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Topic: Bank Reconciliation
114. A company made a bank deposit on September 30 that did not appear on the bank statement
dated as of September 30. In preparing the September 30 bank reconciliation, the company
should:
A. Deduct the deposit from the bank statement balance.
B. Send the bank a debit memorandum.
C. Deduct the deposit from the September 30 book balance and add it to the October 1 book
balance.
D. Add the deposit to the book balance of cash.
E. Add the deposit to the bank statement balance.
115. If a check correctly written and paid by the bank for $794 is incorrectly recorded in the
company's books for $749, how should this error be treated on the bank reconciliation?
A. Subtract $45 from the bank's balance.
B. Add $45 to the bank's balance.
C. Subtract $45 from the book balance.
D. Add $45 to the book balance.
E. Subtract $45 from the bank's balance and add $45 to the book's balance.
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116. During the month of September, Norris Industries issued a check in the amount of $845 to a
supplier on account. The check cleared the bank during September. The disbursement was
recorded incorrectly as $854. The journal entry to correct this mistake when discovered will
include:
A. A debit to Accounts Payable for $854.
B. A credit to Cash for $854.
C. A credit to Cash for $9.
D. A credit to Accounts Payable for $9.
E. A debit to Cash for $49.
117. In the process of reconciling Marks Enterprises' bank statement for September, Mr. Marks
compiles the following information:
Cash balance per company books on September 30
$6,275
Deposits in transit at month-end
$1,300
Outstanding checks at month-end
$ 620
Bank charge for printing new checks
$ 45
Note receivable and interest collected by bank on Marks' behalf
$ 770
A check given to Mark during the month by a customer is returned
by the bank as NSF
$ 480
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The adjusted cash balance per the books on September 30 is:
A. $ 6,900
B. $ 8,160
C. $ 4,600
D. $ 6,520
E. $ 5,840
118. Which of the following events would cause a bank to debit a depositor's account?
A. The depositor authorizes the bank to charge the depositor's account $50 for new checks.
B. The bank collects a note receivable and related interest on the depositor's behalf.
C. The depositor determines there are outstanding checks drawn on the account at month-end.
D. The depositor determines there are deposits in transit on the account at month-end.
E. The bank determines it incorrectly charged the depositor's account twice for the monthly
service charge in a previous month.
119. A seller (or provider) of goods or services to a business organization, usually a
manufacturer or wholesaler, is known as a:
A. Vendor.
B. Payee.
C. Vendee.
D. Creditor.
E. Debtor.
120. The internal document prepared by a department manager that informs the purchasing
department of its needs that lists the merchandise needed and requests that it be purchased is the
A. Purchase requisition.
B. Purchase order.
C. Invoice.
D. Receiving report.
E. Invoice approval.
121. The document that the purchasing department prepares and sends to the vendor to place an
order is the
A. Purchase requisition.
B. Purchase order.
C. Invoice.
D. Receiving report.
E. Invoice approval.
122. The document that is an itemized statement of goods prepared by a vendor listing the
customer's name, items sold, sales prices, and terms of the sale is the
A. Purchase requisition.
B. Purchase order.
C. Invoice.
D. Receiving report.
E. Invoice approval.
123. The internal document that is prepared to notify the appropriate persons that ordered goods
have been received and describes the quantities and condition of the goods is the
A. Purchase requisition.
B. Purchase order.
C. Invoice.
D. Receiving report.
E. Invoice approval.
124. The document, also known as the check authorization, that is a checklist of steps necessary
for approving an invoice for recording and payment is the
A. Purchase requisition.
B. Purchase order.
C. Invoice.
D. Receiving report.
E. Invoice approval.
125. A voucher system is a series of prescribed control procedures:
A. Designed to eliminate the need for subsidiary ledgers.
B. Designed to determine if the company is operating profitably.
C. Used almost exclusively by small companies.
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.
126. The gross method of recording purchases refers to the method of recording:
A. Purchases at the invoice price less any cash discounts.
B. Specified amounts and timing of payments that a buyer agrees to make in return for being
granted credit.
C. Purchases at the full invoice price, without deducting any cash discounts.
D. Inventory at its selling price.
E. Inventory at the lower of cost or market.
127. An expense resulting from failing to take advantage of cash discounts on purchases is
called:
A. Sales discounts.
B. Trade discounts.
C. Purchases discounts.
D. Discounts lost.
E. Discounts earned.
128. A company using the net method of recording purchases failed to take advantage of a
discount available. When they pay the full (gross) amount of an invoice at the end of the credit
period the journal entry will include a debit to:
A. Merchandise Inventory.
B. Sales Discounts.
C. Discounts Lost.
D. Cash.
E. Accounts Receivable.
129. A company that uses the net method of recording invoices made a purchase of $400 with
terms of 2/10, n/30. The entry to record the purchase would include:
A. A debit to Merchandise Inventory for $392.
B. A credit to Discounts Lost for $8.
C. A credit to Cash for $392.
D. A debit to Discounts Lost for $8.
E. A debit to Cash for $392.
130. Merchandise with an invoice price of $2,000 was purchased on October 3, terms 1/15, n/60.
The company uses the net method to record purchases. The entry to record the cash payment of
this purchase obligation on October 17 is:
A. Debit Accounts Payable $1,980; credit Cash $1,980.
B. Debit Accounts Payable $2,000; credit Cash $2,000.
C. Debit Accounts Payable $1,980; credit Discounts Lost $20; credit Cash $2,000.
D. Debit Accounts Payable $2,000; credit Merchandise Inventory $20; credit Cash $1,980.
E. Debit Accounts Payable $2,000; credit Merchandise Inventory $40; credit Cash $1,960.
131. A company records purchases using the net method. On February 1, they purchased
merchandise inventory on account for $8,300 with terms of 1/10, n/30. The February 1 journal
entry to record this transaction would include a:
A. Debit to Merchandise Inventory of $8,300.
B. Debit to Merchandise Inventory of $8,217.
C. Debit to Merchandise Inventory of $83.
D. Credit to Merchandise Inventory of $83.
E. Credit to Accounts Payable of $8,300.
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132. Reasons that internal controls are crucial to companies that convert from U.S. GAAP to
IFRS include all of the following except:
A. Possible misstatement of financial information.
B. Possible fraud.
C. Controls are significantly different across the globe.
D. Ineffective communication of the change to investors, creditors, and others.
E. Management’s inability to certify the effectiveness of the controls.
133. Effective cash management involves applying all of the following cash management
principles except:
A. Encourage collection of receivables, offer discounts for payments received early.
B. Keep only necessary levels of assets.
C. Plan expenditures.
D. Retaining excess cash available for unexpected expenditures.
E. Delay payment of liabilities until the last possible day.
134. Match each of the following terms with the appropriate definitions.
A. Principles of internal control
B. Cash Over and Short
C. Net method
D. Voucher
E. Bank reconciliation
F. Liquidity
G. Receiving report
H. Days' sales uncollected
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I. Purchase order
J. Gross method
____ 1. A report that explains any differences between the checking account balance according
to the depositor's records and the balance reported on the bank statement.
____ 2. An internal business document (or file) used to accumulate information to control cash
disbursements and to ensure that the transaction is properly recorded.
____ 3. Principles requiring management to establish responsibility, maintain adequate records,\
insure assets, separate recordkeeping from custody of assets, divide responsibility for related
transactions, apply technological controls, and perform reviews.
____ 4. A measure of the liquidity of receivables computed by taking the current balance of
receivables and dividing by the credit sales over the period, and then multiplying by 365.
____ 5. The ability of a company to pay for its short-term obligations.
____ 6. A method of recording purchases at the full invoice price without deducting any cash
discounts.
____ 7. A method of recording purchases at the full invoice price less any cash discounts.
____ 8. A document used by the purchasing department to place an order with a vendor.
____ 9. An internal document used to report that ordered goods are received and to describe the
quantity and condition.
____10. An income statement account used to record cash overages and cash shortages arising
from missing petty cash receipts or from errors in making change.
135. Match each of the following transactions 1 through 10 with the applicable internal control
principle listed in “a” through “g” (some answers refer to more than one principle).
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. Cashier does not have access to the cash register recorded tape or file.
_____ 2. A company uses a voucher system.
_____ 3. No two clerks share the same cash drawer.
_____ 4. The bookkeeper prepares and signs checks.
_____ 5. A company uses a computerized point of sale system.
_____ 6. A company hires CPAs to perform an audit.
_____ 7. A company buys an insurance policy to protect against employee theft.
_____ 8. A company has separate departments for purchasing, receiving, and accounts payable.
_____ 9. A company has an internal auditor on staff.
_____ 10. A company uses a check protector.
136. 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. Commercial paper
_____ 5. Currency
_____ 6. Certified check
_____ 7. Cashier's check
_____ 8. Money market accounts
_____ 9. Money orders
_____ 10. U.S. treasury bills
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137. Match the following terms a through j with the appropriate definition 1 through 10.
A. Check
B. Vendor
C. Discounts lost
D. Invoice
E. Internal control system
F. Cash
G. Purchase requisition
H. Liquid assets
I. Vendee
J. Cash equivalent
____ 1. Currency, coins, and amounts on deposit in bank checking and many savings accounts.
____ 2. 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.
____ 3. A document signed by the depositor instructing the bank to pay a specified amount to a
designated recipient.
____ 4. An expense resulting from failure to take advantage of cash discounts on purchases.
____ 5. An asset such as cash that can be readily used to settle near-term obligations.
____ 6. All the policies and procedures managers use to protect assets, ensure reliable
accounting, promote efficient operations, and urge adherence to company policies.
____ 7. The buyer or purchaser of goods or services.
____ 8. The seller of goods or services.
____ 9. An internal document listing the goods needed by a department and requesting that it be
purchased.
____10. An itemized statement of goods prepared by the vendor that lists the customer's name,
the items sold, the sales price of each item, and the terms of sale.
138. Identify whether each of the following items 1 through 10 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 bank incorrectly recorded a check for $9.58. The company properly wrote the check
for $95.80.
____ 7. The bank printed checks for the depositor for a fee.
____ 8. Bank debit memorandum
____ 9. Bank credit memorandum
____10. The bank collected a $1,000 note for the depositor.
139. Define an internal control system and describe its purpose.
140. List the principles of internal control.
141. Explain the difference between cash and cash equivalents.
142. Describe the banking activities that promote the control of cash and identify the internal
control objectives served by the banking activities.
143. What is the purpose of the days' sales uncollected ratio?
144. What is a voucher system?
145. Discuss how the principles of internal control apply to cash receipts.
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146. What is the purpose of the petty cash account?
147. Discuss the purpose of a bank reconciliation.
148. What are the steps that must be completed before an invoice approval is complete and a
voucher prepared?
149. Describe the net method of accounting for purchases. Why do companies use the net
method?
150. 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 some
of the specific requirements for auditors specifically ?
151. The treasurer of a company is responsible for cash management. List five cash management
principles that are essential for effective cash management.
152. Dylan Lauren of Dylan's Candy Bar knew good business practice requires the use of
effective internal controls. Identify some of the internal controls that Dylan's Candy Bar should
implement and explain how those controls contributed to the firm's success.
Problems
153. 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, Regal Company has decided to drop its property insurance on assets;
and stop bonding the cashiers who handle about $10,000 in cash each day.
2. Halton Company records each sale on a preprinted invoice. Since sometimes invoices are
damaged in the process of being prepared, the invoices are not prenumbered, but the sales clerk
writes the next number onto each invoice.
3. Marion Company is a very small business. Bob Lepley, one of the two office clerks, opens the
mail each day and removes the cash receipts that come in the mail. Bob then records the receipts
in the cash records and the customer's account and deposits the cash in the bank.
4. Gerald McNichols, the owner of McNichols Company prides himself on hiring only the most
competent employees. McNichols believes that since these employees are highly competent and
to show that he trusts them completely, he feels there is no need for anyone to check up on the
employees' performance.
5. Service Products is a small business with only 3 accounting employees. Each employee is
well-trained and so can perform any of the accounting tasks, including handling cash receipts
and cash disbursements, and preparing the bank reconciliation.
154. At the end of the current period, a company reported $475,000 in net credit sales and
$75,000 in ending accounts receivable. Calculate this company's days' sales uncollected at the
end of the current period.
