Exam 4: Internal Controls, Accounting for Cash, and Ethics

A bank statement debit memo describes a transaction that increases a customer's account balance.

Rich Company's unadjusted book balance at October 31, 2014 is $2,550. The following information is available for the bank reconciliation. Outstanding checks, $600 Deposits in transit, $450 Bank service charges, $90 Bank collected an accounts receivable for Rich Company, $1,000 NSF check written by one of Rich's customers, $600. Based on this information Rich's true cash balance is:

Indicate whether each of the following statements regarding internal controls is true or false. -Supporting documents should be marked "paid" when the check is signed

While performing the monthly bank reconciliation, the bookkeeper for Rathbun Pool Supply Company made the journal entry for a bank service charge of $49. Which of the following correctly shows the effect of the entry on the financial statements?

Indicate whether each of the following statements regarding internal controls is true or false. -Separation of duties is an internal control element that would require different individuals to perform the functions of authorization, recording of transactions, and custody of assets

While performing the monthly bank reconciliation, the bookkeeper for Grace Corporation noted that a deposit of $100 (received from a customer on account) was recorded in the company books as $1,000. Which of the following shows the effect of the correcting entry on the financial statements?

The following information pertains to the bank reconciliation of January 31, 2014 for the Beckett Company: Unadjusted bank balance: \ 9,450 Bank collection of a note receivable (no interest): 1,000 Bank service charge: 30 Deposit in transit 2,000 NSF check returned by the bank: 900 Outstanding checks: 3,000 In addition, the reconciliation revealed one error: Check #2146 for $95 was incorrectly recorded in the books for $59. Using the above information, compute the unadjusted book balance.

The following are strong internal control measures over cash disbursements except

Martha Hanson operates a small gift shop that sells various antiques, such as glassware. She employs two clerks who make sales to customers, accept returns when a customer is dissatisfied with merchandise, and put new merchandise on display. One of the clerks, Jill Hays, was hired recently. Martha had always done all the accounting for the store and had made bank deposits. However, Jill has offered to do the accounting for the store during slow periods when there are no customers in the store; she also has begun making bank deposits as she leaves for the day. Having Jill take these responsibilities allows Martha more time for acquiring merchandise for the store and for personal errands. What potential risks for the success of Martha's business are present in this situation?

An unqualified audit opinion:

Indicate whether each of the following statements regarding internal controls is true or false. -Supporting documents are required when checks are presented to the check signer to be signed

Explain the meaning of "internal control" and distinguish between administrative controls and accounting controls.

Why would a merchandising company need good internal controls related to its inventory? List three of the key elements of an internal control system that would apply to inventory, and explain how each of them relates to inventory.

What are NSF checks?

Which of the following would result in the impairment of the auditor's independence?

During the reconciliation process, an accountant for Swann Company discovered that the bank deducted from its account a check written by Swan Company (a different company).

Indicate whether each of the following statements about cash payments is true or false. -To have effective controls over cash, a company must have good controls over both cash receipts and cash payments

Effective separation of duties in an organization reduces the likelihood of theft.

A business's administrative controls are concerned with

List three internal control procedures that should be followed to safeguard cash and reduce the likelihood of theft.