Exam 8: Sarbanes-Oxley, Internal Control, and Cash

Which one of the following below is not a factor that influences a business's control environment?

The petty cash fund eliminates the need for a bank checking account.

The doomsday ratio includes both cash and cash equivalents in the numerator.

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 and debit the amount to Miscellaneous Expense." Required: (a) Should you implement some controls on petty cash? Why? (b) If so, what controls could be used for petty cash?

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

Businesses who have several bank accounts, petty cash, and cash on hand, would maintain a separate ledger account for each type of cash.

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

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.

The cash account in the company's ledger is a(n)

Which of the following would be added to the balance per books on a bank reconciliation?

Following the completion of the bank reconciliation, an adjusting entry was made that debited cash and credited Interest Revenue. Therefore the bank reconciliation must have included an item that was

Which of the following would be subtracted from the balance per books on a bank reconciliation?

A minimum cash balance required by a bank is called

The actual cash received during the week ended June 7 for cash sales was $18,632.00, and the amount indicated by the cash register total was $18,628.00. Journalize the entry to record the cash receipts and cash sales. Journal

A necessary element of internal control is

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.

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.

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.

An element of internal control is

Consider the cash account below. Additional Information: cash disbursements were 80% of collections. How much was the Beginning Balance of the Cash Account?