Financial and Managerial Accounting 14th Edition Warren Test Bank 1

Chapter 7 - Internal Control and Cash
Solution Manual for Financial and Managerial Accounting 14th Edition by

Warren Reeve and Duchac ISBN 1337119202 9781337119207
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1. The Sarbanes-Oxley Act applies only to companies whose stock is traded on public exchanges.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-01 - LO: 07-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.03 - Legal
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Ethics
2. Sarbanes-Oxley’s purpose is to maintain public confidence and trust in the financial reporting of companies.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Ethics
3. There are three internal control objectives and they are to safeguard the company's reputation, ensure accurate financial
reports, and ensure compliance with applicable laws.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Ethics
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4. The Sarbanes-Oxley Act requires that financial statements of all public companies report on management's conclusions
about the effectiveness of the company's internal control procedures.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate

BUSPROG: Ethics
5. Sarbanes-Oxley requires companies to maintain strong and effective internal controls and thus deter fraud and prevent
misleading financial statements.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Ethics
6. The control environment in an internal control structure is the overall attitude of management and employees about the
importance of internal control.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
ACCT.AICPA.BB.01 - Industry
BUSPROG: Analytic
7. Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the control
procedure: separating operations, custody of assets, and accounting.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
8. Internal control is enhanced by separating the control of a transaction from the record-keeping function.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
9. A backlog in recording transactions is an example of a warning sign from the accounting system.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
10. Money orders are considered cash.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
BUSPROG: Analytic
11. A customer's check received in settlement of an account receivable is considered cash.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual
BUSPROG: Analytic
12. Businesses who have several bank accounts, petty cash, and cash on hand, would maintain a separate ledger account
for each type of cash.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
13. For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash
payments divided among different employees.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
14. If the balance in Cash Short and Over at the end of a period is a credit, it indicates that cash shortages have exceeded
cash overages for the period.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
15. If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as an "other income" item
on the income statement.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy

ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements
BUSPROG: Analytic
16. An example of good internal controls over cash payments is the taking of all cash discounts offered.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
17. A voucher is a form on which is recorded pertinent data about a liability and the particulars of its payment.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
18. When the voucher system is used, the amount due on each voucher represents the credit balance of an account payable
if the voucher is in full payment to a creditor.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
19. A voucher system is an example of an internal control procedure over cash payments.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy

BUSPROG: Analytic
20. A voucher is a written authorization to make a cash payment.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
21. The bank often informs the company of bank service charges by including a credit memo with the monthly bank
statement.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
ACCT.ACBSP.APC.11 - Bank Reconciliation
BUSPROG: Analytic
22. Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on the
bank's records.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
23. Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
24. For efficiency of operations and better control over cash, a company should maintain only one bank account.
a. True
b. False
ANSWER: False
DIFFICULTY: Bloom's: Remembering
Easy
BUSPROG: Analytic
25. In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank statement.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
BUSPROG: Analytic
26. In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank statement.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
27. In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is added to the
balance per company's records.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
28. In preparing a bank reconciliation, the amount of a canceled check omitted from the journal is added to the balance per
company's records.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
29. A check for $342 was erroneously charged by the bank as $432. In order for the bank reconciliation to balance, you
must add $90 to the bank statement balance.
a. True
b. False
ANSWER: True
Bloom's: Applying
BUSPROG: Analytic
30. If an adjustment for an NSF check is made in a company’s bank reconciliation, then the company must have written a
bad check during the month.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
31. The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is
shown on the balance sheet for that date.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
32. All bank memos reported on the bank reconciliation require entries in the company's accounts.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
33. The bank reconciliation is an important part of the system of internal controls.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
34. The main reason that the bank statement cash balance and the company's cash balance do not initially balance is due
to timing differences.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
35. The bank reconciles its statement to the company's records.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
36. In preparing a bank reconciliation, the amount indicated by a credit memo for a note receivable collected by the bank
is added to the balance per company's records.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
37. In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal for an
amount larger than the amount of the check is added to the balance per company's records.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
38. A check outstanding for two consecutive months will appear only on the first month's bank reconciliation.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
39. After a bank reconciliation is completed, journal entries are prepared for items in the balance per company's records as
well as items in the balance per bank statement.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
40. A business that requires all cash payments be made by check can not use a petty cash system.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
41. In establishing a petty cash fund, a check is written for the amount of the fund and is recorded as a debit to Accounts
Payable and a credit to Petty Cash.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
42. Expenditures from a petty cash fund are documented by a petty cash receipt.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy

BUSPROG: Analytic
43. The sum of the money on hand and petty cash receipts in a petty cash fund will always be equal to the balance in the
petty cash account.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
44. When the petty cash fund is replenished, the petty cash account is credited for the total of all expenditures made since
the fund was last replenished.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
45. Most companies who have several bank accounts, petty cash, and cash on hand, would list each separately on the
balance sheet.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
46. A petty cash fund is used to pay relatively large amounts.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
47. The petty cash fund eliminates the need for a bank checking account.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
48. A compensating balance occurs when a bank may require a company to maintain a maximum cash balance.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
49. Cash equivalents include short-term investments that will be converted to cash within 120 days.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
50. Money market accounts, commercial paper, and U. S. Treasury bills are examples of cash equivalents.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
51. Sarbanes-Oxley applies to

a. publicly held companies
b. not-for-profit organizations
c. privately held businesses
d. all of these
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Ethics
52. "To maintain public confidence and trust in the financial reporting of companies" is the purpose of
a. the FASB
b. the IRS
c. Sarbanes-Oxley
d. GAAP
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Ethics
53. Which one of the following below is not an element of internal control?
a. risk assessment
b. monitoring
c. information and communication
d. cost-benefit considerations
ANSWER: d
DIFFICULTY: Easy

BUSPROG: Analytic
54. Which one of the following is not a factor that influences a business's control environment?
a. management's philosophy and operating style
b. organizational structure
c. proofs and security measures
d. personnel policies
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
55. When a firm uses internal auditors, it is adhering to which of the following internal control elements?
a. risk assessment
b. monitoring
c. proofs and security measures
d. information and communication
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
56. The objectives of internal control are to

a. control the internal organization of the accounting department personnel and equipment
b. provide reasonable assurance that assets are safeguarded and used for business purposes, business information
is accurate, and laws and regulations are complied with
c. prevent fraud, and promote the social interest of the company
d. provide control over "internal-use only" reports and employee internal conduct
ANSWER: b
DIFFICULTY: Easy

BUSPROG: Analytic
57. Which one of the following reflects a weak internal control system?
a. all employees are well supervised
b. a single employee is responsible for comparing a receiving report to an invoice
c. all employees must take their vacations
d. a single employee is responsible for collecting and recording of cash
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
58. Internal control does not consist of policies and procedures that
a. protect assets from misuse
b. ensure employees and managers comply with laws and regulations
c. guarantee the company will earn a profit
d. ensure that business information is accurate
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
59. A firm's internal control environment is not influenced by

a. management's operating style
b. organizational structure
c. personnel policies
d. monitoring policies
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
60. An element of internal control is

a. risk assessment
b. journals
c. subsidiary ledgers
d. controlling accounts
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
61. A necessary element of internal control is

a. database
b. systems design
c. systems analysis
d. information and communication
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
62. Which of the following should not be considered cash by an accountant?

a. money orders
b. bank checking accounts
c. postage stamps
d. travelers' checks
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
63. The cash account in the company's ledger is a(n)
a. asset with a normal debit balance
b. asset with a normal credit balance
c. liability with a normal debit balance
d. liability with a normal credit balance
ANSWER: a
DIFFICULTY: Easy
ACCT.ACBSP.APC.15 - Current Assets Reporting
BUSPROG: Analytic
64. The portion of an invoice that is returned with payment is a

a. remittance advice
b. voucher
c. debit memo
d. credit memo
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
65. The debit balance in Cash Short and Over at the end of an accounting period is reported as
a. an expense on the income statement
b. income on the income statement
c. an asset on the balance sheet
d. a liability on the balance sheet
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
66. Procedures designed to protect cash from theft and misuse from the time it is received until it can be deposited in a
bank are called
a. accounting controls
b. cash controls
c. FASB controls
d. GAAP controls
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
67. A special form on which is recorded pertinent data about a liability and the particulars of its payment is called a(n)
a. invoice
b. voucher
c. debit memo
d. remittance advice
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
68. EFT
a. means Efficient Funds Transfer
b. can process certain cash transactions at less cost than by using the mail
c. makes it easier to document purchase and sale transactions
d. means Effective Funds Transfer
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
69. A voucher is usually supported by
a. a supplier's invoice
b. a purchase order
c. a receiving report
d. all of these
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
70. Credit memos from the bank

a. decrease a bank customer's account
b. are used to show a bank service charge
c. show that a company has deposited a customer's NSF check
d. show the bank has collected a note receivable for the customer
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
71. Consider the following information taken from the cash account. Assume cash payments were 80% of collections.
Cash
?? Beginning balance
$115,375 Collections
?? Disbursements
$80,275 Ending balance
How much was the beginning balance of the cash account?

a. $57,200
b. $92,300
c. $103,350
d. $35,100
ANSWER: a
RATIONALE: Disbursements = 80% of collections = 80% × $115,375 = $92,300
Beginning balance of cash account = Ending balance + Disbursements – Collections =
$80,275 + $92,300 – $115,375 = $57,200
DIFFICULTY: Challenging
Bloom's: Applying
BUSPROG: Analytic
72. A bank statement

a. is a credit reference letter written by the company's bank
b. shows a company the financial position of the bank as of a certain date
c. is a bill from the bank for services rendered
d. shows the activity that increased or decreased the company's account balance
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
73. A debit or credit memo describing entries in the company's bank account may be enclosed with the bank
statement. An example of a credit memo is
a. deposited checks returned for insufficient funds
b. a promissory note left for collection
c. a service charge
d. notification that a customer's check for $375 was recorded by the company as $735 on the deposit ticket
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
74. A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. This item would
be included on the bank reconciliation as a(n)
a. addition to the balance per the company's records
b. addition to the balance per the bank statement
c. deduction from the balance per the bank statement
d. deduction from the balance per the company's records
ANSWER: a

BUSPROG: Analytic
75. A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. What entry is
required in the company's accounts?
a. debit Accounts Payable; credit Cash
b. debit Cash; credit Accounts Receivable
c. debit Cash; credit Accounts Payable
d. debit Accounts Receivable; credit Cash
ANSWER: c
BUSPROG: Analytic
76. A bank reconciliation should be prepared periodically because

a. the company's records and the bank's records are in agreement
b. the bank has not recorded all of its transactions
c. any differences between the company's records and the bank's records should be determined, and any errors
made by either party should be discovered and corrected
d. the bank must make sure that its records are correct
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
77. The bank reconciliation

a. should be prepared by an employee who records cash transactions
b. is part of the internal control system
c. is for information purposes only
d. is sent to the bank for verification
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
78. Journal entries based on the bank reconciliation are required in the company's accounts for
a. outstanding checks
b. deposits in transit
c. bank errors
d. book errors
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
79. Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation, the item is
a. a deduction from the balance per company's records
b. an addition to the balance per bank statement
c. a deduction from the balance per bank statement
d. an addition to the balance per company's records
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
80. Accompanying the bank statement was a debit memo for bank service charges. What entry is required in the
company's accounts?
a. debit Miscellaneous Expense; credit Cash
b. debit Cash; credit Other Income
d. debit Accounts Payable; credit Cash
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
81. A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. This item would
be included in the bank reconciliation as a(n)
a. deduction from the balance per the company's records
b. addition to the balance per the bank statement
c. deduction from the balance per the bank statement
d. addition to the balance per the company's records
ANSWER: a
BUSPROG: Analytic
82. A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. What entry is
a. debit Accounts Payable; credit Cash
ANSWER: a
BUSPROG: Analytic
83. Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300. This item would
be included on the bank reconciliation as a(n)
a. deduction from the balance per company's records
b. addition to the balance per bank statement
c. deduction from the balance per bank statement
d. addition to the balance per company's records
ANSWER: d
BUSPROG: Analytic
84. Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the
company. This item is a(n)
ANSWER: d
BUSPROG: Analytic
85. Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the
customer. What entry is required in the company's accounts?
a. debit Notes Receivable; credit Cash
b. debit Cash; credit Miscellaneous Income
c. debit Cash; credit Notes Receivable and Interest Revenue
ANSWER: c
BUSPROG: Analytic
86. The amount of deposits in transit is included on the bank reconciliation as a(n)
a. deduction from the balance per the company's books
b. deduction from the balance per bank statement
c. addition to the balance per bank statement
d. addition to the balance per company books
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
87. The amount of the outstanding checks is included on the bank reconciliation as a(n)
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
88. Which of the following items that appeared on the bank reconciliation did not require a journal entry?
a. bank service charges
c. NSF checks
d. a check for $630, recorded in the check register for $360
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
89. What entry is required in the company's accounts to record outstanding checks?
a. debit Accounts Receivable; credit Cash
d. no entry is required
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
90. Accompanying the bank statement was a debit memo for an NSF check received from a customer. This item would be
included on the bank reconciliation as a(n)
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
91. Accompanying the bank statement was a debit memo for an NSF check received from a customer. What entry is
a. debit Other Income; credit Cash
b. debit Cash; credit Other Income
c. debit Cash; credit Accounts Receivable
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
92. The amount of cash to be reported on the balance sheet at June 30 is the
a. total of the cash column in the cash receipts journal as of June 30
b. adjusted balance appearing in the bank reconciliation for June 30
c. total of the cash column in the cash payments journal as of June 30
d. balance as of June 30 on the bank statement
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
93. Which of the following would be deducted from the balance per books on a bank reconciliation?
a. service charges
b. outstanding checks
c. deposits in transit
d. notes collected by the bank
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
94. Which of the following would be added to the balance per books on a bank reconciliation?
a. service charges
b. outstanding checks
c. deposits in transit
d. notes collected by the bank
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
95. Which of the following would be subtracted from the balance per books on a bank reconciliation?
c. notes collected by the bank
d. error by the company in recording a check for $732 as $723
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
96. Which of the following would be subtracted from the balance per bank on a bank reconciliation?
c. notes collected by the bank
d. service charges
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
97. A bank reconciliation should be prepared

a. whenever the bank refuses to lend the company money
b. to explain any difference between the company's balance per books with the balance per bank
c. by the company's bank
d. by the person who is authorized to sign checks
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
98. Minor Company had checks outstanding totaling $19,200 on its April bank reconciliation. In May, Minor Company
issued checks totaling $64,900. The May bank statement shows that $47,600 in checks cleared the bank in May. A check
from one of Minor Company's customers of $300 was also returned marked "NSF." The amount of outstanding checks on
Minor Company's May bank reconciliation should be
a. $28,400
b. $36,800
c. $17,300
d. $36,500
ANSWER: d
RATIONALE: Amount of outstanding checks on the May bank reconciliation = Outstanding checks
appearing on the April bank reconciliation + Checks issued in May – Checks cleared
in May = $19,200 + $64,900 – $47,600 = $36,500
Bloom's: Applying
BUSPROG: Analytic
99. Rodgers Company gathered the following reconciling information in preparing its May bank reconciliation. Calculate
the adjusted cash balance per books on May 31.
Cash balance per books, 5/31 $5,400

Deposits in transit 375
Notes receivable and interest collected by bank 650
Bank charge for check printing 40
Outstanding checks 2,400
NSF check 140
a. $5,870
b. $6,245
c. $4,930
d. $3,845
ANSWER: a
RATIONALE: Adjusted cash balance per books on May 31 = Cash balance per books on May 31 +
Notes receivable and interest collected by bank – Bank charge for check printing –
NSF check = $5,400 + $650 – $40 – $140 = $5,870
Bloom's: Applying
BUSPROG: Analytic
100. Gunnar Company gathered the following reconciling information in preparing its September bank reconciliation.
Calculate the adjusted cash balance per books on September 30.
Cash balance per books, 9/30 $2,750

Deposits in transit 200
Notes receivable and interest collected by bank 630
Bank charge for check printing 50
NSF check 290
a. $5,130
b. $3,690
c. $3,040
d. $1,590
ANSWER: c
RATIONALE: Adjusted cash balance per books on September 30 = Cash balance per books on
September 30 + Notes receivable and interest collected by bank – Bank charge for
check printing – NSF check = $2,750 + $630 – $50 – $290 = $3,040
Bloom's: Applying
BUSPROG: Analytic
101. Jamison Company gathered the following reconciling information in preparing its June bank reconciliation:
Cash balance per bank, 6/30 $13,000

Note receivable collected by bank 4,000
Deposits in transit 2,500
Bank service charge 35
NSF check 1,900
Using the above information, determine the cash balance per books (before adjustments) for Jamison Company.
a. $8,065
b. $10,565
c. $15,065
d. $6,435
ANSWER: d
RATIONALE: Adjusted balance = Cash balance per bank on June 30 + Deposits in transit –
Outstanding checks = $13,000 + $2,500 – $7,000 = $8,500
Cash balance per books (before adjustment) = Adjusted balance + NSF checks + Bank
service charge – Note receivable collected by bank = $8,500 + $1,900 + $35 – $4,000
= $6,435
Bloom's: Applying
BUSPROG: Analytic
102. Thompson Corporation gathered the following reconciling information in preparing its October bank reconciliation:
Cash balance per bank, 10/31 $17,000

Note receivable collected by bank 4,800
Bank service charge 50
NSF check 2,300
Using the above information, determine the cash balance per books (before adjustments) for Thompson Corporation.
a. $11,050
b. $19,450
c. $15,950
d. $11,150
ANSWER: a
RATIONALE: Adjusted balance = Cash balance per bank on October 31 + Deposits in transit –
Outstanding checks = $17,000 + $3,000 – $6,500 = $13,500
Cash balance per books (before adjustments) = Adjusted balance + NSF checks +
Bank service charge – Note receivable collected by bank = $13,500 + $2,300 + $50 –
$4,800 = $11,050
Bloom's: Applying
BUSPROG: Analytic
103. During a bank reconciliation process,

a. outstanding checks and deposits in transit are added to the bank statement balance
b. outstanding checks are subtracted and deposits in transit are added to the bank statement balance
c. outstanding checks and deposits in transit are subtracted from the bank statement balance
d. outstanding checks are added and deposits in transit are subtracted from the bank statement balance
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
104. The following data were gathered to use in reconciling the bank account of Savannah Company:
Balance per bank $16,750

Balance per company records 16,125
Bank service charges 80
Deposit in transit 2,195
NSF check 950
What is the adjusted balance on the bank reconciliation?

a. $14,470
b. $10,705
c. $15,095
d. $15,720
ANSWER: c
RATIONALE: Adjusted balance from bank section of reconciliation = Balance as per bank + Deposit
in transit – Outstanding checks = $16,750 + $2,195 – $3,850 = $15,095
Adjusted balance from company section of reconciliation = Balance as per company
records – Bank service charges – NSF check = $16,125 – $80 – $950 = $15,095
Bloom's: Applying
BUSPROG: Analytic
105. In the normal operation of business, you receive a check from a customer and deposit it into your checking account.
With your bank statement you are advised that this check for $775 is “NSF.” The bank also informs you that due to the
amount of activity on your business account the monthly service charge is $75. During a bank reconciliation, you will
a. subtract both values from balance according to bank
b. add both values to balance according to books
c. add both values to balance according to bank
d. subtract both values from balance according to books
ANSWER: d
Bloom's: Applying
BUSPROG: Analytic
106. A $150 petty cash fund has cash of $54 and receipts of $83. The journal entry to replenish the account would include
a
a. credit to Petty Cash for $29
b. debit to Cash for $83
c. debit to Cash Short and Over for $13
d. credit to Cash for $54
ANSWER: c
RATIONALE: Cash short and over amount = Petty cash fund – Cash in petty cash fund – Cash
receipts = $150 – $54 – $83 = $13
The journal entry to replenish the account would include a debit to Cash Short and
Over account for $13.
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
107. A $135 petty cash fund has cash of $18 and receipts of $120. The journal entry to replenish the account would
include a
a. credit to Petty Cash for $120
b. debit to Cash for $120
c. credit to Cash Short and Over for $3
d. credit to Cash for $102
ANSWER: c
RATIONALE: Cash short and over amount = Cash in petty cash fund + Cash receipts – Petty cash
fund = $18 + $120 – $135 = $3
The journal entry to replenish the account would include a credit to Cash Short and
Over account for $3
DIFFICULTY: Easy
Bloom's: Applying

BUSPROG: Analytic
108. Entries are made to the petty cash account when

a. making payments out of the fund
b. recording shortages in the fund
c. replenishing the petty cash fund
d. establishing the fund
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
109. The type of account and normal balance of Petty Cash is a(n)
a. revenue, credit
b. asset, debit
c. liability, credit
d. expense, debit
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
110. The debit recorded in the journal to reimburse the petty cash fund is to
a. Petty Cash
b. Accounts Receivable
c. Cash
d. various accounts for which the petty cash was disbursed
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
111. A $200 petty cash fund has cash of $20 and receipts of $177. The journal entry to replenish the account would
include a credit to
a. Cash for $20
b. Cash Short and Over for $3
c. Petty Cash for $190
d. Cash for $180
ANSWER: d
RATIONALE: Amount required to replenish the petty cash fund = Petty cash fund – Cash remaining
in the petty cash fund = $200 – $20 = $180
The journal entry to replenish the account would include a credit to Cash for $180.
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
112. Cash equivalents include

a. checks
b. coins and currency
c. money market accounts and commercial paper
d. stocks and short-term bonds
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
113. Cash equivalents

a. are illegal in some states
b. will be converted to cash within two years
c. will be converted to cash within three months
d. will be converted to cash within four months
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
114. A minimum cash balance required by a bank is called

a. cash in bank
b. a cash equivalent
c. a compensating balance
d. an EFT
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
115. Which of the following would not be included with the cash and cash equivalents on the balance sheet?
a. commercial paper
b. short-term receivables
c. cash short and over
d. money market mutual funds
ANSWER: b
BUSPROG: Analytic
116. A company's days' cash on hand is computed by dividing:

a. cash and short-term investments by daily cash operating expenses.
b. cash by total cash operating expenses.
c. cash, short-term investments, and accounts receivable by daily cash operating expenses.
d. average cash over the period by daily cash operating expenses.
ANSWER: a
Easy
LEARNING OBJECTIVES: FNMN.WARR.17.07-ADM - LO: ADM
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
BUSPROG - Analytic
117. Which is the better choice for evaluating across companies: days' cash on hand or the amount in the company's cash
account?
a. The amount in the cash account, because the company with the largest amount of cash is the most liquid
b. Days' cash on hand, because it is calculated as a ratio, which expresses cash relative to the cash requirements
of the business
c. Days' cash on hand, because a daily cash amount is more accurate
d. The amount in the cash account, because companies with a lower cash balance are considered a greater credit
risk
ANSWER: b
DIFFICULTY: Bloom's: Understanding
Moderate
BUSPROG - Analytic
118. Which of the following statements is true about the days' cash on hand ratio?
a. It is not useful in comparing different businesses to one another.
b. It uses all current assets in the numerator of the ratio.
c. The only operating expense used in the denominator of the ratio is depreciation expense.
d. It may be useful in determining whether a business is able to meet its cash commitments.
ANSWER: d
Moderate
BUSPROG - Analytic
119. Identify each of the following as relating to (a) the control environment, (b) risk assessment, or (c) control
procedures.
1. Mandatory vacations
2. Personnel policies
3. Report of outside consultants on future market changes
ANSWER: 1. (c) control procedures
2. (a) the control environment
3. (b) risk assessment
DIFFICULTY: Easy
BUSPROG: Analytic
120. List the objectives of internal control and give an example of how each is implemented.
ANSWER: Internal control provides reasonable assurance that
(1) assets are safeguarded and used for business purposes
(2) business information is accurate
(3) employees and managers comply with laws and regulations
Examples are
(1) duties are separated
(2) duties are rotated
(3) reports are submitted to management
There are many other examples that would be correct.
DIFFICULTY: Easy
Bloom's: Understanding
BUSPROG: Analytic
121. You began your new job as the accountant at Bolivar Industries during the month of December. During your first
month, you found several interesting issues.
1) While looking through the invoices, you found Invoices 213–242, 245–271, and 275–290. It appears that invoices
243, 244, 272, 273, and 274 are missing.
2) During the month, Clerk # 3 issued $250 in refunds as compared to Clerks #1, #2, and #4 who issued less than
$50 each.
3) The daily cash receipts and bank deposits reconcile, except on Tuesdays during the month.
4) Business is generally brisk during the holiday season, but two weeks before Christmas there was a sudden
increase in slow payments.
Part A: What kind of warning signs could be associated with these issues?
Part B: What control could you put in place regarding cash refunds mentioned in Part A (2)?
ANSWER: Part A:
1) Missing invoices or gaps in transaction numbers could mean that the invoices
are being used for fraudulent transactions.
2) An unusually high number of refunds for Clerk #3 could mean that the
individual is creating fictitious refunds and pocketing the cash.
3) The difference could mean that receipts are being pocketed before being
deposited. Maybe there is a person responsible for making the deposits on
Tuesdays that is the culprit.
4) A sudden increase in slow payments could mean that an employee is
pocketing the payments.
Part B:
Surveillance cameras at customer service area.
Place supervisor as a second authorizer on refund transactions.
Prohibit cash refunds and require exchanges of merchandise instead.
Provide employee training.
Incorporate special alerts for critical dollar thresholds through company software.
Require information about the original transaction to be part of the refund process.
Bloom's: Analyzing
BUSPROG: Analytic
122. Two features of internal control are presented in the following sections. Each is followed by a list of four
irregularities that occurred in processing data. Identify the one irregularity from each list that would be discovered or
prevented by the feature of internal control described.
(a) The sum of the balances of the accounts in the customer's ledger is compared at the end of
each month with the balance of the accounts receivable account in the general ledger by a
person who has no responsibility for maintaining either the general ledger or the customers
ledger.
(1) Five hours of services were rendered but the customer was only billed for four hours.
(2) A cash receipt of $750 was recorded correctly in the accounts receivable controlling
account but was posted to the customer's ledger as $75.
(3) A bill for services rendered to Cole Co. was erroneously posted to the account of
Coleman Co. in the customer's ledger.
(4) No entry was made in the accounting records for services rendered to a customer.
(b) Both cash and credit charges for services rendered are recorded on prenumbered invoices.
At the end of the day, all invoices are accounted for before the duplicate copies of the
invoices are routed to the accounting department for entry into the accounts and the cash is
sent to the cashier's department for deposit.
(1)
Some charge customers complained that the monthly statements of account did not
add all amounts correctly.
(2) Some clerks used incorrect hourly rates in preparing invoices.
(3) Some clerks destroyed duplicate copies of cash invoices and misappropriated the
cash.
(4) Some charge customers complained that the monthly statement of account did not
indicate credits for payments made.
ANSWER: (a) (2)
(b) (3)
BUSPROG: Analytic
123. List and define each of the five elements of internal control.
ANSWER: (1) Control Environment. The control environment is the overall attitude
of management and employees about the importance of internal
controls.
(2) Risk assessment. Risk assessment is the identification of risks faced
by an organization so that management can take necessary actions to
control them.
(3) Control Procedures. The control procedures are the policies and
procedures designed to provide reasonable assurance that the business
goals are met and fraud is prevented.
(4) Monitoring. Monitoring locates deficiencies in the internal control
system and improves control effectiveness.
(5) Information and Communication. Information and communication to
management about the control environment, risk assessment, control
procedures, and monitoring elements of internal control are needed by
management to guide operations and ensure compliance with reporting,
legal, and regulatory requirements.
DIFFICULTY: Easy
BUSPROG: Analytic
124. The following procedures were recently implemented at the Health Station, Inc. For each procedure, indicate
whether the internal control over cash represents (1) a strength or (2) a weakness. If it is a weakness, please explain why.
(a) All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a
listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for
recording in the accounts.
(b) The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting
documentation is forwarded to the treasurer’s office for approval.
(c) At the end of each day, all cash receipts are placed in the bank’s night depository.
(d) The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.
ANSWER: (a) This is a weakness. The mail clerk should prepare an initial listing of cash
remittances before forwarding the cash receipts to the cashier. This
establishes initial accountability for the cash receipts. The mail clerk should
forward a copy of the listing of remittances to the accounts receivable clerk
for recording in the accounts.
(b) This is a strength.
(c) This is a strength.
(d) This is a weakness. The bank reconciliation should be prepared by someone
not involved with the handling or recording of cash.
Bloom's: Analyzing
FNMN.WARD.17.07-03 - LO: 07-03
BUSPROG: Analytic
125. The following procedures were recently implemented at the Pampered Pets, Inc. For each procedure, indicate
whether the internal control over cash represents (1) a strength or (2) a weakness. If it is a weakness, please explain why.
(a) At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages
in their registers.
(b) At the end of the day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the
deposit receipt obtained from the bank.
(c) After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the
check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher
and supporting documentation to the accounts payable clerk for filing.
(d) Along with the petty cash receipts for postage, office supplies, etc., several postdated employee
checks are in the petty cash fund.
ANSWER: (a) This is a weakness. Requiring cash register clerks to make up any cash
shortages from their own funds gives the clerks an incentive to shortchange
customers. That is, the clerks will want to make sure that they don’t have a
shortage at the end of the day. In addition, one might also assume that the
clerks can keep any overages. This would again encourage clerks to
shortchange customers. The shortchanging of customers will create customer
complaints, etc.
The best policy is to report any cash shortages or overages at
the end of each day. If there is consistently a cash short or over, then
corrective action (training, removal, etc.) could be taken.
(b) This is a strength.
(c) This is a strength.

(d) This is a weakness. Employees should not be allowed to use the petty cash
fund to cash personal checks. In any case, postdated checks should not be
accepted. In effect, postdated checks represent a receivable from the
employees.
Bloom's: Analyzing
FNMN.WARD.17.07-03 - LO: 07-03
BUSPROG: Analytic
126. The following selected transactions relate to cash collections for a firm that maintains a $100 change fund at all
times. Present entries to record the transactions for each of the two days of cash receipts from sales.
(a) Actual cash in cash register, $5,412.36; cash receipts per cash register tally, $5,413.07.
(b) Actual cash in cash register, $3,712.95; cash receipts per cash register tally, $3,712.16.
ANSWER: (a)
Cash 5,412.36
Cash Short and Over 0.71
Sales 5,413.07
(b)
Cash 3,712.95
Sales 3,712.16
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
127. The actual cash received during the week ended June 6 for cash sales was $8,276 and the amount indicated by the
cash register total was $8,262. Journalize the entry to record the cash receipts and cash sales.
Journal
Date Description Post. Ref. Debit Credit
ANSWER:
Journal
Post.
Date Description Ref. Debit Credit
June 16 Cash 8,276
Sales 8,262
Cash Short and Over 14
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
128. The actual cash received during the week ended October 31 for cash sales was $23,447 and the amount indicated by
the cash register total was $23,457. Journalize the entry to record the cash receipts and cash sales.
Journal
ANSWER:
Journal
Oct. 31 Cash 23,447
Sales 23,457
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
129. Consider the following information from the cash account. Assume cash payments were 84% of collections.
Cash
?? Beg. balance
?? Disbursements
$80,275 End balance

ANSWER: $245,000 × 84% = $205,800
Beg. Cash = $41,075 ($80,275 + $205,800 – $245,000)
DIFFICULTY: Bloom's: Applying

Easy
BUSPROG: Analytic
130. Describe the features of a voucher system and list typical supporting documents for a voucher.
ANSWER: A voucher system is used to control cash payments. It should provide reasonable
assurance that only authorized payments are made and that all cash discounts are
taken.
Specifically, a voucher system is a set of procedures for authorizing and recording
liabilities and cash payments. Typical supporting documents for a voucher are a
supplier's invoice, a purchase order, and a receiving report.
After a voucher is prepared, it is submitted for approval. Once approved, the voucher
is recorded in the accounts and filed by due date. Upon payment, the voucher is
recorded in the same manner as the payment of an account payable.
DIFFICULTY: Easy
BUSPROG: Analytic
131. The actual cash received during the week ended June 7 for cash sales was $18,632, and the amount indicated by the
cash register total was $18,628. Journalize the entry to record the cash receipts and cash sales.
Journal
Post.
ANSWER:
Journal
Post.
June 7 Cash 18,632
Sales 18,628
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
132. Consider the following journal entry made by Jones Company for one day's sales of a single cashier. Upon
investigation, what might you find happened to create this amount of Cash Over/Short account difference? Give three
possible reasons for this difference.
Cash 2,235.00
Sales 2,135.00
ANSWER: There are many possibilities, but the most likely culprits are as follows:
1. The beginning change fund in the drawer was not considered.

2. A collection of an A/R could have not been recorded, making the cash “heavy”
to sales.
3. A customer may have used a debit card and requested $100 cash back that
was not given to the customer (expect a call from the customer).
4. A sale for the exact amount of $100 was not recorded into the sales of the
cash register. However, this is a VERY improbable occurrence.
5. A void could have taken place and the cash not refunded or possibly not
removed. In this case, you would certainly investigate the voided items and the
actions of the cashier as well as the history of cash reconciliations for this
cashier.
Bloom's: Analyzing
ACCT.AICPA.BB.07 - Critical Thinking
BUSPROG: Analytic
133. List the principal advantages of electronic funds transfers.

ANSWER:  EFTs cost less than receiving cash payments through the mail.
 EFTs enhance internal controls over cash, since the cash is received directly
by the bank without any employees handling cash.
 EFTs reduce late payments from customers and speed up the processing of
cash receipts.

Easy
ACCT.AICPA.FN.02 - Leveraging Technology
BUSPROG: Technology
134. You are trying to explain debit and credit memos that appear on bank statements and whether these will increase or
decrease your company’s bank account balance. Complete the following table to help your new staff understand.
Debit
Increases or Decreases
or
the Company’s Bank
Credit
ITEM Account Balance
Memo
EFT payment
Bank correction of an error due to posting another
customer’s check to your account
Service charge
Note and interest collected for our company
NSF check
Bank correction of an error recording a $250
deposit as $520
EFT deposit
ANSWER:
Debit Increases or
or Decreases the
Credit Company’s Bank
ITEM Memo Account Balance
EFT payment Debit Decrease
Bank correction of an error due to posting
Credit Increase
another customer’s check to your account
Service Charge Debit Decrease
Note and interest collected for our company Credit Increase
NSF check Debit Decrease
Bank correction of an error recording a
$250 deposit as $520 Debit Decrease
EFT deposit Credit Increase
Bloom's: Applying
BUSPROG: Analytic
135. The following items may appear on a bank statement:

1. NSF check
2. EFT deposit
3. Service charge
4. Bank correction of an error from recording a $300 check as $30.
Indicate whether the item would appear as debit or credit memo on the bank statement and whether the item would
increase or decrease the balance of your account. Use the following format:
Appears on the
Bank Statement as a Increases (Decreases) the
a Debit or Credit Balance of the Company’s
Item No. Memo Bank Account
ANSWER: Appears on the
Bank Statement as a Increases (Decreases) the
a Debit or Credit Balance of the Company’s
Item No. Memo Bank Account
1. Debit memo Decreases
2. Credit memo Increases
3. Debit memo Decreases
4. Credit memo Increases
DIFFICULTY: Easy
BUSPROG: Analytic
136. The following information is from Madison Corporation’s accounting records for May. Check #3269 was returned
as a double payment and voided. Checks that have not cleared the bank include #3252, #3260, and series #3275–3278.
Check # Amount Check # Amount

3247 $ 32.64 3263 $ 24.87
3248 400.00 3264 45.00
3249 309.22 3265 33.78
3250 256.00 3266 756.77
3251 3,212.17 3267 84.34
3252 56.89 3268 789.00
3253 98.02 3269 48.90
3254 47.55 3270 34.41
3255 1,124.77 3271 872.00
3256 250.00 3272 22.00
3257 68.00 3273 562.38
3258 215.56 3274 512.00
3259 38.55 3275 603.50
3260 92.65 3276 67.00
3261 44.61 3277 301.61
3262 72.96 3278 47.88
In addition to the above list of the checks, Madison had check #2264 for $32.98 and check #2655 for $45.99 outstanding
previously that have not cleared.
1. Create an outstanding checks list for Madison at the end of May.

2. What is the total amount of checks that cleared the bank (written in May)?
ANSWER: 1.
Madison Company
May 31
Outstanding Checks List
Check # Amount
2264 $ 32.98
2655 45.99
3252 56.89
3260 92.65
3275 603.50
3276 67.00
3277 301.61
3278 47.88
Total $1,248.50
2. Students must remember to not include the voided Check #3269.

Check # Amount
3247 $ 32.64
3248 400.00
3249 309.22
3250 256.00
3251 3,212.17
3253 98.02
3254 47.55
3255 1,124.77
3256 250.00
3257 68.00
3258 215.56
3259 38.55
3261 44.61
3262 72.96
3263 24.87
3264 45.00
3265 33.78
3266 756.77
3267 84.34
3268 789.00
3270 34.41
3271 872.00
3272 22.00
3273 562.38
3274 512.00
Total $9,906.60
Bloom's: Applying
BUSPROG: Analytic
137. The Scharf Company is a retailer located in a state without sales tax. The following data was given to you to
complete the transactions for the day’s sales to be recorded. All cash drawers start with $100 in change.
Reg. #1 Reg. #2 Reg. #3 Reg. #4

Cash in drawer $974.50 $1,383.66 $939.46 $1,137.91
Sales reading $879.50 $1,298.16 $839.46 $1,030.33
Difference
Record the journal entries for EACH cash register to determine the cashier’s accuracy.
Account Debit Credit
ANSWER: Each cash drawer starts with $100. This must be subtracted from the total cash in
drawer to determine the cash over/short amount.
Reg. # Debit Credit

1 Cash 874.50
Sales 879.50
2 Cash 1,283.66
Sales 1,298.16
3 Cash 839.46
Sales 839.46
4 Cash 1,037.91
®
© 2017 Cengage Learning . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sales 1,030.33
Bloom's: Applying
BUSPROG: Analytic
138. Jackson Industries has collected the following information but needs assistance completing the table. The cash
payments were 90% of collections.
Cash
?? Beg. balance
?? Payments
$102,275 End balance

ANSWER:
Cash
$51,098 Beg. balance
$460,593 Payments
$102,275 End balance
Calculations:
$511,770 × 90% = Payments of $460,593
Beginning balance + Collections – Payments = Ending balance
Beg. Cash = $51,098 ($102,275 + $460,593 – $511,770)
Bloom's: Applying
BUSPROG: Analytic
139. Identify each of the following reconciling items as (a) an addition to the cash balance according to the bank
statement, (b) deduction from the cash balance according to the bank statement, (c) an addition to the cash balance
according to the company’s records, or (d) a deduction from the cash balance according to the company’s
records. Assume that none of the transactions reported by bank debit and credit memos have been recorded by the
company. Also, indicate by writing "entry" by those items that will require a journal entry in the company’s accounts.
1. Deposits in transit.
2. Bank service charges.
3. NSF check.
4. Outstanding checks.
5. Check for $690 incorrectly recorded by the company as $960.
6. Check for $420 incorrectly recorded by the company as $240.
ANSWER: 1. (a) an addition to the cash balance according to the bank

statement
2. (d) a deduction from the cash balance according to the
company’s records (entry)
4. (b) deduction from the cash balance according to the bank
statement
5. (c) an addition to the cash balance according to the company’s
records (entry)
Bloom's: Applying
BUSPROG: Analytic
140. Using the following information, prepare a bank reconciliation for Miller Co. for August 31:
(a) The bank statement balance is $4,690
(b) The cash account balance is $5,080.
(c) Outstanding checks amounted to $715.
(d) Deposits in transit are $1,020.
(e) The bank service charge is $40.
(f) A check for $72 for supplies was recorded as $27 in the ledger.
ANSWER:
Miller Co.
Bank Reconciliation
August 31
Cash balance according to bank statement $4,690
Adjustments:
Deposits in transit not recorded by bank $1,020
Outstanding checks (715)
Total adjustments (305)
Adjusted balance $4,995
Cash balance according to company's records $5,080

Adjustments:
Bank service charge $(40)
Error in recording (45)
Bloom's: Applying
BUSPROG: Analytic
141. Using the following information, prepare a bank reconciliation for Candace Co. for May 31:
(a) The bank statement balance is $2,936.
(d) Deposits in transit are $655.
ANSWER:
Candace Co.
Bank Reconciliation
May 31
Adjustments:
Deposits in transit not recorded by bank $655
Total adjustments 190

Adjustments:
Bank service charge $(50)
Error in recording check (18)
Bloom's: Applying
BUSPROG: Analytic
142. Bank reconciliation information for Kaden Co. for May 31 is as follows:
(a) The bank statement balance is $2,936.
(d) Deposits in transit are $655.
Record the appropriate journal entry for Kaden Co.
ANSWER: Miscellaneous Expense 50
Supplies 18
Cash 68
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
143. The bank statement for Farmer Co. indicates a balance of $7,735.00 on June 30. After the journal entries for June
had been posted, the cash account had a balance of $4,098.00. Prepare a bank reconciliation on the basis of the following
reconciling items:
(a) Cash sales of $742 had been erroneously recorded in the cash receipts journal as $724.
(b) Deposits in transit not recorded by bank, $425.
(c) Bank debit memo for service charges, $35.
(d) Bank credit memo for note collected by bank, $2,475 including $75 interest.
(e) Bank debit memo for $256 NSF (not sufficient funds) check from Janice Smith, a customer.
(f) Checks outstanding, $1,860.
ANSWER:
Farmer Co.
Bank Reconciliation
June 30
Adjustments:
Deposits in transit not recorded by bank $ 425
Outstanding checks (1,860)
Total adjustments (1,435)

Adjustments:
Note collected by bank, including $75 interest $2,475
Error in recording cash sales of $742 as $724 18
NSF check from Janice Smith (256)
Bank service charges (35)
Total adjustments 2,202
Bloom's: Applying
BUSPROG: Analytic
144. Accompanying a bank statement for Marsh Land Properties is a credit memo for payment on a $15,000 1-year note
receivable and $900 of interest collected by the bank. Marsh Land Properties had been notified by the bank at the time of
collection, but had made no entries. Journalize the entry that should be made by Marsh Land to bring the accounting
records up to date.
ANSWER: Cash 15,900
Notes Receivable 15,000
Interest Revenue 900
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
145. For each of the following, explain whether the issue would require you to prepare a journal entry for your company,
assuming any original entry is correct. If an entry is required, please include it as part of your answer.
(1) The bank recorded your deposit as $91 rather than the actual amount of $191.
(2) Two outstanding checks amounted to $450.
(3) Company check number 538 for postage was recorded incorrectly by the company bookkeeper as $50 instead
of $59.
(4) The bank paid a check for $500 after the company had issued a stop payment and voided the check.
(5) An EFT deposit was made by one of the company’s customers, Atlas Design, for merchandise received. The
sale had previously been recorded when shipped and was equal to the payment amount of $125.
ANSWER: (1) If you recorded the deposit correctly in your company’s books, then no
additional journal entry is required.
(2) Since your company has already recorded these checks correctly, no
additional journal entry is required by your company.
(3) A journal entry is required by the company to correct the books. In this case,
the company would record:
Postage Expense 9
Cash 9
(4) The bank is at fault here and no additional journal entry is required by the
company.
(5) Since the company has to be notified by the bank when direct deposits occur,
the company will need to make a journal entry. This entry would be:
Cash 125
Accounts Receivable—Atlas Design 125
BUSPROG: Analytic
146. The following data were gathered to use in reconciling the bank account of Savannah Company:

Deposit in transit 2,195
NSF check 950
What is the adjusted balance on the bank reconciliation?

ANSWER: $15,095 ($16,750 + $2,195 – $3,850) or ($16,125 – $80 – $950)
Bloom's: Applying
BUSPROG: Analytic
147. The following data were gathered to use in reconciling the bank statement of Build-A-Lot:

NSF checks 775
(1) What is the adjusted balance on the bank reconciliation?

(2) Journalize any necessary entries for Build-A-Lot based on the bank reconciliation.
ANSWER: (1) $13,155
Bank section reconciliation: $14,355 + $4,100 – $5,300 = $13,155
Company section of reconciliation: $14,010 – $80 – $775 = $13,155
(2)
Accounts Receivable 775
Miscellaneous Expense 80
Cash 855
Bloom's: Applying
BUSPROG: Analytic
148. Roper Electronics received its bank statement for the month of August with an ending balance of $11,740. Roper
determined that check #613 for $155 and check #601 for $420 were both outstanding. Also, a $6,900 deposit for August
30 was in transit as of the end of the month. Northern Regional Bank also collected a $5,000 note receivable on August 1
that was issued March 1. Accrued interest is $250. Northern Regional Bank charged a $35 fee for the collection
service. The bank statement reveals a bank service charge of $20. A customer check for $68 was returned with the bank
statement marked “NSF.” The ending balance of the Roper cash account is $12,938.
Prepare a bank/account reconciliation and any necessary journal entries for the reconciliation.
ANSWER:
Adjustments:
Deposits in transit $6,900
Outstanding Check No. 601 (420)
Outstanding Check No. 613 (155)
Cash balance according to Roper Electronics $12,938

Adjustments:
Note and interest collected by bank $5,250
Check returned because of insufficient funds (68)
Collection fee (35)
Monthly account fee (20)
Aug. 31 Cash 5,215

31 Miscellaneous Expense 20
Cash 20
31 Accounts Receivable 68
Cash 68
Bloom's: Applying
BUSPROG: Analytic
149. Green Valley Bank sent Comstock Industries its end-of-month bank statement for July. The end of month balance by
the bank is $11,237. The statement shows that a deposit for $4,250 is in transit at the end of the statement period. The
statement also revealed that checks for $87, $105, and $95 are outstanding. Green Valley collected a $4,000 note
receivable plus $120 of interest revenue. The bank charges $20 for the collection service. The bank charges a monthly
account fee of $35. The end-of-month balance per company books is $11,135.
Prepare a bank/account reconciliation and write any necessary journal entries for the reconciliation.
ANSWER:
Adjustments:
Deposits in transit, not recorded by bank $4,250
Cash balance according to Comstock Industries $11,135

Adjustments:
Note and interest collected by bank $4,120
Collection fee (20)
Bank service charge (35)
Jul. 31 Cash 4,100

31 Miscellaneous Expense 35
Cash 35
Bloom's: Applying
BUSPROG: Analytic
150. The cash account for Santiago Co. on May 31 indicated a balance of $20,915. The March bank statement indicated
an ending balance of $25,645. Comparing the bank statement, the canceled checks, and the accompanying memos with
the records revealed the following reconciling items:
a. Checks outstanding totaled $5,975.
b. A deposit of $3,796 had been made too late to appear on the bank statement.
c. A check for $1,482 returned with the statement had been incorrectly recorded by the
company as $482. The check was originally issued to pay on account.
d. The bank collected $4,515 on a note left for collection of which $515 was interest revenue.
e. Bank service charges for May amounted to $70.
f. A check for $894 was returned by the bank because of insufficient funds.
Prepare a bank reconciliation as of May 31. Journalize the necessary entries.
Santiago Co.
Bank Reconciliation
May 31
Journal
ANSWER:
Santiago Co.
Bank Reconciliation
May 31
Adjustments:
Deposits not recorded by bank $3,796
Outstanding checks (5,975)
Total adjustments (2,179)
Cash balance according to company’s records $20,915

Adjustments:
Proceeds of note and interest collected by bank $4,515
Error in recording check (1,000)
Bank service charges (70)
Nonsufficient funds check (894)
Journal
Post.
May 31 Cash 4,515
Note Receivable 4,000
31 Accounts Payable 1,000

Accounts Receivable 894
Cash 1,964
Bloom's: Applying
BUSPROG: Analytic
151. The bank statement for Jeffrey Co. indicates a balance of $8,785 on October 31. After the journal entries for October
had been posted, the cash account had a balance of $8,998.
(d) Bank credit memo for note collected by bank, $23,985 plus $885 interest.
(e) Bank debit memo for $756 NSF (not sufficient funds) check from Calin Sams, a customer.
Record the appropriate journal entries that would be necessary for Jeffrey Co.
ANSWER:
Cash 25,320
Sales 450
Accounts Receivable—Calin Sams 756
Cash 796
Bloom's: Applying
BUSPROG: Analytic
152. The bank statement for Gatlin Co. indicates a balance of $7,735 on June 30. After the journal entries for June had
been posted, the cash account had a balance of $4,098.
(d) Bank credit memo for note collected by bank, $2,475 including $75 interest.
(e) Bank debit memo for $256 NSF (not sufficient funds) check from Janice Smith, a customer.
Record the appropriate journal entries that would be necessary for Gatlin Co.
ANSWER: Cash 2,493
Interest Revenue 75
Sales 18
Accounts Receivable—Janice Smith 256

Cash 291
Bloom's: Applying
BUSPROG: Analytic
153. Journalize the entries to record the following:

March 1 Established a petty cash fund of $300.
March 31 The amount of cash in the petty cash fund is now $64. The fund is replenished based
on the following receipts: office supplies, $137; selling expenses, $112.
Record any discrepancy in the cash short and over account.

Journal
Post.
ANSWER: Journal
Post.
Mar. 1 Petty Cash 300
Cash 300
31 Office Supplies 137

Selling Expenses 112
Cash 236
Bloom's: Applying
BUSPROG: Analytic
154. On April 2, Granger Sales decides to establish a $125.00 petty cash fund to relieve the burden on Accounting.
(a) Journalize the establishment of the fund.
(b) On April 10, the petty cash fund has receipts for mail and postage of $43.50, contributions and donations of
$29.50, meals and entertainment of $38.25, and $13.55 in cash. Journalize the replenishment of the fund.
(c) On April 11, Granger Sales decides to increase petty cash to $200.00. Journalize this event.
ANSWER: (a) Apr. 2 Petty Cash 125.00
Cash 125.00
(b) 10 Mail and Postage Expense 43.50

Contributions and Donations Expense 29.50
Meals and Entertainment Expense 38.25
Cash 111.45
(c) 11 Petty Cash 75.00

Cash 75.00
Bloom's: Applying
BUSPROG: Analytic
155. The last custodian of the petty cash fund was hospitalized and you have been asked to take stock of the fund and
replenish it. When you receive the fund, it has $299 in cash and receipts as follows:
Office supplies $295
Advertising 120
Transportation by Taxi 75
The petty cash fund was established to have $800 in it.
Based on what you have found, what journal entry should be recorded to replenish the fund?
ANSWER: Office Supplies 295
Advertising Expense 120
Transportation Expense 75
Cash 501
Bloom's: Applying
BUSPROG: Analytic
June 1 Established a petty cash fund of $200.

30 The amount of cash in the petty cash fund is now $57. The fund is replenished based on the following receipts:
postage, $25; entertainment, $100; and miscellaneous, $20.
Journal
ANSWER:
Journal
Post.
June 1 Petty Cash 200
Cash 200
30 Postage Expense 25
Entertainment Expense 100
Cash 143
Bloom's: Applying
BUSPROG: Analytic
157. On April 3, Snappy Sales decides to establish a $135.00 petty cash fund to relieve the burden on Accounting.
(a) Journalize the establishment of the fund.
(b) On April 11, the petty cash fund has receipts for mail and postage of $32.75, contributions and donations of
$25.25, meals and entertainment of $68.00, and $9.75 in cash. Journalize the replenishment of the fund.
(c) On April 12, Snappy Sales decides to increase petty cash to $175.00. Journalize this transaction.
ANSWER: (a) Apr. 3 Petty Cash 135.00
Cash 135.00

Contributions and Donations
Expense 25.25
Meals and Entertainment
Expense 68.00
Cash 125.25

Cash 40.00
Bloom's: Applying
BUSPROG: Analytic
158. Present entries to record the following transactions:

(a) Established a petty cash fund of $235.00.
(b) The petty cash fund now has a balance of $42.80. Replenished the fund, based on the
following disbursements as indicated by a summary of the petty cash receipts: office
supplies, $74.50; miscellaneous administrative expense, $92.75; and miscellaneous selling
expense, $18.60.
(c) Increased the petty cash fund to $300.00.
ANSWER: (a)
Petty Cash 235.00
Cash 235.00
(b)
Office Supplies 74.50
Miscellaneous Administrative
Expense 92.75
Miscellaneous Selling Expense 18.60
Cash 192.20
(c)
Petty Cash 65.00
Cash 65.00
Bloom's: Applying
BUSPROG: Analytic
159. On August 3, Sonar Sales decides to establish a $275.00 Petty Cash Account to relieve the burden on Accounting.
(a) Journalize the establishment of this fund.
(b) On August 11, the petty cash fund has receipts for mail and postage of $124.75, contributions and donations
of $53.25, meals and entertainment of $63.85, and $32.75 in cash. Journalize the replenishment of the fund.
(c) On August 12, Sonar Sales decides to increase petty cash to $400.00. Journalize this transaction.
ANSWER: (a) Aug. 3 Petty Cash 275.00
Cash 275.00

Contributions and Donations 53.25
Expense
Meals and Entertainment Expense 63.85
Cash 242.25

Cash 125.00
Bloom's: Applying
BUSPROG: Analytic
160. Stephanie Jo Company established a petty cash fund of $300 on May 1. At the end of the month, the petty cash fund
has $42 in cash and receipts for postage, $39; entertainment, $146; and office supplies of $70.
Prepare the needed journal entries, recording any discrepancy in the cash short and over account.
Journal
ANSWER:
Journal
Date Description Post. Debit Credit
Ref.
May 1 Petty Cash 300
Cash 300
30 Postage Expense 39
Entertainment Expense 146
Office Supplies 70
Cash 258
Bloom's: Applying
BUSPROG: Analytic
Sept. 1 Established a petty cash fund of $350.

30 The amount of cash in the petty cash fund is now $130. The fund is replenished based on the following receipts:
office supplies, $116; postage, $100.
Journal
ANSWER:
Journal
Post.
Sept. 1 Petty Cash 350
Cash 350
30 Office Supplies 116

Postage Expense 100
Cash Short & Over 4
Cash 220
Bloom's: Applying
BUSPROG: Analytic
162.
(a) Where are cash equivalents disclosed in the financial statements?
(b) List three examples of cash equivalents.
ANSWER: (a) Cash account on the balance sheet
(b) Money market funds; notes of major corporations (commercial paper); and U. S.
Treasury bills
DIFFICULTY: Easy
BUSPROG: Analytic
163. You began your new job as the accountant for Morton Company. You were surprised to find that the company had a
$2,000 petty cash fund, which sits in the break room. The president of the company told you: “Our petty cash system here
works quite smoothly. Since everyone is honest here, everyone has access to the fund for incidentals that might pop up in
the course of the business day. Most of these situations don’t have any receipts tied to them, so I just put the money back
in the fund when my secretary tells me that we have run out of petty cash and we debit the amount to Miscellaneous
Expense.”
(a) Should you implement some controls on petty cash? Why?

(b) If so, what controls could be used for petty cash?
ANSWER: (a) Even though the president thinks the petty cash system works well, $2,000 is a
tempting sum for theft. Even with only $2,000, if the fund is replenished
frequently, a significant amount of cash could be stolen. For example, if the fund is
replenished weekly, then $104,000 ($2,000 × 52 weeks) could be subject to theft.
The issue of debiting the amount used to Miscellaneous Expense is a questionable
practice that would typically be flagged by the independent auditor.
(b) Controls for petty cash include (1) designating one person who is responsible for
the fund, (2) maintaining a written record of all payments, (3) requiring support
(receipts) for payments from the fund, and (4) periodic review by an independent
person of the funds on hand and the payments made by an independent person.
DIFFICULTY: Bloom's: Analyzing
Moderate
BUSPROG: Analytic
164. Why would a bank require a company to maintain a compensating balance?

ANSWER: Usually a compensating balance is part of a loan agreement or line of credit.
DIFFICULTY: Easy
BUSPROG: Analytic
165. Gamma Company and Delta Company have compiled the following data as of the end of the current fiscal year:
Gamma Delta
Cash $ 65,700 $302,300
Temporary investments 27,700 125,000
Accounts receivable 2,500 87,000
Inventory 52,400 127,500
Accounts payable 4,500 265,000
Operating expenses 153,000 625,000
Depreciation (one of the operating expenses) for Gamma was $35,000, and for Delta was $65,000.
(1) Calculate days' cash on hand for Gamma Company and for Delta Company. (Round your answer to one decimal
place.)
(2) Which company has the better liquidity position based on your calculation?
ANSWER: (1) Gamma Company's days' cash on hand:
(Cash + Temporary Investments)/[(Operating Expenses – Depreciation Expense)/365
days] =
($65,700 + $27,700)/[($153,000 – $35,000)/365 days)] = 288.9 days
Delta Company's days' cash on hand:
(Cash + Temporary Investments)/[(Operating Expenses – Depreciation Expense)/365
days] =
($302,300 + $125,000)/[($625,000 – $65,000)/365 days)] = 278.5 days
(2) Gamma Company has the better liquidity position, because it has a larger number
of Days' Cash on Hand, enabling it to survive longer if its sources of revenue were to
decline significantly.

Moderate
BUSPROG - Analytic
Match the following elements of internal control:

a. provides reasonable assurance that business goals will be achieved
b. used by management for guiding operations and ensuring compliance with requirements
c. overall attitude of management and employees
d. used to locate weaknesses and improve controls
e. identify, analyze and assess likeliness of vulnerabilities
DIFFICULTY: Easy
BUSPROG: Analytic
166. control environment

ANSWER: c
167. risk assessment

ANSWER: e
168. control procedures

ANSWER: a
169. monitoring
ANSWER: d
170. information and communication

ANSWER: b
Match each item to a bank statement adjustment, a company books adjustment, or either.
a. bank statement adjustment
b. company books adjustment
c. either
BUSPROG: Analytic
171. Outstanding checks

ANSWER: a
172. NSF check

ANSWER: b
173. Error in recording a check

ANSWER: b
174. Bank charges

ANSWER: b
175. Note collected by the bank

ANSWER: b
176. Interest revenue

ANSWER: b
177. Deposit in transit

ANSWER: a
Assign the letter to indicate whether the following items would be added to or subtracted from the company’s books or the
bank statement during the construction of a bank reconciliation.
a. added to the company’s books
b. subtracted from the company’s books
c. added to the bank statement balance
d. subtracted from the bank statement balance
Difficulty: Moderate

BUSPROG: Analytic
178. outstanding checks

ANSWER: d
179. bank service charge

ANSWER: b
180. deposit in transit

ANSWER: c
181. NSF check

ANSWER: b
182. EFT deposit from a customer

ANSWER: a
183. charges for some other company’s safe deposit box were posted to your account
ANSWER: c
184. a $1,000 note from one of your customers was collected by the bank
ANSWER: a
185. interest revenue earned by the note above

ANSWER: a

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Chapter 7 - Internal Control and Cash

Solution Manual for Financial and Managerial Accounting 14th Edition by

LEARNING OBJECTIVES: FNMN.WARD.17.07-01 - LO: 07-01

10. Money orders are considered cash.

11. A customer's check received in settlement of an account receivable is considered cash.

LEARNING OBJECTIVES: FNMN.WARD.17.07-03 - LO: 07-03

LEARNING OBJECTIVES: FNMN.WARD.17.07-03 - LO: 07-03

20. A voucher is a written authorization to make a cash payment.

LEARNING OBJECTIVES: FNMN.WARD.17.07-06 - LO: 07-06

51. Sarbanes-Oxley applies to

LEARNING OBJECTIVES: FNMN.WARD.17.07-02 - LO: 07-02

56. The objectives of internal control are to

LEARNING OBJECTIVES: FNMN.WARD.17.07-02 - LO: 07-02

59. A firm's internal control environment is not influenced by

60. An element of internal control is

61. A necessary element of internal control is

62. Which of the following should not be considered cash by an accountant?

64. The portion of an invoice that is returned with payment is a

70. Credit memos from the bank

How much was the beginning balance of the cash account?

72. A bank statement

LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05

76. A bank reconciliation should be prepared periodically because

77. The bank reconciliation

97. A bank reconciliation should be prepared

Cash balance per books, 5/31 $5,400

Cash balance per books, 9/30 $2,750

Cash balance per bank, 6/30 $13,000

Cash balance per bank, 10/31 $17,000

103. During a bank reconciliation process,

Balance per bank $16,750

What is the adjusted balance on the bank reconciliation?

LEARNING OBJECTIVES: FNMN.WARD.17.07-06 - LO: 07-06

108. Entries are made to the petty cash account when

112. Cash equivalents include

113. Cash equivalents

114. A minimum cash balance required by a bank is called

116. A company's days' cash on hand is computed by dividing:

(c) This is a strength.

How much was the beginning balance of the cash account?

DIFFICULTY: Bloom's: Applying

1. The beginning change fund in the drawer was not considered.

133. List the principal advantages of electronic funds transfers.

DIFFICULTY: Bloom's: Understanding

135. The following items may appear on a bank statement:

Check # Amount Check # Amount

1. Create an outstanding checks list for Madison at the end of May.

2. Students must remember to not include the voided Check #3269.

Reg. #1 Reg. #2 Reg. #3 Reg. #4

Account Debit Credit

Reg. # Debit Credit

How much was the beginning balance of the cash account?

ANSWER: 1. (a) an addition to the cash balance according to the bank

Cash balance according to company's records $5,080

Cash balance according to company's records $3,194

Cash balance according to company's records $4,098

Balance per bank $16,750

What is the adjusted balance on the bank reconciliation?

Balance per bank $14,355

(1) What is the adjusted balance on the bank reconciliation?

Adjusted balance $18,065

Cash balance according to Roper Electronics $12,938

Aug. 31 Cash 5,215

Cash balance according to Comstock Industries $11,135