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Exam 6: Internal Control and Accounting for Cash

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Question 61

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Indicate whether each of the following statements about the auditor's role in financial accounting is true or false.a)________ A financial audit guarantees the accuracy of all amounts reported on the financial statements.b)________ A financial audit is a detailed examination of a company's financial statements and underlying accounting records.c)________ The primary responsibility of the independent accounting firm is to the public.d)________ The most favorable type of audit report is called a qualified opinion.e)________ The ultimate responsibility for the financial statements lies with management of the company rather than the independent accounting firm.

A) True
B) False

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Question 62

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Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA In preparing the bank reconciliation for Heath Company, a company employee found that the bank statement included an NFS check that the company had received from a customer paying its account at Heath Company.

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Recording the NSF check increases one a...

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Question 63

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The bank statement for Tetra Company contained the following items: a bank service charge of $60; a credit memo for interest earned, $65; and a $150 NSF check from a customer. The company had outstanding checks of $350 and a deposit in transit of $800. Assuming that the unadjusted bank balance was $1,600, what is the unadjusted book balance?

What does the term, segregation of duties, mean in the context of good internal controls?

A cash shortage is treated as an expense.

Rainey Company's true cash balance at October 31 is $4,920. The following information is available for the bank reconciliation:Outstanding checks, $770Deposits in transit, $550Bank service charges, $110The bank had collected an account receivable for Rainey Company, $1,200The bank statement included a NSF check written by one of Ramsey's customers for $720.What was the unadjusted book balance at October 31?

A bank reconciliation normally begins with the ending cash balance shown on the bank statement and reconciles it to the unadjusted cash account balance on the company's books.

Indicate whether each of the following items regarding petty cash is true or false.a)________ The establishment of a petty cash fund is an asset use transaction.b)________ The replenishment of a petty cash fund is an asset source transaction.c)________ At any time, the total of the petty cash vouchers plus the remaining coins and currency should equal the balance of the Petty Cash ledger account.d)________ If a cash shortage occurs, revenue is recognized.e)________ When petty cash is disbursed, there is no effect on the financial statements.

Which of the following is not a primary role of an independent auditor?

How is a customer's NSF check reflected on a bank reconciliation?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA Landau Company replenished its petty cash fund. The expenditures of the fund included postage, office supplies, and other miscellaneous items. Indicate the effects of recognizing the expenditures on financial statements and the replenishment of the petty cash fund.

Michelle Edwards operates a small dress shop that sells various items of apparel and accessories. She employs two clerks who make sales to customers, accept returns when a customer is dissatisfied with merchandise, and put new merchandise on display. One of the clerks, Kristen Scott, was hired recently. Michelle had always done all the accounting for the store and had made bank deposits. However, Kristen has offered to do the accounting for the store during slow periods when there are no customers in the store; she also has begun making bank deposits as she leaves for the day. Having Kristen take these responsibilities allows Michelle more time for acquiring merchandise for the store and for personal errands. What potential risks for the success of Michelle's business are present in this situation?

What are the primary roles of the independent auditor?

Explain the meaning of the term, internal control, and distinguish between accounting controls and administrative controls.

List and explain three of the five interrelated components of the internal control framework established by The Committee of Sponsoring Organizations of the Treadway Commission (COSO)that serve as the standards for Sarbanes-Oxley compliance.

Blake Company established a petty cash fund in the amount of $400. At the end of the accounting period, the petty cash box contained receipts for expenditures amounting to $180 and $215 in cash. If the company records both the disbursements and replenishments to the fund, what effect will replenishing the fund have on total assets and expenses?

At March 31, Cummins Company had an unadjusted balance in its cash account of $10,400. At the end of March, the company determined that it had outstanding checks of $900, deposits in transit of $600, a bank service charge of $20, and a NSF check from a customer for $200. What is the true cash balance at March 31?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts. Increase = I Decrease = D Not Affected = NA In preparing the bank reconciliation for Heath Company, an employee discovered an error. A $654 cash receipt for the collection of an account receivable was recorded in the company's books as $645. The deposit slip was correct, and the bank deposit had been correctly prepared. The error appeared only in the company's accounting records.

Keatts Company's bank statement included a NSF check written by one of its customers. What effect will recognizing the NSF check have on the company's financial statements?

The Securities and Exchange Commission is authorized to establish and enforce the accounting rules for public companies.