Exam 8: Fraud, Internal Control, and Cash

Two individuals at a retail store work the same cash register. You evaluate this situation as

Listed below are seven errors or problems which might occur in the processing of cash transactions. Also shown is a list of internal control principles. Evaluate each possible error and cite a principle that is listed that would reduce the probability of the error occurring. If none of the principles given will correct the problem write "None." If you think more than one principle is appropriate list all principles that apply. Possible Errors or Problems 1. An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise. 2. A small fire destroys 3 days of cash receipts. 3. The official designated to sign checks is able to steal blank checks and issue them without fear of detection. 4. A salesclerk in serving customers often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer. 5. Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand. 6. Each cashier counts his own register drawer each day and verbally reports the results to the supervisor. 7. Cashiers with over 5 years' experience are not bonded. Internal Control Principles a. Establishment of responsibility b. Segregation of duties c. Physical controls d. Documentation procedures e. Independent internal verification

At August 31 Mannheim Company has this bank information: cash balance per bank $6540; outstanding checks $2627; deposits in transit $1800; and a bank service charge $25. Determine the adjusted cash balance per bank at August 31 2015.

Bell Food Store developed the following information in recording its bank statement for the month of March. Balance per books March $31 \quad \quad \quad \quad \$ 3,664$ Balance per bank statement March $31 \quad \$ 10,900$ ------------------------------------------- (1) Checks written in March but still outstanding $7000. (2) Checks written in February but still outstanding $3100. (3) Deposits of March 30 and 31 not yet recorded by bank $5200. (4) NSF check of customer returned by bank $1200. (5) Check No. 210 for $593 was correctly issued and paid by bank but incorrectly entered in the cash payments journal as payment on account for $539. (6) Bank service charge for March was $50. (7) A payment on account was incorrectly entered in the cash payments journal and posted to the accounts payable subsidiary ledger for $824 when Check No. 318 was correctly prepared for $284. The check cleared the bank in March. (8) The bank collected a note receivable for the company for $3000 plus $100 interest revenue. Instructions Prepare a bank reconciliation at March 31.

The cash records of George Company show the following: 1. In September deposits per the bank statement totaled $36800; deposits per books $38000; and deposits in transit at September 30 were $4900. 2. In September cash disbursements per books were $35600; checks clearing the bank were $38900; and outstanding checks at September 30 were $3000. There were no bank debit or credit memoranda and no errors were made by either the bank or George Company. Answer the following questions: (a) What were the deposits in transit at August 31? (b) What were the outstanding checks at August 31?

Firms use physical controls primarily to safeguard their assets.

Mendez Company assembled the following information in completing its July bank reconciliation: balance per bank $22920; outstanding checks $5640; deposits in transit $7300; NSF check $420; bank service charge $95; cash balance per books $26400. As a result of this reconciliation Mendez will

Which one of the following is not necessarily a party to a check?

A deposit made by a company will appear on the bank statement as a

In preparing its bank reconciliation for the month of April 2016 Sells Inc. has available the following information. Balance per bank statement, 4/30/16 \ 40,290 NSF check returned with 4/30/16 bank statement 1,450 Deposits in transit, 4/30/16 10,200 Outstanding checks, 4/30/16 15,060 Bank service charges for April 60 What should be the adjusted cash balance at April 30 2016?

Related purchasing activities include

Having different individuals receive cash record cash receipts and hold the cash is an example of

The fraud triangle applies to

The size of the petty cash fund is dependent on

The principle of establishing responsibility does not include

Electronic Funds Transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another.

A petty cash fund should be replenished

The following reconciling items are applicable to the bank reconciliation for the Spahn Company. Indicate how each item should be shown on a bank reconciliation. a. Outstanding checks. b. Bank credit memorandum for collecting a note for the depositor. c. Bank debit memorandum for service charge. d. Deposit in transit.

If a company deposits all its receipts in the bank and pays all its bills by check then the monthly bank statement balance will always agree with the company's record of its checking account balance.

A segregation of duties among employees eliminates the possibility of collusion.