6. The company properly wrote a check for $95.80 that the bank incorrectly paid as $9.58.
____ 7. The bank printed checks for the depositor for a fee.
____ 8. The bank collected a $1,000 note for the depositor.
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155) Define an internal control system and describe its purpose.
156) List the principles of internal control.
157) Explain the difference between cash and cash equivalents.
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158) Describe the basic bank services that contribute to the control of cash and identify at least
two internal control objectives served by the banking activities.
159) What is the purpose of the days’ sales uncollected ratio?
160) What is a voucher system and what are the two areas for which it establishes control
procedures?
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161) Discuss how the principles of internal control apply to cash receipts over-the-counter by
giving several examples of good control measures that should be implemented.
162) Discuss how the principles of internal control apply to cash receipts through the mail by
giving several examples of good control measures that should be implemented.
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163) Describe a petty cash account and its purpose.
164) Describe a bank reconciliation and discuss its purpose.
165) When using a voucher system, what are the steps on the invoice approval checklist that
must be completed before an invoice approval is complete and a voucher prepared?
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166) Describe the use and purpose of purchase requisitions?
167) 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. What are the
specific requirements for auditors set forth by SOX?
168) The treasurer of a company is responsible for cash management. List five cash management
principles that are essential for effective cash management.
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169) For each of the independent cases below, identify the principle of internal control that is
violated, and recommend what should be done to remedy the violation.
1. In order to save money, Indigo Company has decided to drop its property insurance on assets;
and stop bonding the cashiers who handle upwards of $5,000 in cash each day.
2. Jobs Company records each sale on a preprinted invoice. Because invoices are sometimes
damaged in the process of preparation, the invoices are not prenumbered. Instead, the sales clerk
writes the next number on each invoice as it is prepared.
3. Keegan Company is a very small business. Dylan Epps, one of the two office clerks, opens the
mail each day and removes the cash receipts that come in the mail. Dylan also records the
receipts in the cash records and the customer’s account and deposits the cash in the bank.
4. Ludwig Company prides itself on hiring only the most competent employees. The owner,
Jeremy Ludwig, believes that since the employees are highly competent he can show he trusts
them completely by not checking up on their performance.
5. Maple Industries is a small business with three accounting employees. Each employee is well-
trained and able to perform any of the accounting tasks, including handling cash receipts and
cash payments, and preparing the bank reconciliation. Because of this cross-training, the
employees share responsibilities for all of the tasks.
170) At the end of the current period, a company reported $725,000 in net credit sales and
$100,000 in ending accounts receivable. Calculate this company’s days’ sales uncollected at the
end of the current period.
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171) Norman Co. had $5,925 million in sales and $1,155 million in ending accounts receivable
for the current period. For the same period, Opal Co. reported $5,885 million in sales and $790
million in ending accounts receivable. Calculate the days’ sales uncollected for both companies
as of the end of the current period and indicate which company is doing a better job in managing
the collection of its receivables.
172) A company reported net sales for Year 1 of $265,000 and $545,000 for Year 2. The year-
end balances of accounts receivable were $39,000 for Year 1 and $92,000 for Year 2. Calculate
the days’ sales uncollected at the end of each year for this company and describe any changes in
the apparent liquidity of the company’s receivables.
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173) At the end of the day on March 15, the cash register’s record shows $1,957, but the count of
cash in the register is $1,965. Prepare the general journal entry to record the day’s cash sales.
174) 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.
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175) A petty cash fund was originally established with a check for $100. On August 31, which is
the period end, the petty cash fund included the following:
Petty cash receipts:
Postage
$43.50
Office supplies
11.85
Office equipment repair
39.00
Cash
4.25
Prepare the general journal entry to record the replenishment of the petty cash fund on August
31.
Aug. 31
Postage Expense
Office Supplies
Expense
Cash Over and Short
Cash
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176) Quibble Company established a $300 petty cash fund by issuing a check to the custodian on
February 1. On February 15, the petty cash fund was replenished and increased to $800 in total.
The contents of the petty cash fund at the time of the February 15 replenishment were:
Currency and coins
$12
Petty cash receipts for:
Transportation-in for inventory
$39
Delivery expense
88
Repairs to office equipment
47
Postage
64
Entertainment of customers
53
291
Total
$303
The company uses the perpetual inventory method. Prepare Quibble’s general journal entry to
record both the reimbursement and the increase of the petty fund on February 15.
Merchandise Inventory
Delivery Expense
Repairs Expense
Postage Expense
Entertainment Expense
Petty Cash
500
Cash Over and Short
Cash
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177) On March 1, a company established a $75 petty cash fund. On March 12, the petty cash
fund contains $3 in cash and the following paid petty cash receipts: transportation-in on
merchandise inventory $14.25; postage, $19.50; and office supplies, $36. Give the general
journal entry to reimburse the fund and to increase its amount to $150 on March 12.
178) On June 1, a company established a $75 petty cash fund. On June 27, the petty cash fund
contains $5.25 in cash and the following paid petty cash receipts: postage, $19.50; office
supplies, $36.25; and miscellaneous expense $14.00. Give the general journal entry to reimburse
the fund on June 27.
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179) A company established a petty cash fund in November of the current year and experienced
the following transactions affecting the fund during November:
Established a $200 petty cash fund.
Paid $55 to acquire office supplies.
Reimbursed the company controller for $30 spent on beverages for
recruits (entertainment expense).
Paid $45 for postage.
Paid $25 for C.O.D. charges on merchandise inventory, terms FOB
shipping point.
Paid $40 for janitorial services.
When sorting the petty cash receipts to replenish the fund, the custodian
noted that there was $10 cash remaining.
Prepare the journal entries to establish the fund on November 1 and to reimburse the fund on
November 28.
Nov. 01
Petty Cash
Nov. 28
Office Supplies
Entertainment Expense
Postage Expense
Merchandise Inventory
Maintenance Expense
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180) Following are seven items a through g that would cause Rembrandt Company’s book
balance of cash to differ from its bank statement balance of cash.
a. A service charge imposed by the bank.
b. A check listed as outstanding on the previous period’s reconciliation and still outstanding at
the end of this month.
c. A customer’s check returned by the bank is marked “Not Sufficient Funds (NSF)”.
d. A deposit mailed to the bank on the last day of the current month and not recorded on this
month’s bank statement.
e. A check paid by the bank at its correct $190 amount recorded in error in the company’s check
register at $109.
f. The bank collected a note receivable for Rembrandt Company and deposited the proceeds in
the company’s account. At period end, Rembrandt had yet to record this deposit.
g. A check written in the current period that is not yet paid or returned by the bank.
Indicate where each item, letters a-g, would appear on Rembrandt Company’s bank reconciliation
by placing its identifying letter in the parentheses in the proper section of the form below.
Bank statement cash balance
Book balance of cash
Add:
( )
Add:
( )
( )
( )
( )
( )
Deduct:
( )
Deduct:
( )
( )
( )
( )
( )
Reconciled balance
Reconciled balance
Bank statement cash balance
Book balance of cash
Add:
(d)
Add:
(f )
( )
( )
( )
( )
( )
( )
Deduct:
(b)
Deduct:
(a)
(g)
(c)
( )
(e)
( )
( )
Reconciled balance
Reconciled balance
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181) The following information is available for the Savvy Company for the month of June.
a. On June 30, after all transactions have been recorded, the balance in the company’s Cash
account has a balance of $17,202.
b. The company’s bank statement shows a balance on June 30 of $19,279.
c. Outstanding checks at June 30 total $2,984.
d. The bank collected $770 on a note receivable that is not yet recorded by Savvy Company.
e. A $67 NSF check from a customer, J. Maroon is shown on the bank statement but not yet
recorded by the company.
f. A deposit placed in the bank’s night depository on June 30 totaling $1,675 did not appear on
the bank statement.
g. Comparing the checks on the bank statement with the entries in the accounting records reveals
that check #3445 for the payment of an account payable was correctly written for $2,450, but
was recorded in the accounting records as $2,540.
h. Included with the bank statement was a bank service charge in the amount of $25 . It has not
been recorded on the company’s books.
1. Prepare the June bank reconciliation for the Savvy Company.
2. Prepare the general journal entries to bring the company’s book balance of cash into
conformity with the reconciled balance as of June 30.
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Answer: