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Exam 8: Cash and Internal Controls

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Question 21

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Following are seven items a through g that would cause Xavier Company's book balance of cash to differ from its bank statement balance of cash. a. A service charge imposed by the bank. b. A check listed as outstanding on the previous period's reconciliation and still outstanding at the end of this month. c. A customer's check returned by the bank is marked "Not Sufficient Funds(NSF)". d. A deposit that was mailed to the bank on the last day of the current month and is unrecorded on this month's bank statement. e. A check paid by the bank at its correct $190 amount was recorded in error in the company's Check Register at $109. f. An unrecorded credit memorandum indicated that bank had collected a note receivable for Xavier Company and deposited the proceeds in the company's account. g. A check was written in the current period that is not yet paid or returned by the bank. Indicate where each item a through g would appear on Xavier Company's bank reconciliation by placing its identifying letter in the parentheses in the proper section of the form below.

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Question 22

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Cash, not including cash equivalents, includes:

A) Postage stamps.
B) Coins, currency, and checking accounts.
C) IOUs.
D) Two-year certificates of deposit.
E) Money market funds.

F) A) and E)
G) C) and D)

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Question 23

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The voucher system of control:

Fraud does not include collusion, which is necessary to thwart separation of duties.

After preparing a bank reconciliation, adjustments must be made for items reconciling the bank balance and items reconciling the book balance.

Bonding does not discourage loss from theft because employees know that bonding is an insurance policy against loss from theft.

Internal control systems are:

Discuss the purpose of a bank reconciliation.

The following information is available for the Avisa Company for the month of November. a. On November 30, after all transactions have been recorded, the balance in the company's Cash account has a balance of $27,202. b. The company's bank statement shows a balance on November 30 of $29,279. c. Outstanding checks at November 30 include check #3030 in the amount of $1,525 and check #3556 in the amount of $1,459. d. A credit memo included with the bank statement indicates that the bank collected $780 on a noninterest-bearing note receivable for Avisa. The bank deducted a $10 collection fee, and credited the remainder of $770 to Avisa's account. e. A debit memo included with the bank statement shows a $67 NSF check from a customer, J. Brown. f. A deposit placed in the bank's night depository on November 30 totaled $1,675, and did not appear on the bank statement. g. Examination of the checks on the bank statement with the entries in the accounting records reveals that check #3445 for the payment of an account payable was correctly written for $2,450, but was recorded in the accounting records as $2,540. h. Included with the bank statement was a debit memorandum in the amount of $25 for bank service charges. It has not been recorded on the company's books. 1. Prepare the November bank reconciliation for the Avisa Company. 2. Prepare the general journal entries to bring the company's book balance of cash into conformity with the reconciled balance as of November 30.

Cash equivalents:

The following information is taken from Hogan Company's December 31 balance sheet: If net credit sales and cost of goods sold for the current year were $612,000 and $367,200, respectively, the firm's days' sales uncollected for the year is:

Under the net method an invoice for $2,000 with terms of 2/10, n/30 should be recorded with a debit to Inventory and a credit to Accounts Payable of $2,000. $2,000 x .98 = $1,960

Internal control devices for banking activities include signature cards, deposit tickets, checks, and bank statements.

On a bank reconciliation, the amount of an unrecorded bank service charge should be:

Describe the banking activities that promote the control of cash and identify the internal control objectives served by the banking activities.

The journal entry for petty cash reimbursement involves a debit to the appropriate expenses and a credit to Petty Cash.

A debit balance in the Cash Over and Short account reflects an expense and is reported on the income statement as part of general and administrative expenses.

Two important limitations of internal control systems are (1) human error or human fraud, and (2) cost-benefit.

A _____________________________ fund is used for the control of small amounts of cash disbursements.

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