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Exam 6: Cash, fraud, and Internal Controls

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Question 1

Multiple Choice

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The document that the purchasing department prepares and sends to the vendor to place an order is called the:

A) Purchase requisition.
B) Purchase order.
C) Invoice.
D) Receiving report.
E) Invoice approval.

F) B) and C)
G) B) and E)

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Question 2

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When evaluating the days' sales uncollected ratio,generally the higher the receivables balance,the better the ratio.

A) True
B) False

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Question 3

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Akron Company purchased merchandise inventory costing $10,000 with credit terms of 2/10,n/30 on March 7.On March 15,the company paid 1/2 of the amount due.The remaining balance was paid on April 7. Required: a.Record the journal entries related to this transaction using the gross method of recording purchases. b.Record the journal entries related to this transaction using the net method of recording purchases.

Assume that the custodian of a $450 petty cash fund has $65 in coins and currency plus $382 in receipts at the end of the month.The entry to replenish the petty cash fund will include:

Meng Co.maintains a $300 petty cash fund.On January 31,the fund is replenished.The accumulated receipts on that date represent $80 for office supplies,$160 for merchandise inventory,and $20 for miscellaneous expenses.There is a cash shortage of $8. -The journal entry to replenish the fund on January 31 is:

The internal document that is used to notify the appropriate person that ordered goods have been received and to describe the quantities and condition of the goods is the ________.

A set of procedures and approvals for verifying,approving,and recording obligations for eventual cash disbursement,and for issuing checks for payment only of verified,approved,and recorded obligations is referred to as a(n) :

A debit memorandum on a bank statement indicates:

When reimbursing the petty cash fund:

Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check.At the close of business on August 31,its Cash account shows a debit balance of $13,162.Franklin's August bank statement shows $14,237 on deposit in the bank.Determine the adjusted cash balance using the following information: $\begin{array} { | l | r | } \hline \text { Deposit in transit } & \$ 4,500 \\\hline \text { Outstanding checks } & \$ 3,900 \\\hline \text { Bank service fees, not yet recorded by company } & \$ 50 \\\hline \text { The bank collected on a note receivable, not yet recorded by the company } & \$ 1,725 \\\hline\end{array}$ The adjusted cash balance should be:

All of the following are considered effective cash management principles except:

Discuss how the principles of internal control apply to cash receipts over-the-counter by giving several examples of good control measures that should be implemented.

Internal control systems are subject to limitations that usually arise from either (1)human error or human fraud,or (2)the cost-benefit principle.

Money orders,cashier's checks,and certified checks are all examples of cash.

Ryan Company deposits all cash receipts on the day they are received and makes all cash payments by check.Ryan's June bank statement shows $18,361 on deposit in the bank.Ryan's comparison of the bank statement to its cash account revealed the following: $\begin{array} { | l | r |} \hline \text { Deposit in transit } & 1,450 \\\hline \text { Outstanding checks } & 837 \\\hline\end{array}$ Additionally,a $29 check written and recorded by the company correctly was recorded by the bank as a $92 deduction. The adjusted cash balance per the bank records should be:

The days' sales uncollected ratio measures the liquidity of accounts receivable.

Match each of the following terms with the appropriate definitions. -A method of initially recording purchases at the full invoice price ignoring any cash discount.

________ are short-term,highly liquid investment assets that are readily convertible to a known amount of cash.

The Sarbanes-Oxley Act (SOX)requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.What are the specific requirements for auditors set forth by SOX?

Deposits made and recorded by the depositor but not yet recorded on the bank statement are called ________.