Q&A Hero

Q: Teller, a calendar year company, purchased merchandise from TechCom on October 17 of the current year. TechCom accepted Teller's $4,800, 90-day, 10% note as payment. What entry should TechCom make on January 15 of the next year when the note is paid, assuming an adjusting entry for interest was made for interest on December 31? A. Notes Receivable 4,800 Interest Receivable 120 Sales 4,920 B. Cash 4,920 Notes Receivable 4,920 C. Cash 4,920 Interest Revenue 100 Interest Receivable 20 Notes Receivable 4,800 D. Cash 4,920 Interest Revenue 20 Interest Receivable 100 Notes Receivable 4,800 E. Cash 4,920 Interest Revenue 120 Notes Receivable 4,800

Q: Failure by a promissory note's maker to pay the amount due at maturity is known as: A. Protesting a note B. Closing a note C. Dishonoring a note D. Discounting a note E. Depreciating a note

Q: When the maker of a note honors a note this indicates that the note is: A. Signed B. Paid in full C. Guaranteed D. Notarized E. Cosigned

Q: Wallah Company agreed to accept $5,000 in cash along with an $8,000, 90-day, 13.5% note from customer Judith Klemper to settle her $13,000 past-due account. How should Wallah record this transaction? A. Accounts Receivable J. Klemper 13,000 Note Receivable 8,000 Cash 5,000 B. Note Receivable 8,000 Sales 8,000 C. Cash 5,000 Note Receivable 8,000 Sales 13,000 D. Cash 5,000 Note Receivable 8,000 Account Receivable J. Klemper 13,000 E. Sales 13,000 Note Receivable 8,000 Cash 5,000

Q: Mix Recording Studios purchased $7,800 in electronic components from TechCom. Mix Recording Studios signed a 60-day, 10% promissory note for $7,800. TechCom's journal entry to record the sales portion of the transaction is: A. Accounts Receivable 7,800 Sales 7,800 B. Accounts Receivable 7,930 Sales 7,930 C. Notes Receivable 7,800 Sales 7,800 D. Notes Receivable 7,930 Sales 7,930 E. Notes Receivable 7,800 Interest Receivable 130 Sales 7,930

Q: Recording a purchase is initiated by an invoice approval, not an invoice.

Q: The voucher register is a journal that is used to record all approved vouchers within the company.

Q: An invoice is an itemized statement of goods prepared by the vendor listing the customer's name, items sold, sales prices, and terms of sale.

Q: When merchandise is needed, a department manager must inform the purchasing department of this need by preparing and signing a purchase requisition, which lists the merchandise needed and requests that it be purchased.

Q: The steps to reconcile the balance of the bank statement to the adjusted balance include adding outstanding checks, deposits, and bank service charges.

Q: The purposes and principles of internal control are fundamentally the same across the globe. However, cultural differences sometimes suggest different emphasis on the mix of control procedures.

Q: An NSF check for $17.50 would be recorded as a debit to Cash and a credit to Accounts Receivable.

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

Q: A bank reconciliation usually yields both an adjusted bank balance and an adjusted book balance.

Q: It is not necessary for businesses to reconcile their checking accounts since banks keep accurate records and provide internal control support for cash.

Q: Deposits in transit are deposits made and recorded by the depositor but not yet recorded on the bank statement.

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

Q: A bank reconciliation explains any differences between the balance of a checking account on the depositor's records and the balance reported on the bank statement.

Q: The entry to increase the balance in petty cash from $50 to $75 would be to credit the Petty Cash account in the amount of $25.

Q: The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared.

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

Q: All disbursements from petty cash should be documented by a petty cash receipt.

Q: The Petty Cash account is a separate checking account used for small amounts.

Q: An effective voucher system has limited ability to prevent a dishonest employee from colluding with a dishonest supplier to fraudulently acquire cash payments for goods and services not received.

Q: Assume that cash sales according to the register file total $705 but the amount of cash in the register is $685. This cash shortage of $20 represents a Miscellaneous Expense.

Q: Assume that at the end of the day, the cash register tape shows a balance of $635. However, the cash drawer has a balance of $650, this difference should be debited to Miscellaneous Expense.

Q: Vouchers should be used only for purchases. Other expenditures do not need to go through the voucher system.

Q: A voucher is an internal document or file used to accumulate information to control cash disbursements and to ensure that a transaction is properly recorded.

Q: For good internal controls over cash, all payments should be made from the petty cash, except for very large payments.

Q: Cash receipts by mail require only two people: one to open the mail and a second person to deposit the cash in the bank and record the cash receipt in the accounting records.

Q: Receiving and paying for merchandise should be performed by one individual or department to streamline a voucher system and simplify the procedures for purchasing.

Q: A voucher system establishes procedures for verifying, approving, and recording obligations for eventual cash disbursement.

Q: The clerk who has access to the cash in the cash register should not have access to the cash register tape or file.

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

Q: Controls of cash disbursements are important for companies as most large thefts occur from payment of fictitious invoices.

Q: A good voucher system includes a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.

Q: A company had $12,000 in accounts receivable and $320,000 in net sales for the current period. Its days' sales uncollected is equal to 13.7 days.

Q: When evaluating the days' sales uncollected ratio, generally the less time that money is tied up in receivables often translates into increased profitability.

Q: The days' sales uncollected ratio is calculated by dividing accounts receivable by net sales and multiplying this quotient by 365.

Q: The days' sales uncollected ratio reflects the liquidity of accounts receivable.

Q: The days' sales uncollected ratio measures a company's ability to manage its debt.

Q: On a bank statement, deposits are listed as debits because the bank increases its cash account when the deposit is made.

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

Q: A check involves three parties: the maker who signs the check, the payee who is the recipient, and the bank on which the check is drawn.

Q: Canceled checks are a way to confirm what the bank has paid and deducted from the customer's account during the period.

Q: Electronic funds transfer (EFT) is the use of electronic communication transfer of cash from one party to another.

Q: The payee is the person who signs a check and authorizes payment.

Q: Basic bank services such as bank accounts, bank deposits, and checking contribute to the control and safeguarding of cash.

Q: Money orders, cashier's checks, and certified checks are examples of cash equivalents.

Q: Liquidity refers to a company's ability to pay its short-term obligations.

Q: Separation of duties divides responsibility for a transaction or a series of transactions between two or more individuals or departments. Separation of duties reduces the risk of error and fraud.

Q: Collusion is when a person embezzles money from a company and tries to hide the evidence.

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

Q: Internal control in technologically advanced accounting systems depends more on the design and operation of the information system and less on the analysis of its resulting documents.

Q: Technologically advanced accounting systems do not need monitoring for errors because computers always process transactions correctly.

Q: Once a good system of internal control is in place, it rarely needs review.

Q: Good internal control dictates that a person who controls an asset should also maintain the accounting records for that asset.

Q: Bonding does not discourage employees from stealing from the company as employees know that bonding is an insurance policy against loss from theft.

Q: Internal control systems used to monitor and control operations are a low priority for managers within the company.

Q: Technology such as cash registers, check protectors, time clocks, and personal identification scanners can increase the strength of internal controls.

Q: Proper internal control means that the responsibility for a task is clearly established and assigned to one person.

Q: Maintaining adequate business records is an important internal control principle.

Q: Internal control policies and procedures are the same for all companies.

Q: The use of internal controls provides guaranteed protection against losses due to operating activities.

Q: A properly designed internal control system is a key part of accounting information systems design, analysis, and performance.

Q: Cash and Internal Controls

Q: 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____________________.

Q: The document that is an itemized statement of goods prepared by the vendor listing the customer's name, items sold, sales prices, and terms of the sale is the __________________________.

Q: The document the purchasing department sends to the vendor that is used to place an order is the __________________________.

Q: The internal document that is prepared by a department manager to inform the purchasing department of its needs is called the ________________________.

Q: A customer's check is deposited by a company. The check is uncollectible because the balance in the customer's account is not large enough to cover the check. This check is referred to as a __________ check.

Q: After preparing a bank reconciliation, a company must prepare journal entries to adjust the book balance to the correct balance. Only the items reconciling the _____________ balance require adjustment.

Q: A ____________ is a report explaining any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement.

Q: _______________________ are deposits made and recorded by the depositor but not yet recorded on the bank statement.

Q: ________________________ are checks written (or drawn) by the depositor, deducted on the depositor's records and sent to the payee, but not yet recorded by the bank for payment at the bank statement date.

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

Q: A ________ is an internal document (or file) that is used to accumulate information to control cash disbursements.

Q: The _________________ account is used to record the effects of cash overages and shortages from errors in making change.

Q: The ________________ ratio reflects the liquidity of a company's accounts receivable.

Q: On a bank statement, deposits are shown as __________________, because the depositor's account is a liability on the bank's records.