Exam 7: Sarbanes-Oxley, Internal Control, and Cash

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 $75 rather than the actual amount of $175. (2) Two outstanding checks amounted to $280. (3) Company check number 538 for postage was recorded incorrectly by the company bookkeeper as $79 instead of $97. (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 $85.

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.

Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation, the item is

An element of internal control is

A check drawn by a company for $270 in payment of a liability was recorded in the journal as $720. This item would be included on the bank reconciliation as a(n)

Which of the following items that appeared on the bank reconciliation did not require an adjusting entry?

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 $425 is "NSF". The bank also informs you that due to the amount of activity on your business account the monthly service charge is $45. During a bank reconciliation:

The main reason that the bank statement cash balance and the company's cash balance do initially balance is due to timing differences.

The following information is from Madison Corporation's accounting records for May 20XX. Check # 3269 was returned as a double payment and voided. Checks that have not cleared the bank include 3252, 3260, and series 3275-3278. 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 20XX. 2. What is the total amount of checks that cleared the bank (written in May)?

What entry is required in the company's accounts to record outstanding checks?

Derek Company gathered the following reconciling information in preparing its September bank reconciliation: \ 2,750 Cash balance per books, 9/30 200 Deposits in transit 630 Notes receivable and interest collected by bank 30 Bank charge for check printing 1,250 Outstanding checks 190 NSF check The adjusted cash balance per books on September 30 is

A necessary element of internal control is

Expenditures from a petty cash fund are documented by a petty cash receipt.

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

A voucher system is an example of an internal control procedure over cash payments.

Accompanying the bank statement was a debit memo for bank service charges. What entry is required in the company's accounts?

Farm Store, Inc. reported the following data in its December 31, 2011 annual report. Required: (1) What is the company's "cash burn" per month? (2) What is the company's ratio of cash to monthly cash expenses? (3) Interpret the ratio you computed in part 2. What are the implications for Farm Store, Inc.

The bank reconciliation

A check outstanding for two consecutive months will appear only on the first month's bank reconciliation.

Internal control is enhanced by separating the control of a transaction from the record-keeping function.