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Exam 6: Cash, fraud, and Internal Controls

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Question 91

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Match each of the following terms with the appropriate definitions. -The ability of a company to pay for its near-term obligations.

A) Days' sales uncollected
B) Gross method
C) Receiving report
D) Bank reconciliation
E) Purchase order
F) Principles of internal control
G) Cash Over and Short
H) Liquidity
I) Net method
J) Voucher system

K) B) and H)
L) F) and I)

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Question 92

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Match each of the following transactions with the applicable internal control principle that is being violated listed. A.Establish responsibility B.Maintain adequate records C.Insure assets and bond employees D.Separate recordkeeping from custody of assets E.Divide responsibility for related transactions F.Apply technological controls G.Perform regular and independent reviews _____ 1.Cashiers have access to the cash register recorded tape or file. _____ 2.A company uses a voucher system,but the cash disbursement clerk pays directly from invoices received. _____ 3.Only sales clerks use the cash registered,but they all share the same cash drawer. _____ 4.The bookkeeper prepares and signs checks and completes the bank reconciliation. _____ 5.A restaurant allows servers to keep cash collected in their aprons and ring in all sales at the end of the night. _____ 6.A company fails to hire a CPA to perform an annual audit. _____ 7.A company does not bond its key cash-handling employees. _____ 8.A company has a single department that handles purchasing,receiving,and inventory management. _____ 9.A large company has no internal auditor on staff. _____ 10.A company manager keeps pre-signed checks in his desk drawer for employees to hand write when the accountant is out of the office.

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1.D; 2.B; ...

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Question 93

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Havermill Co.establishes a $250 petty cash fund on September 1.On September 30,the fund is replenished.The accumulated receipts on that date represent $73 for Office Supplies,$137 for merchandise inventory,and $22 for miscellaneous expenses.The fund has a balance of $18.On October 1,the accountant determines that the fund should be increased by $50. -The journal entry to record the reimbursement of the fund on September 30 includes a:

Which of the following events would cause a bank to debit a depositor's account?

When a petty cash fund is in use:

Canceled checks are checks the bank has paid and deducted from the customer's account during the period.

At the end of the day,the cash register tape shows $1,000 in cash sales but the count of cash in the register is $1,010.The proper entry to account for this excess is:

When using a voucher system,what are the steps on the invoice approval checklist that must be completed before an invoice approval is complete and a voucher prepared?

Outstanding checks are checks the bank has paid and deducted from the customer's account during the month.

Match each of the following terms with the appropriate definitions. -A measure of how quickly a company can convert its accounts receivable into cash.

Childers Company,which uses a perpetual inventory system,has an established petty cash fund in the amount of $400.The fund was last reimbursed on November 30.At the end of December,the fund contained the following petty cash receipts: $\begin{array} { | l | l | r | } \hline \text { December } 4 & \text { Freight charge for merchandise purchased } & \$ 62 \\\hline \text { December } 7 & \text { Delivery charge for shipping to customer } & \$ 46 \\\hline \text { December } 12 & \text { Purchase of office supplies } & \$ 30 \\\hline \text { December } 18 & \text { Donation to charitable organization } & \$ 51 \\\hline\end{array}$ If,in addition to these receipts,the petty cash fund contains $201 of cash,the journal entry to reimburse the fund on December 31 will include:

Describe a petty cash account and its purpose.

If the Cash Over and Short account has a credit balance at the end of the period,the amount is commonly reported as miscellaneous revenue.

Describe a bank reconciliation and discuss its purpose.

The following information is taken from Reagan Company's December 31 balance sheet: $\begin{array} { | l | r| } \hline \text { Cash and cash equivalents } & \$ 8,419 \\\hline \text { Accounts receivable } & 70,422 \\\hline \text { Merchandise inventories } & 60,362 \\\hline \text { Prepaid expenses } & 4,100 \\\hline \text { Accounts payable } & \$ 14,950 \\\hline \text { Notes payable } & 86,638 \\\hline \text { Other current liabilities } & 9,500 \\\hline\end{array}$ If net credit sales for the current year were $612,000,the firm's days' sales uncollected for the year is: (Use 365 days a year.)

Which internal control principle prescribes the use of pre-numbered printed checks?

On June 3,Zhang Co.received and recorded a $3,500 invoice for merchandise on which the terms were 2/10,n/60.The company uses the net method to records invoices.On June 17,the company discovered that the invoice had been incorrectly filed and the discount lost.Prepare the June 3 general journal entry to record the purchase,the June 17 entry to record the discount lost,and the August 2 entry to record payment of the invoice.

Describe the net method of accounting for purchases.Why might companies use the net method?

Internal control policies and procedures have limitations not including:

Most large thefts occur from payment of fictitious invoices,which makes control of cash disbursements especially important for companies.