Professional Documents
Culture Documents
Principles of Accounting Needles 12th Edition Test Bank Full Download
Principles of Accounting Needles 12th Edition Test Bank Full Download
Student: ___________________________________________________________________________
1. In a small business, active involvement by the owner can be a practical substitute for the separation of some
duties.
True False
2. An effective system of internal control requires that individuals take periodic vacations.
True False
5. A system of internal control cannot be considered good until the possibility of human error has been
completely eliminated.
True False
10. Damaged goods that can be sold at a reduced price should be included in a company’s merchandise
inventory.
True False
11. Merchandisers usually take a physical inventory when the volume of goods is at its lowest levels.
True False
12. Merchandisers usually end their fiscal year during the peak season.
True False
13. Using bar codes to take a physical inventory is considered poor accounting practice.
True False
14. The periodic inventory system provides no means of identifying losses from spoilage, shoplifting, and theft.
True False
15. An understated ending inventory will produce an overstated cost of goods sold.
True False
16. Under the perpetual inventory system, inventory losses can be identified more easily than under the periodic
inventory system.
True False
18. It is unlikely that a company would want to bond its employees who handle cash or inventory.
True False
19. Good internal control dictates that one employee should oversee all related parts of a transaction.
True False
21. The degree of separation of duties varies with the size of the business.
True False
22. Under an effective system of internal control, errors occur only as a result of fraud or dishonesty.
True False
24. The receiving department must compare goods received with goods purchased, as indicated on the purchase
order.
True False
25. Cash received through the mail need be handled by only one employee to achieve effective internal control.
True False
27. A check authorization is a document that permits the issuance of a check to pay an invoice.
True False
28. It is best that the receiving department not be given a copy of the purchase order or the invoice.
True False
29. Invoices are documents prepared by a vendor and sent to the accounting department of its customers.
True False
30. A remittance advice accompanies a check sent to a vendor or the vendor’s bank.
True False
33. In addition to keeping the records of a purchase transaction, the accounting department should prepare and
mail checks in payment of invoices.
True False
34. Effective internal control requires a department to purchase supplies on its own.
True False
35. The treasurer should prepare and sign a check only after a proper check authorization has been provided.
True False
36. Sound internal control activities dictate that extra cash should always be on hand.
True False
37. The purchasing department prepares a purchase requisition addressed to the vendor (seller) containing
instructions related to the items ordered.
True False
38. At the end of each day, the cashier should be the one responsible for comparing the amount on the cash
register tape with the day's cash additions to the cash register.
True False
39. A formal request for a purchase from a requesting department of a business is known as a purchase order.
True False
40. The use of prenumbered documents is important to a good system of internal control.
True False
41. Merchandising companies do not need as good a system of internal control as service companies.
True False
42. An effective system of internal control centralizes functions in a single, capable individual.
True False
44. When an individual uses a debit card to make a purchase, the amount of the purchase is deducted directly
from the individual’s bank account.
True False
45. Cash equivalents are defined as investments that carry terms of 90 days or less.
True False
46. It is usually a good business practice to maintain as large a balance in the Cash account as possible.
True False
47. Cash equivalents are usually listed as short-term investments on the balance sheet.
True False
48. On a bank reconciliation, interest income would be added to the balance per bank.
True False
51. The use of electronic funds transfers makes check writing unnecessary.
True False
52. In the financial statements, the balance of the Petty Cash account and the balance of the Cash account are
shown separately.
True False
53. When a petty cash fund is established, the entry contains a credit to Cash.
True False
54. When the balance of a petty cash fund is increased, the entry would contain a credit to Petty Cash.
True False
55. When a petty cash fund is replenished, the entry requires a debit to Petty Cash.
True False
56. When a petty cash fund is replenished, the entry requires a credit to Cash.
True False
57. The petty cash voucher should be kept by the person being reimbursed.
True False
58. One of the best ways to control a petty cash fund is through an imprest system.
True False
59. A petty cash fund is established for small payments for which writing a check would be impractical.
True False
60. The materiality concept dictates that no internal controls be established over petty cash.
True False
61. The amount in the petty cash fund plus the sum of the petty cash vouchers should at all times equal the
amount shown in the Petty Cash account.
True False
63. The financial statements of nonpublic companies are not required to be audited by an independent CPA.
True False
64. To assure an efficient system of internal control, management should authorize all transactions.
True False
65. The Sarbanes-Oxley Act of 2002 does not require any certification from a public company's chief executive
officer about the company's system of internal control.
True False
66. Public companies must have their financial statements audited, but are not required to have their internal
control systems audited.
True False
67. Annual reports of public companies will include statements from both management and independent
auditors regarding the adequacy of internal control.
True False
68. The Sarbanes-Oxley Act has not stopped the occurrence of fraud, and additional guidance with regard to
internal controls is expected to be issued.
True False
72. Under the perpetual inventory system, the entry to recognize inventory losses usually contains a
A. debit to Cost of Goods Sold.
B. debit to Merchandise Inventory.
C. credit to Gross Margin.
D. credit to Cash.
73. A good system of internal control is designed to achieve all of the following except
A. efficiency of operations.
B. reliability of financial reporting.
C. compliance with relevant laws and regulations.
D. attainment of target sales.
74. All of the following are examples of internal control activities except
A. adequate supervision.
B. rotation of key personnel.
C. customer satisfaction surveys.
D. insistence that employees take earned vacations.
76. The bonding of employees is an example of which feature of a good system of internal control?
A. Authorization of transactions
B. Sound personnel policies
C. Separation of duties
D. Limited access to assets
77. Which of the following would not be found in a good system of internal control?
A. Requiring all employees to take earned vacations
B. Establishing a system of checks and balances
C. Having one person handle all the responsibilities of a department
D. Establishing an internal audit staff
81. Which of the following attributes of internal control would be violated if the purchasing department wrote
checks to pay accounts payable?
A. Adequate design of documents
B. Sound personnel procedures
C. Periodic independent verification
D. Separation of duties
82. A very small company would have the most difficulty in implementing which of the following internal
control activities?
A. Sound personnel procedures
B. Periodic independent verification
C. Limited access to assets
D. Separation of duties
83. In a small business, because it is often cost-prohibitive to hire extra employees, the lack of certain
separations of duties can best be overcome by
A. bonding the employees.
B. getting the owner actively involved.
C. hiring only honest employees.
D. holding one person responsible for a given set of transactions.
84. Which of the following is not an internal control activity for cash?
A. Unannounced audits of cash on hand should be made occasionally.
B. The number of persons who have access to cash should be limited.
C. The functions of recordkeeping and keeping custody of cash should be combined.
D. All cash receipts should be recorded promptly.
85. Which of the following documents is mailed to the vendor (seller) of goods?
A. Receiving report
B. Invoice
C. Purchase order
D. Purchase requisition
86. In a purchase system, the most appropriate department to control goods upon arrival at the company is the
A. accounting department.
B. receiving department.
C. treasury department.
D. requesting department.
87. The document prepared by a department requesting the company to buy something is called a(n)
A. purchase order.
B. invoice.
C. receiving report.
D. purchase requisition.
89. Which of the following is not an internal control activity for cash?
A. The amount of cash on hand should be kept to a minimum.
B. Banking facilities should be used as much as possible.
C. Employees who have access to cash should be bonded.
D. All payments should be made with currency, not checks.
90. When payment is received by mail, a detailed list of such receipts would not be retained by the
A. receiving department.
B. accounting department.
C. person who opens the mail.
D. cashier.
94. When a company makes payment for goods or services, the check is prepared by the company's
A. requesting department.
B. treasurer.
C. accounting department.
D. receiving department.
95. Which of the following documents would not originate with the purchasing company?
A. Purchase order
B. Receiving report
C. Check
D. Invoice
97. Which of the following is an appropriate internal control activity for cash?
A. Recordkeeping and custodianship over cash should be performed by the same person.
B. The amount of cash on hand should be kept to a minimum.
C. Banking facilities should be used as little as possible.
D. All payments should be made with currency, not checks.
98. Which of the following documents would be prepared (by a buyer of goods) after the others?
A. Purchase order
B. Check
C. Purchase requisition
D. Receiving report
99. Which of the following sets of documents are in the correct sequence?
A. Purchase order, check, receiving report
B. Purchase requisition, purchase order, invoice
C. Purchase requisition, receiving report, purchase order
D. Purchase order, purchase requisition, invoice
100. Which of the following would be added to the balance per books on a bank reconciliation?
A. Notes collected by the bank
B. Deposits in transit
C. Service charges
D. Outstanding checks
101. An NSF check should appear in which section of the bank reconciliation?
A. Deductions from the balance per books
B. Deductions from the balance per bank
C. Additions to the balance per books
D. Additions to the balance per bank
102. Which of the following would be added to the balance per bank?
A. Outstanding checks
B. Bank service charges
C. Collection of a note receivable by the bank
D. Deposits in transit
103. A check for $236 is incorrectly recorded by the company as $263. On the bank reconciliation, the error
would
A. appear as a deduction of $27 from the balance per books.
B. appear as an addition of $27 to the balance per bank.
C. appear as a deduction of $263 from the balance per books and an addition of $236 to the balance per bank.
D. appear as an addition of $27 to the balance per books.
104. On a bank reconciliation, $75 interest earned on a checking account would
A. appear as a deduction of $75 from the balance per books.
B. appear as an addition of $75 to the balance per bank.
C. appear as an addition of $75 to the balance per books.
D. not appear as an adjustment on the bank reconciliation
105. Which of the following bank reconciliation items would not result in a journal entry?
A. Service charge
B. NSF check of a customer
C. Collection of a note by the bank
D. Deposits in transit
106. Which of the following bank reconciliation items would result in a journal entry?
A. Checks outstanding
B. An adjustment for a check recorded for the wrong amount
C. Deposits in transit
D. A bank error on the bank statement
107. For which of the following errors should the appropriate amount be added to the balance per bank on a
bank reconciliation?
A. Deposit of $250 recorded by the bank as $25
B. Deposit of $25 recorded by the bank as $250
C. Check for $25 recorded as $52
D. Check for $52 recorded as $25
110. Cash and equivalents can consist of all of the following except
A. deposits in checking accounts
B. IOUs from customers
C. certificates of deposit (CDs)
D. U.S. Treasury notes
111. Which of the following would not be a valid reason for keeping currency on hand at a place of business?
A. To pay small, unforeseen expenses
B. To make up for any imbalance in the books
C. To advance money to sales reps for travel expenses
D. To provide money for cash registers
112. Which of the following would be deducted from the balance per books on a bank reconciliation?
A. Notes collected by the bank
B. Deposits in transit
C. Service charges
D. Outstanding checks
113. A $150 petty cash fund has cash of $64 and valid receipts for $75. The entry to replenish the fund would
be:
A. Cash 86
Various Expenses 75
Cash Short or Over 11
B. Petty Cash 86
Cash 86
C. Cash 64
Petty Cash 64
D. Various Expenses 75
Cash Short or Over 11
Cash 86
114. A $200 petty cash fund has cash of $20 and valid receipts of $164. The entry to replenish the fund would
be:
A. Cash 184
Petty Cash 184
B. Cash Short or Over 16
Petty Cash 16
C. Various Expenses 164
Cash Short or Over 16
Cash 180
D. Petty Cash 164
Cash 164
115. Use the following information regarding Larson Company to answer the question below.
The entry to record the reimbursement of the petty cash fund would include a
A. credit to Postage Expense for $20.
B. debit to Petty Cash for $90.
C. credit to Cash for $85.
D. debit to cash for $5.
116. The entry for establishing a $300 petty cash fund would be:
A. Cash 300
Petty Cash 300
B. Miscellaneous Expense 300
Cash 300
C. Petty Cash 300
Cash 300
D. Cash 300
Miscellaneous Expense 300
118. As the controller of a large company, you notice that the Cash Short or Over account is consistently
debited for fairly large sums of cash when the petty cash fund is replenished. You probably will want to
A. increase the amount of the fund.
B. decrease the amount of the fund.
C. find a new custodian for the fund.
D. offer the custodian your congratulations.
119. Use the following information regarding Larson Company to answer the question below.
The entry to record the increase in the Petty Cash account would include a
A. debit to the Petty Cash account for $50.
B. credit to the Petty Cash account for $50.
C. memorandum entry only in the ledger.
D. debit to the Cash account for $50.
126. The Sarbanes-Oxley Act of 2002 requires management to acknowledge its responsibility for internal
control
A. in the company’s annual report.
B. in a public statement posted on social media.
C. in a posted notice at the front of company headquarters.
D. in all of these.
129. Under a perpetual inventory system, is it necessary to take a physical inventory at the end of the period?
Why or why not?
130. An accountant is responsible for the following activities: (1) receiving all cash; (2) maintaining the general
ledger; (3) maintaining the accounts receivable subsidiary ledger that includes the individual records of each
customer; (4) maintaining the journals for recording sales, purchases, and cash receipts; and (5) preparing
monthly statements to be sent to customers. As a service to customers and employees, the company allows the
accountant to cash checks of up to $75 with money from the cash receipts. When deposits are made, the checks
are included in place of the cash receipts. What weaknesses in internal control exist in this system?
131. The Report of Management in Brighton Company's annual report states, “Management has established a
system of internal controls to provide reasonable assurance that assets are maintained and accounted for in
accordance with its policies and that transactions are recorded accurately on the company's books and records.”
Name five control activities Townsgate could and probably does implement.
132. Mandisa Sounds, Inc., a specialty retailer of customized audio systems for automobiles, installed a
perpetual inventory system in the second quarter of 2011. The new system allowed the firm to adjust its
merchandise inventories to sales patterns more effectively and to prepare monthly financial statements.
Although the system led to an improvement in sales and income, the gross margin on the monthly income
statements was falling below both management's expectations and the industry average. At the end of 2014, a
physical inventory revealed that actual merchandise inventory was considerably lower than the perpetual
inventory records indicated. The merchandise inventories of some stores were off more than others, but all had
deficiencies. What probably caused these losses and what steps could be taken to prevent them in the future?
133. Why is the separation of duties an important control activity in a good system of internal control?
138. For each listed document, indicate the letter of the department/person that would prepare it.
139. Compute the correct amount for each letter in the following table:
a. Cash on the books as of April 30 was $499. Cash as shown on the bank statement for the same date was
$1,330.
b. A deposit of $160, representing cash receipts as of April 30, did not apppear on the bank statement.
c. Outstanding checks totaled $240.
d. Bank service charges for April amounted to $9
e. The bank collected for Rawlins Company $840 (which includes $40 interest) on a note left for collection.
f. An NSF check for $80 from a customer, Joe Beck, was returned with the statement.
Required:
1. Prepare a bank reconciliation for Rawlins Company as of April 30.
2. State the amount of cash that would appear on the balance sheet as of April 30.
Rawlins Company
Bank Reconciliation
April 30, 2014
141. Jasmine Company has established a petty cash fund for small expenditures. Prepare journal entries for the
following transactions (omit explanations).
April 5 Estabished a $200 petty cash fund with cash withdrawn from company checking account.
30 The petty cash fund has $10 remaining and is replenished. Expenditures for April were $60 for supplies, $50 for meals,
$65 for postage, and $20 for freight-in.
May 31 The petty cash fund has $20 remaining and is replenished. Expenditures for May were $55 for postage, $40 for
charitable contributions, $56 for supplies, and $25 for freight-in.
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
142. Chaney Company has established a petty cash fund for small expenditures. Prepare journal entries for the
following transactions (omit explanations).
June 5 Estabished a $250 petty cash fund with cash withdrawn from company checking account.
30 The petty cash fund has $12 remaining and is replenished. Expenditures for June were $75 for supplies, $60 for meals,
$80 for postage, and $25 for freight-in.
July 31 The petty cash fund has $24 remaining and is replenished. Expenditures for July were $70 for postage, $45 for
charitable contributions, $80 for supplies, and $30 for freight-in.
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
143. A company establishes a $200 petty cash fund. The fund is replenished in the amount of $180, after petty
cash vouchers of $80 for postage, $68 for donations, and $54 for meals had accumulated. Was there a cash
shortage, overage, or neither? (State amount if overage or shortage.)
144. The petty cash fund of Writer Company was established on May 1 and appeared as follows on May 31:
Cash on hand $ 48
Petty cash vouchers:
Postage $60
Office supplies 12 72
$120
(a) Prepare the journal entry on May 1 to establish the fund (omit explanation).
(b) Prepare the journal entry on May 31 to replenish the fund (omit explanation).
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
145. A company establishes a $150 petty cash fund. The fund is replenished in the amount of $136, after petty
cash vouchers of $66 for transportation, $44 for supplies, and $22 for postage had accumulated. Was there a
cash shortage, overage, or neither? (State amount if overage or shortage.)
Chapter 8: Cash and Internal Control Key
1. In a small business, active involvement by the owner can be a practical substitute for the separation of some
duties.
TRUE
2. An effective system of internal control requires that individuals take periodic vacations.
TRUE
5. A system of internal control cannot be considered good until the possibility of human error has been
completely eliminated.
FALSE
10. Damaged goods that can be sold at a reduced price should be included in a company’s merchandise
inventory.
TRUE
11. Merchandisers usually take a physical inventory when the volume of goods is at its lowest levels.
TRUE
12. Merchandisers usually end their fiscal year during the peak season.
FALSE
13. Using bar codes to take a physical inventory is considered poor accounting practice.
FALSE
14. The periodic inventory system provides no means of identifying losses from spoilage, shoplifting, and theft.
TRUE
15. An understated ending inventory will produce an overstated cost of goods sold.
TRUE
16. Under the perpetual inventory system, inventory losses can be identified more easily than under the periodic
inventory system.
TRUE
18. It is unlikely that a company would want to bond its employees who handle cash or inventory.
FALSE
19. Good internal control dictates that one employee should oversee all related parts of a transaction.
FALSE
21. The degree of separation of duties varies with the size of the business.
TRUE
22. Under an effective system of internal control, errors occur only as a result of fraud or dishonesty.
FALSE
24. The receiving department must compare goods received with goods purchased, as indicated on the purchase
order.
FALSE
25. Cash received through the mail need be handled by only one employee to achieve effective internal control.
FALSE
27. A check authorization is a document that permits the issuance of a check to pay an invoice.
TRUE
28. It is best that the receiving department not be given a copy of the purchase order or the invoice.
TRUE
29. Invoices are documents prepared by a vendor and sent to the accounting department of its customers.
TRUE
30. A remittance advice accompanies a check sent to a vendor or the vendor’s bank.
TRUE
33. In addition to keeping the records of a purchase transaction, the accounting department should prepare and
mail checks in payment of invoices.
FALSE
34. Effective internal control requires a department to purchase supplies on its own.
FALSE
35. The treasurer should prepare and sign a check only after a proper check authorization has been provided.
TRUE
36. Sound internal control activities dictate that extra cash should always be on hand.
FALSE
37. The purchasing department prepares a purchase requisition addressed to the vendor (seller) containing
instructions related to the items ordered.
FALSE
38. At the end of each day, the cashier should be the one responsible for comparing the amount on the cash
register tape with the day's cash additions to the cash register.
FALSE
39. A formal request for a purchase from a requesting department of a business is known as a purchase order.
FALSE
40. The use of prenumbered documents is important to a good system of internal control.
TRUE
41. Merchandising companies do not need as good a system of internal control as service companies.
FALSE
42. An effective system of internal control centralizes functions in a single, capable individual.
FALSE
44. When an individual uses a debit card to make a purchase, the amount of the purchase is deducted directly
from the individual’s bank account.
TRUE
45. Cash equivalents are defined as investments that carry terms of 90 days or less.
TRUE
46. It is usually a good business practice to maintain as large a balance in the Cash account as possible.
FALSE
47. Cash equivalents are usually listed as short-term investments on the balance sheet.
FALSE
48. On a bank reconciliation, interest income would be added to the balance per bank.
FALSE
51. The use of electronic funds transfers makes check writing unnecessary.
TRUE
52. In the financial statements, the balance of the Petty Cash account and the balance of the Cash account are
shown separately.
FALSE
53. When a petty cash fund is established, the entry contains a credit to Cash.
TRUE
54. When the balance of a petty cash fund is increased, the entry would contain a credit to Petty Cash.
FALSE
55. When a petty cash fund is replenished, the entry requires a debit to Petty Cash.
FALSE
56. When a petty cash fund is replenished, the entry requires a credit to Cash.
TRUE
57. The petty cash voucher should be kept by the person being reimbursed.
FALSE
58. One of the best ways to control a petty cash fund is through an imprest system.
TRUE
59. A petty cash fund is established for small payments for which writing a check would be impractical.
TRUE
60. The materiality concept dictates that no internal controls be established over petty cash.
FALSE
61. The amount in the petty cash fund plus the sum of the petty cash vouchers should at all times equal the
amount shown in the Petty Cash account.
TRUE
63. The financial statements of nonpublic companies are not required to be audited by an independent CPA.
TRUE
64. To assure an efficient system of internal control, management should authorize all transactions.
FALSE
65. The Sarbanes-Oxley Act of 2002 does not require any certification from a public company's chief executive
officer about the company's system of internal control.
FALSE
66. Public companies must have their financial statements audited, but are not required to have their internal
control systems audited.
FALSE
67. Annual reports of public companies will include statements from both management and independent
auditors regarding the adequacy of internal control.
TRUE
68. The Sarbanes-Oxley Act has not stopped the occurrence of fraud, and additional guidance with regard to
internal controls is expected to be issued.
TRUE
72. Under the perpetual inventory system, the entry to recognize inventory losses usually contains a
A. debit to Cost of Goods Sold.
B. debit to Merchandise Inventory.
C. credit to Gross Margin.
D. credit to Cash.
73. A good system of internal control is designed to achieve all of the following except
A. efficiency of operations.
B. reliability of financial reporting.
C. compliance with relevant laws and regulations.
D. attainment of target sales.
74. All of the following are examples of internal control activities except
A. adequate supervision.
B. rotation of key personnel.
C. customer satisfaction surveys.
D. insistence that employees take earned vacations.
76. The bonding of employees is an example of which feature of a good system of internal control?
A. Authorization of transactions
B. Sound personnel policies
C. Separation of duties
D. Limited access to assets
77. Which of the following would not be found in a good system of internal control?
A. Requiring all employees to take earned vacations
B. Establishing a system of checks and balances
C. Having one person handle all the responsibilities of a department
D. Establishing an internal audit staff
81. Which of the following attributes of internal control would be violated if the purchasing department wrote
checks to pay accounts payable?
A. Adequate design of documents
B. Sound personnel procedures
C. Periodic independent verification
D. Separation of duties
82. A very small company would have the most difficulty in implementing which of the following internal
control activities?
A. Sound personnel procedures
B. Periodic independent verification
C. Limited access to assets
D. Separation of duties
83. In a small business, because it is often cost-prohibitive to hire extra employees, the lack of certain
separations of duties can best be overcome by
A. bonding the employees.
B. getting the owner actively involved.
C. hiring only honest employees.
D. holding one person responsible for a given set of transactions.
84. Which of the following is not an internal control activity for cash?
A. Unannounced audits of cash on hand should be made occasionally.
B. The number of persons who have access to cash should be limited.
C. The functions of recordkeeping and keeping custody of cash should be combined.
D. All cash receipts should be recorded promptly.
85. Which of the following documents is mailed to the vendor (seller) of goods?
A. Receiving report
B. Invoice
C. Purchase order
D. Purchase requisition
86. In a purchase system, the most appropriate department to control goods upon arrival at the company is the
A. accounting department.
B. receiving department.
C. treasury department.
D. requesting department.
87. The document prepared by a department requesting the company to buy something is called a(n)
A. purchase order.
B. invoice.
C. receiving report.
D. purchase requisition.
89. Which of the following is not an internal control activity for cash?
A. The amount of cash on hand should be kept to a minimum.
B. Banking facilities should be used as much as possible.
C. Employees who have access to cash should be bonded.
D. All payments should be made with currency, not checks.
90. When payment is received by mail, a detailed list of such receipts would not be retained by the
A. receiving department.
B. accounting department.
C. person who opens the mail.
D. cashier.
94. When a company makes payment for goods or services, the check is prepared by the company's
A. requesting department.
B. treasurer.
C. accounting department.
D. receiving department.
95. Which of the following documents would not originate with the purchasing company?
A. Purchase order
B. Receiving report
C. Check
D. Invoice
97. Which of the following is an appropriate internal control activity for cash?
A. Recordkeeping and custodianship over cash should be performed by the same person.
B. The amount of cash on hand should be kept to a minimum.
C. Banking facilities should be used as little as possible.
D. All payments should be made with currency, not checks.
98. Which of the following documents would be prepared (by a buyer of goods) after the others?
A. Purchase order
B. Check
C. Purchase requisition
D. Receiving report
99. Which of the following sets of documents are in the correct sequence?
A. Purchase order, check, receiving report
B. Purchase requisition, purchase order, invoice
C. Purchase requisition, receiving report, purchase order
D. Purchase order, purchase requisition, invoice
100. Which of the following would be added to the balance per books on a bank reconciliation?
A. Notes collected by the bank
B. Deposits in transit
C. Service charges
D. Outstanding checks
101. An NSF check should appear in which section of the bank reconciliation?
A. Deductions from the balance per books
B. Deductions from the balance per bank
C. Additions to the balance per books
D. Additions to the balance per bank
102. Which of the following would be added to the balance per bank?
A. Outstanding checks
B. Bank service charges
C. Collection of a note receivable by the bank
D. Deposits in transit
103. A check for $236 is incorrectly recorded by the company as $263. On the bank reconciliation, the error
would
A. appear as a deduction of $27 from the balance per books.
B. appear as an addition of $27 to the balance per bank.
C. appear as a deduction of $263 from the balance per books and an addition of $236 to the balance per bank.
D. appear as an addition of $27 to the balance per books.
104. On a bank reconciliation, $75 interest earned on a checking account would
A. appear as a deduction of $75 from the balance per books.
B. appear as an addition of $75 to the balance per bank.
C. appear as an addition of $75 to the balance per books.
D. not appear as an adjustment on the bank reconciliation
105. Which of the following bank reconciliation items would not result in a journal entry?
A. Service charge
B. NSF check of a customer
C. Collection of a note by the bank
D. Deposits in transit
106. Which of the following bank reconciliation items would result in a journal entry?
A. Checks outstanding
B. An adjustment for a check recorded for the wrong amount
C. Deposits in transit
D. A bank error on the bank statement
107. For which of the following errors should the appropriate amount be added to the balance per bank on a
bank reconciliation?
A. Deposit of $250 recorded by the bank as $25
B. Deposit of $25 recorded by the bank as $250
C. Check for $25 recorded as $52
D. Check for $52 recorded as $25
110. Cash and equivalents can consist of all of the following except
A. deposits in checking accounts
B. IOUs from customers
C. certificates of deposit (CDs)
D. U.S. Treasury notes
111. Which of the following would not be a valid reason for keeping currency on hand at a place of business?
A. To pay small, unforeseen expenses
B. To make up for any imbalance in the books
C. To advance money to sales reps for travel expenses
D. To provide money for cash registers
112. Which of the following would be deducted from the balance per books on a bank reconciliation?
A. Notes collected by the bank
B. Deposits in transit
C. Service charges
D. Outstanding checks
113. A $150 petty cash fund has cash of $64 and valid receipts for $75. The entry to replenish the fund would
be:
A. Cash 86
Various Expenses 75
Cash Short or Over 11
B. Petty Cash 86
Cash 86
C. Cash 64
Petty Cash 64
D. Various Expenses 75
Cash Short or Over 11
Cash 86
114. A $200 petty cash fund has cash of $20 and valid receipts of $164. The entry to replenish the fund would
be:
A. Cash 184
Petty Cash 184
B. Cash Short or Over 16
Petty Cash 16
C. Various Expenses 164
Cash Short or Over 16
Cash 180
D. Petty Cash 164
Cash 164
115. Use the following information regarding Larson Company to answer the question below.
The entry to record the reimbursement of the petty cash fund would include a
A. credit to Postage Expense for $20.
B. debit to Petty Cash for $90.
C. credit to Cash for $85.
D. debit to cash for $5.
116. The entry for establishing a $300 petty cash fund would be:
A. Cash 300
Petty Cash 300
B. Miscellaneous Expense 300
Cash 300
C. Petty Cash 300
Cash 300
D. Cash 300
Miscellaneous Expense 300
118. As the controller of a large company, you notice that the Cash Short or Over account is consistently
debited for fairly large sums of cash when the petty cash fund is replenished. You probably will want to
A. increase the amount of the fund.
B. decrease the amount of the fund.
C. find a new custodian for the fund.
D. offer the custodian your congratulations.
119. Use the following information regarding Larson Company to answer the question below.
The entry to record the increase in the Petty Cash account would include a
A. debit to the Petty Cash account for $50.
B. credit to the Petty Cash account for $50.
C. memorandum entry only in the ledger.
D. debit to the Cash account for $50.
126. The Sarbanes-Oxley Act of 2002 requires management to acknowledge its responsibility for internal
control
A. in the company’s annual report.
B. in a public statement posted on social media.
C. in a posted notice at the front of company headquarters.
D. in all of these.
129. Under a perpetual inventory system, is it necessary to take a physical inventory at the end of the period?
Why or why not?
A physical inventory must be taken to determine whether or not the actual quantity of goods matches the
quantity contained in the perpetual inventory record. Discrepancies could arise as a result of error or theft.
130. An accountant is responsible for the following activities: (1) receiving all cash; (2) maintaining the general
ledger; (3) maintaining the accounts receivable subsidiary ledger that includes the individual records of each
customer; (4) maintaining the journals for recording sales, purchases, and cash receipts; and (5) preparing
monthly statements to be sent to customers. As a service to customers and employees, the company allows the
accountant to cash checks of up to $75 with money from the cash receipts. When deposits are made, the checks
are included in place of the cash receipts. What weaknesses in internal control exist in this system?
In this case, the principle of separation of duties is violated. Because the accountant collects the cash and keeps
the records for accounts receivable, he or she could divert incoming checks from customers and cash the checks
out of cash collections. At the end of the month, when statements are mailed to customers, the accountant could
destroy the statements to the customers whose checks he or she had embezzled. The customers then would
believe that the company had received the payments because they would not receive a subsequent statement. In
addition, there is no sign of any outside verification. Furthermore, allowing checks to replace cash receipts does
not provide for consistent documentation of the firm's transactions.
131. The Report of Management in Brighton Company's annual report states, “Management has established a
system of internal controls to provide reasonable assurance that assets are maintained and accounted for in
accordance with its policies and that transactions are recorded accurately on the company's books and records.”
Name five control activities Townsgate could and probably does implement.
132. Mandisa Sounds, Inc., a specialty retailer of customized audio systems for automobiles, installed a
perpetual inventory system in the second quarter of 2011. The new system allowed the firm to adjust its
merchandise inventories to sales patterns more effectively and to prepare monthly financial statements.
Although the system led to an improvement in sales and income, the gross margin on the monthly income
statements was falling below both management's expectations and the industry average. At the end of 2014, a
physical inventory revealed that actual merchandise inventory was considerably lower than the perpetual
inventory records indicated. The merchandise inventories of some stores were off more than others, but all had
deficiencies. What probably caused these losses and what steps could be taken to prevent them in the future?
The merchandise inventory losses probably were due to shoplifting and embezzlement. Management must
carefully review its controls at the individual stores and install a system that will protect its merchandise
inventory from these forms of theft. This goal can be accomplished through an internal control structure that
creates an environment that encourages compliance with a company's policies, a good accounting system, and
specific activities designed to safeguard the merchandise inventory.
133. Why is the separation of duties an important control activity in a good system of internal control?
When only one employee is responsible for processing a transaction from beginning to end, it is likely that an
error or theft by that employee would go unnoticed. However, when two or more employees are involved in the
process, an error by an employee, whether honest or not, probably would be detected by one of the other
employees.
The items normally included in Cash are coins and currency on hand; checks and money orders from customers;
deposits in bank accounts, including short-term certificates of deposit; short-term government securities, such as
U.S. Treasury notes; and any other security that may be converted to cash within 90 days. These items may
carry a caption of just “Cash” or “Cash and cash equivalents” or “Cash and equivalents” on the balance sheet.
Businesses need to keep some currency on hand to provide money for cash registers in order to make change; to
pay small, spur-of-the moment expenses, such as postage stamps, shipping charges due, or minor purchases of
pens, paper, and other office supplies; or to provide money in advance to salespersons for their travel and
entertainment expenses.
Management is responsible for establishing a satisfactory system of internal controls, which safeguard assets,
ensure reliability of accounting records, and see that employees comply to legal requirements. The chief
executive officer and check financial officer, along with the auditor, must fully document and certify the
company’s system of internal controls in the annual report.
139. Compute the correct amount for each letter in the following table:
a. Cash on the books as of April 30 was $499. Cash as shown on the bank statement for the same date was
$1,330.
b. A deposit of $160, representing cash receipts as of April 30, did not apppear on the bank statement.
c. Outstanding checks totaled $240.
d. Bank service charges for April amounted to $9
e. The bank collected for Rawlins Company $840 (which includes $40 interest) on a note left for collection.
f. An NSF check for $80 from a customer, Joe Beck, was returned with the statement.
Required:
1. Prepare a bank reconciliation for Rawlins Company as of April 30.
2. State the amount of cash that would appear on the balance sheet as of April 30.
Rawlins Company
Bank Reconciliation
April 30, 2014
1.
Rawlins Company
Bank Reconciliation
April 30, 2014
Balance per bank, April 30 $1,330
Add deposit in transit 160
$1,490
Less outstanding checks 240
Adjust bank balance, April 30 $1,250
141. Jasmine Company has established a petty cash fund for small expenditures. Prepare journal entries for the
following transactions (omit explanations).
April 5 Estabished a $200 petty cash fund with cash withdrawn from company checking account.
30 The petty cash fund has $10 remaining and is replenished. Expenditures for April were $60 for supplies, $50 for meals,
$65 for postage, and $20 for freight-in.
May 31 The petty cash fund has $20 remaining and is replenished. Expenditures for May were $55 for postage, $40 for
charitable contributions, $56 for supplies, and $25 for freight-in.
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
April 5 Petty Cash 200
Cash 200
30 Supplies 60
Meals (or Entertainment) Expense 50
Postage Expense 65
Freight-In 20
Cash 190
Cash Short or Over 5
June 5 Estabished a $250 petty cash fund with cash withdrawn from company checking account.
30 The petty cash fund has $12 remaining and is replenished. Expenditures for June were $75 for supplies, $60 for meals,
$80 for postage, and $25 for freight-in.
July 31 The petty cash fund has $24 remaining and is replenished. Expenditures for July were $70 for postage, $45 for
charitable contributions, $80 for supplies, and $30 for freight-in.
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
June 5 Petty Cash 250
Cash 250
30 Supplies 75
Meals (or Entertainment) Expense 60
Postage Expense 80
Freight-In 25
Cash 238
Cash Short or Over 2
143. A company establishes a $200 petty cash fund. The fund is replenished in the amount of $180, after petty
cash vouchers of $80 for postage, $68 for donations, and $54 for meals had accumulated. Was there a cash
shortage, overage, or neither? (State amount if overage or shortage.)
144. The petty cash fund of Writer Company was established on May 1 and appeared as follows on May 31:
Cash on hand $ 48
Petty cash vouchers:
Postage $60
Office supplies 12 72
$120
(a) Prepare the journal entry on May 1 to establish the fund (omit explanation).
(b) Prepare the journal entry on May 31 to replenish the fund (omit explanation).
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
(a) May 1 Petty Cash 120
Cash 120
145. A company establishes a $150 petty cash fund. The fund is replenished in the amount of $136, after petty
cash vouchers of $66 for transportation, $44 for supplies, and $22 for postage had accumulated. Was there a
cash shortage, overage, or neither? (State amount if overage or shortage.)