ch07 sarbanes-oxley, internal control, & cash

8/18/2019 Ch07 Sarbanes-Oxley, Internal Control, & Cash

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Chapter 7Sarbanes-Oxley, Internal Control, & Cash

OBJECTIVES

Obj 1 Describe the Sarbanes-Oxley Act of 2002 and its impact on internal controls andfinancial reporting.

Obj 2 Describe and illustrate the objecti es and elements of internal control.Obj ! Describe and illustrate the application of internal controls to cash.Obj " Describe the nature of a ban# account and its use in controlling cash.Obj $ Describe and illustrate the use of a ban# reconciliation in controlling cash.Obj % Describe the accounting for special-purpose cash funds.Obj & Describe and illustrate the reporting of cash and cash e'ui alents in the financial

statements.

QUESTION G I!

Tr"e#$alseNo

%Ob e't()e !(**('"lty No% Ob e't()e !(**('"lty No% Ob e't()e !(**('"lty

+ 0&-01 (asy 0&-0! (asy ./ 0&-0$ (asy0&-01 (asy + 0&-0! (asy 0 0&-0$ )oderate

. 0&-01 (asy 0&-0! (asy 0+ 0&-0$ (asy0 0&-01 (asy . 0&-0! (asy 0 0&-0$ (asy1 0&-01 )oderate 0 0&-0" (asy 0. 0&-0$ (asy2 0&-02 (asy 1 0&-0" (asy 00 0&-0% (asy

7 0&-02 (asy 2 0&-0" (asy 01 0&-0% (asy3 0&-02 (asy 7 0&-0" (asy 02 0&-0% (asy/ 0&-02 (asy 3 0&-0$ (asy 07 0&-0% (asy+ 0&-0! (asy / 0&-0$ (asy 03 0&-0% (asy++ 0&-0! (asy . 0&-0$ (asy 0/ 0&-0% (asy+ 0&-0! (asy .+ 0&-0$ (asy 1 0&-0% (asy+. 0&-0! (asy . 0&-0$ )oderate 1+ 0&-0& (asy+0 0&-0! (asy .. 0&-0$ (asy 1 0&-0& (asy+1 0&-0! (asy .0 0&-0$ (asy 1. 0&-0& (asy+2 0&-0! (asy .1 0&-0$ (asy 10 0&-0& (asy+7 0&-0! (asy .2 0&-0$ (asy

+3 0&-0! (asy .7 0&-0$ (asy+/ 0&-0! (asy .3 0&-0$ (asy

!$$


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !$%

4"lt(ple Cho('eNo

%Ob e't()e !(**('"lty No% Ob e't()e !(**('"lty No% Ob e't()e !(**('"lty

+ 0&-02 (asy 7 0&-0" (asy 1. 0&-0$ (asy0&-02 (asy 3 0&-0" (asy 10 0&-0$ (asy

. 0&-02 (asy / 0&-0" )oderate 11 0&-0$ (asy0 0&-02 (asy . 0&-0$ (asy 12 0&-0$ (asy1 0&-02 (asy .+ 0&-0$ (asy 17 0&-0$ (asy2 0&-02 (asy . 0&-0$ (asy 13 0&-0$ (asy7 0&-02 (asy .. 0&-0$ )oderate 1/ 0&-0$ )oderate3 0&-02 (asy .0 0&-0$ )oderate 2 0&-0$ )oderate/ 0&-02 (asy .1 0&-0$ (asy 2+ 0&-0$ )oderate+ 0&-02 )oderate .2 0&-0$ (asy 2 0&-0$ )oderate++ 0&-0! (asy .7 0&-0$ (asy 2. 0&-0$ )oderate+ 0&-0! (asy .3 0&-0$ (asy 20 0&-0$ (asy+. 0&-0! (asy ./ 0&-0$ (asy 21 0&-0$ (asy+0 0&-0! (asy 0 0&-0$ )oderate 22 0&-0$ (asy+1 0&-0! (asy 0+ 0&-0$ )oderate 27 0&-0% (asy+2 0&-0! (asy 0 0&-0$ )oderate 23 0&-0% (asy+7 0&-0! (asy 0. 0&-0$ )oderate 2/ 0&-0% )oderate+3 0&-0! (asy 00 0&-0$ )oderate 7 0&-0% (asy+/ 0&-0! (asy 01 0&-0$ )oderate 7+ 0&-0& (asy

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0 0&-0! (asy 1 0&-0$ (asy 72 0&-0& )oderate1 0&-0" (asy 1+ 0&-0$ (asy 77 0&-0& )oderate2 0&-0" (asy 1 0&-0$ (asy

Exer'(se#OtherNo

%Ob e't()

e!(**('"lty No

%Ob e't()e !(**('"lt

yNo

%Ob e't()

e!(**('"lt

y+ 0&-01 (asy 7 0&-0" (asy +. 0&-0$ )oderate

0&-02 (asy 3 0&-0" (asy +0 0&-0$ )oderate. 0&-02 (asy / 0&-0" (asy +1 0&-0% )oderate0 0&-0! (asy + 0&-0$ (asy +2 0&-0% )oderate1 0&-0! (asy ++ 0&-0$ )oderat

e+7 0&-0& (asy

2 0&-0! (asy + 0&-0$ )oderate

5roble6No

%Ob e't()

e!(**('"lty No

%Ob e't()e !(**('"lt

yNo

%Ob e't()

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y


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !$&

+ 0&-02 (asy 0 0&-0$ Difficult 7 0&-0% )oderate0&-02 )oderate 1 0&-0$ Difficult 3 0&-0% )oderate

. 0&-0$ )oderate 2 0&-0$ )oderate

/ 0&-0% )oderate

Chapter 7 Sarbanes-Oxley, Internal Control, an8 Cash

T UE#$9:SE

1. *he Sarbanes-Oxley Act of 2002 +as passed by ,ongress due to the public outcry after the financialscandals of the early 2000s.

9NS; * D / (asy O / 0&-01 A*/ AA,S (thics 3 A ,4A -5egal

2. Sarbanes-Oxley6s purpose is to impro e financial reporting.9NS; D / (asy O / 0&-01

A*/ AA,S (thics 3 A ,4A -5egal!. *here are t+o internal control objecti es and they are to ensure accurate financial reports7 and ensure

compliance +ith applicable la+s.9NS; D / (asy O / 0&-01

A*/ AA,S (thics 3 A ,4A -5egal

". Sarbanes-Oxley re'uires companies to maintain strong and effecti e internal controls and thus pre ent fraud and misleading financial statements.

9NS; D / (asy O / 0&-01 A*/ AA,S (thics 3 A ,4A -5egal

$. *he Sarbanes-Oxley Act re'uires that financi al statements of all public companies report onmanagement8s conclusions about the effecti eness of the company8s internal control procedures.

9NS; * D / )oderate O / 0&-01 A*/ AA,S (thics 3 A ,4A -5egal

%. *he control en ironment in an internal control structure is the attitude and a+areness ofinternal control by all employees.

9NS; * D / (asy O / 0&-02 A*/ AA,S Analytic 3 A ,4A - ndustry

&. Separating the responsibilities for purchasing7 recei ing7 and paying for e'uipment is anexample of the control procedure/ separating operations7 custody of assets7 and accounting.

9NS; D / (asy O / 0&-02 A*/ AA,S Analytic 3 A ,4A - ndustry


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358 ,hapter & 9Sarbanes-Oxley7 nternal ,ontrol7 : ,ash

;. nternal control is enhanced by separating the control of a transaction from the record-#eeping function.

9NS; * D / (asy O / 0&-02 A*/ AA,S Analytic 3 A ,4A - ndustry


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !$<

1&. An example of good internal controls o er cash payments is the ta#ing of all cash discountsoffered.

9NS; * D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement

1;. A oucher is a form on +hich is recorded pertinent data about a liability and the particularsof its payment.

9NS; * D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement

1


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2%. Depositing all cash7 chec#s7 etc. in a ban# and paying +ith chec#s is an internal control procedure o er cash.

9NS; * D / (asy O / 0&-0" A*/ AA,S Analytic 3 A ,4A -)easurement

2&. or efficiency of operations and better control o er cash7 a company should maintain onlyone ban# account.

9NS; D / (asy O / 0&-0" A*/ AA,S Analytic 3 A ,4A -)easurement

2;. n preparing a ban# reconciliation7 the amount of deposits in transit is deducted from the balance per ban# statement.

9NS; D / (asy O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

2


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !%1

!$. All ban# memorandums reported on the ban# reconciliation re'uire entries in the depositor8saccounts.

9NS; * D / (asy O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

!%. *he ban# reconciliation is an important part of the system of internal controls.9NS; * D / (asy O / 0&-0$

A*/ AA,S Analytic 3 A ,4A -)easurement

!&. *he main reason that the ban# statement cash balance and the depositor8s cash balance donot initially balance is due to timing differences.

9NS; * D / (asy O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

!;. *he ban# reconciles its statement to the depositor8s records.


!


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"". n establishing a petty cash fund7 a chec# is +ritten for the amount of the fund and isrecorded as a debit to Accounts 4ayable and a credit to 4etty ,ash.

9NS; D / (asy O / 0&-0% A*/ AA,S Analytic 3 A ,4A -)easurement

"$. (xpenditures from a petty cash fund are documented by a petty cash receipt.9NS; * D / (asy O / 0&-0%


"%. *he sum of the money on hand and petty cash receipts in a petty cash fund +ill al+ays bee'ual to the balance in the 4etty ,ash account.


"&. =hen the petty cash fund is replenished7 the petty cash account is credited for the total of all

expenditures made since the fund +as last replenished.9NS; D / (asy O / 0&-0% A*/ AA,S Analytic 3 A ,4A -)easurement

";. )ost companies +ho ha e se eral ban# accounts7 petty cash7 and cash on hand7 +ould listeach separately on the balance sheet..


"


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !%!

$". *he doomsday ratio includes both cash and cash e'ui alents in the numerator.9NS; * D / (asy O / 0&-0&


4U:TI5:E C


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$. =hich one of the follo+ing belo+ reflects a +ea# internal control systema. all employees are +ell super ised

b. a single employee is responsible for comparing a recei ing report to an in oicec. all employees must ta#e their acations

d. a single employee is responsible for collecting and recording of cash9NS; D D / (asy O / 0&-02 A*/ AA,S Analytic 3 A ,4A - ndustry

%. nternal control does not consist of policies and procedures thata. protect assets from misuse

b. aid management in directing operations to+ard achie ing business goalsc. guarantee the company +ill not go ban#ruptd. ensure that business information is accurate

9NS; , D / (asy O / 0&-02 A*/ AA,S Analytic 3 A ,4A - ndustry

&. A firm8s internal control en ironment is not influenced bya. management8s operating style

b. organi?ational structurec. personnel policiesd. monitoring policies

9NS; D D / (asy O / 0&-02 A*/ AA,S Analytic 3 A ,4A - ndustry

;. An element of internal control isa. ris# assessment

b. journalsc. subsidiary ledgersd. controlling accounts

9NS; A D / (asy O / 0&-02 A*/ AA,S Analytic 3 A ,4A - ndustry


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !%$

10. n management8s internal control report that is no+ re'uired of all public companies7 +hichof the follo+ing does not ha e a direct effect on a company8s internal control system.a. internal auditors

b. independent accountants

c. oard of Director8s audit committeed. oard of trustees9NS; D D / )oderate O / 0&-02

A*/ AA,S Analytic 3 A ,4A -5egal

11. =hich of the follo+ing should not be considered cash by an accountanta. money orders

b. ban# chec#ing accountsc. postage stampsd. tra elers8 chec#s

9NS; , D / (asy O / 0&-0!

A*/ AA,S Analytic 3 A ,4A -)easurement12. *he cash account in the depositor8s ledger is a@n

a. asset +ith a debit balance b. asset +ith a credit balancec. liability +ith a debit balanced. liability +ith a credit balance

9NS; A D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement

1!. *he notification accompanying a chec# that indicates the specific in oice being paid is

called aa. remittance ad ice b. oucher c. debit memorandumd. credit memorandum


1". *he debit balance in ,ash Short and O er at the end of an accounting period is reported asa. an expense on the income statement

b. income on the income statementc. an asset on the balance sheetd. a liability on the balance sheet



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1$. An example of a pre enti e control isa. the use of a ban# account

b. separation of the 4urchasing Department and Accounting Department personnelc. bonding employees +ho handle cash

d. accepting payment in currency only9NS; D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement

1%. 4rocedures designed to protect cash from theft and misuse from the time it is recei ed untilit can be deposited in a ban# are calleda. accounting controls

b. cash controlsc. pre enti e controlsd. detecti e controls

9NS; , D / (asy O / 0&-0!

A*/ AA,S Analytic 3 A ,4A -)easurement1&. A special form on +hich is recorded pertinent data about a liability and the particulars of its

payment is called a@na. in oice

b. oucher c. debit memorandumd. remittance ad ice

9NS; D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement

1;. ( *a. means (fficient unds *ransfer b. can process certain cash transactions at less cost than by using the mailc. ma#es it easier to document purchase and sale transactionsd. means (ffecti e unds *ransfer


1


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !%&

20. A oucher is usually supported bya. a supplier8s in oice

b. a purchase order c. a recei ing report

d. all of the abo e9NS; D D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement

21. Cnder the oucher system7 e ery transaction is recorded at the time ofa. re'uisitioning

b. orderingc. incurringd. paying

9NS; , D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement

22. *he reconciliation of the cash register tape +ith the cash in the register is an example of a. other controls.

b. independent internal erification.c. establishment of responsibility.d. segregation of duties.


2!. =hich of the follo+ing is not an internal control acti ity for casha. *he number of persons +ho ha e access to cash should be limited.

b. All cash receipts should be recorded promptly.c. *he functions of record #eeping and maintaining custody of cash should be combined.d. Surprise audits of cash on hand should be made occasionally.

9NS; , D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement

2". *he term cash includesa. coins7 currency @paper money 7 chec#s

b. money orders7 and money on deposit that is a ailable for unrestricted +ithdra+alc. short-term recei ablesd. a and b

9NS; D D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement


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2$. On the ban#8s accounting records7 customers8 accounts are normally sho+n asa. debit balances

b. expensesc. an asset

d. a liability9NS; D D / (asy O / 0&-0" A*/ AA,S Analytic 3 A ,4A -)easurement

2%. ,redit memorandums from the ban#a. decrease a ban# customer8s account

b. are used to sho+ a ban# ser ice chargec. sho+ that a company has deposited a customer8s S chec# d. sho+ the ban# has collected a note recei able for the customer

9NS; D D / (asy O / 0&-0" A*/ AA,S Analytic 3 A ,4A -)easurement

2&. A ban# statementa. is a credit reference letter +ritten by the depositor8s ban#.

b. lets a depositor #no+ the financial position of the ban# as of a certain date.c. is a bill from the ban# for ser ices rendered.d. sho+s the acti ity that increased or decreased the depositor8s account balance.

9NS; D D / (asy O / 0&-0" A*/ AA,S Analytic 3 A ,4A -)easurement

2;. =hich one of the follo+ing +ould not cause a ban# to debit a depositor8s accounta. an# ser ice charge

b. ,ollection of a note recei ablec. ,hec#s mar#ed Sd. =iring of funds to other locations

9NS; D / (asy O / 0&-0" A*/ AA,S Analytic 3 A ,4A -)easurement

2


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !%<

!0. A debit or credit memorandum describing entries in the depositor8s ban# account may beenclosed +ith the ban# statement. An example of a credit memorandum isa. deposited chec#s returned for insufficient funds

b. a promissory note left for collection

c. a ser ice charged. notification that a customer8s chec# for B!&$ +as recorded by the depositor as B&!$ onthe deposit tic#et


!1. ollo+ing the completion of the ban# reconciliation7 an adjusting entry +as made thatdebited cash and credited nterest Ee enue. *herefore the ban# reconciliation must ha eincluded an item that +asa. deducted from the balance per depositor8s records

b. deducted from the balance per ban# statement

c. added to the balance per ban# statementd. added to the balance per depositor8s records9NS; D D / (asy O / 0&-0$


!2. A person authori?ed to +rite chec#s dra+n on a chec#ing account at a ban# must sign andha e on file +ith the ban# aa. signature card

b. deposit tic#etc. chec#boo# d. ban# card

9NS; A D / (asy O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

!!. A chec# dra+n by a depositor for B1;0 in payment of a liability +as recorded in the journalas B;10. *his item +ould be included on the ban# reconciliation as a@na. addition to the balance per the depositor8s records

b. addition to the balance per the ban# statementc. deduction from the balance per the ban# statementd. deduction from the balance per the depositor8s records

9NS; A D / )oderate O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement


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!". A chec# dra+n by a depositor for B1;0 in payment of a liability +as recorded in the journalas B;10. =hat entry is re'uired in the depositor8s accountsa. debit Accounts 4ayableF credit ,ash

b. debit ,ashF credit Accounts Eecei able

c. debit ,ashF credit Accounts 4ayabled. debit Accounts Eecei ableF credit ,ash9NS; , D / )oderate O / 0&-0$


!$. A ban# reconciliation should be prepared periodically becausea. the depositor8s records and the ban#8s records are in agreement

b. the ban# has not recorded all of its transactionsc. any differences bet+een the depositor8s records and the ban#8s records should be

determined7 and any errors made by either party should be disco ered and correctedd. the ban# must ma#e sure that its records are correct

9NS; , D / (asy O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

!%. *he ban# reconciliationa. should be prepared by an employee +ho records cash transactions

b. is part of the internal control systemc. is for information purposes onlyd. is sent to the ban# for erification


!&. ournal entries based on the ban# reconciliation are re'uired in the depositor8s accounts fora. outstanding chec#s b. deposits in transitc. ban# errorsd. boo# errors

9NS; D D / (asy O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

!;. Accompanying the ban# statement +as a debit memorandum for ban# ser ice charges. Onthe ban# reconciliation7 the item isa. a deduction from the balance per depositor8s records

b. an addition to the balance per ban# statementc. a deduction from the balance per ban# statementd. an addition to the balance per depositor8s records



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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !&1

!


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"". Accompanying the ban# statement +as a credit memorandum for a short-term note collected by the ban# for the depositor. *his item is a@na. deduction from the balance per depositor8s records

b. addition to the balance per ban# statement

c. deduction from the balance per ban# statementd. addition to the balance per depositor8s records9NS; D D / )oderate O / 0&-0$


"$. Accompanying the ban# statement +as a credit memorandum for a short-term note collected by the ban# for the customer. =hat entry is re'uired in the depositor8s accountsa. debit otes Eecei ableF credit ,ash

b. debit ,ashF credit )iscellaneous ncomec. debit ,ashF credit otes Eecei abled. debit Accounts Eecei ableF credit ,ash

9NS; , D / )oderate O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

"%. *he amount of deposits in transit is included on the ban# statement as a@na. deduction from the balance per the depositor8s boo#s

b. deduction from the balance per ban# statementc. addition to the balance per ban# statementd. addition to the balance per depositor boo#s


"&. *he amount of the outstanding chec#s is included on the ban# reconciliation as a@na. deduction from the balance per depositor8s records b. addition to the balance per ban# statementc. deduction from the balance per ban# statementd. addition to the balance per depositor8s records


";. =hich of the follo+ing items that appeared on the ban# reconciliation did not re'uire anadjusting entrya. ban# ser ice charges

b. deposits in transitc. S chec#sd. A chec# for B$207 recorded in the chec# register for B2$0.



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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !&!

"


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$". =hich of the follo+ing +ould be deducted from the balance per boo#s on a ban#reconciliationa. Ser ice charges

b. Outstanding chec#s

c. Deposits in transitd. otes collected by the ban# 9NS; A D / (asy O / 0&-0$


$$. =hich of the follo+ing +ould be added to the balance per boo#s on a ban# reconciliationa. Ser ice charges

b. Outstanding chec#sc. Deposits in transitd. otes collected by the ban#

9NS; D D / (asy O / 0&-0$

A*/ AA,S Analytic 3 A ,4A -)easurement$%. =hich of the follo+ing +ould be subtracted from the balance per boo#s on a ban#

reconciliationa. Outstanding chec#s

b. Deposits in transitc. otes collected by the ban# d. Ser ice charges


$&. =hich of the follo+ing +ould be subtracted from the balance per ban# on a ban#reconciliationa. Outstanding chec#s

b. Deposits in transitc. otes collected by the ban# d. Ser ice charges


$;. A ban# reconciliation should be prepareda. +hene er the ban# refuses to lend the company money.

b. to explain any difference bet+een the depositor8s balance per boo#s +ith the balance per ban#.

c. +hen an employee is suspected of fraud.d. by the person +ho is authori?ed to sign chec#s.



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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !&$

$


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a. B!70&$. b. B27


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !&&

%". A B100 petty cash fund has cash of B1; and receipts of B;0. *he journal entry to replenishthe account +ould include aa. credit to 4etty ,ash for B;".

b. debit to ,ash for B;0.

c. debit to ,ash O er and Short for B2.d. credit to ,ash for B;09NS; , D / (asy O / 0&-0$


%$. A B100 petty cash fund has cash of B1% and receipts of B;%. *he journal entry to replenishthe account +ould include aa. credit to 4etty ,ash for B;%.

b. debit to ,ash for B;%.c. credit to ,ash O er and Short for B2.d. credit to ,ash for B;0


%%. (ntries are made to the 4etty ,ash account +hena. ma#ing payments out of the fund.

b. recording shortages in the fund.c. replenishing the petty cash fund.d. establishing the fund.


%&. *he type of account and normal balance of 4etty ,ash is a@na. re enue7 credit b. asset7 debitc. liability7 creditd. expense7 debit


%;. *he debit recorded in the journal to reimburse the petty cash fund is toa. 4etty ,ash

b. Accounts Eecei ablec. ,ashd. arious accounts for +hich the petty cash +as disbursed

9NS; D D / (asy O / 0&-0% A*/ AA,S Analytic 3 A ,4A -)easurement


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%

c. debit to ,ash Short and O er for B1.$0d. credit to ,ash Short and O er for B1.$09NS; , D / )oderate O / 0&-0%


&0. A B100 petty cash fund has cash of B1% and receipts of B;0. *he journal entry to replenishthe account +ould include a credit toa. ,ash for B;0.

b. ,ash O er and Short for B".c. 4etty ,ash for B;".d. ,ash for B;".

9NS; D D / (asy O / 0&-0% A*/ AA,S Analytic 3 A ,4A -)easurement

&1. ,ash e'ui alents includea. chec#s

b. coins and currencyc. money mar#et accounts and commercial paper d. stoc#s and short-term bonds

9NS; , D / (asy O / 0&-0& A*/ AA,S Analytic 3 A ,4A -)easurement

&2. ,ash e'ui alentsa. are illegal in some states b. +ill be con erted to cash +ithin t+o yearsc. +ill be con erted to cash +ithin


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !&<

&". During 200&7 ,reati e nc has monthly cash expenses of B1$07000. On December !17 200&7their cash balance is B17$$07000. *he ratio of cash to monthly cash expenses isa.


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E=E CISE#OT


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !;1

". *he follo+ing selected transactions relate to cash collections for a firm that maintains aB100 change fund at all times. 4resent entries to record the transactions for each of the t+odays of cash receipts from sales.

@a Actual cash in cash register7 B!7012.2%F cash receipts per cash register tally7B27


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%. *he actual cash recei ed during the +ee# ended anuary & for cash sales +as B1&7$"&.007and the amount indicated by the cash register total +as B1&7$"1.00. ournali?e the entry torecord the cash receipts and cash sales.

Jo"rnal

!ate !es'r(pt(on 5oste* !eb(t Cre8(t

9NS;

Jo"rnal

!ate !es'r(pt(on5ost

e* !eb(t Cre8(t

an & ,ash 1&7$"&.00 Sales 1&7$"1.00 ,ash Short and O er %.00

D / (asy O / 0&-0! A*/ AA,S Analytic 3 A ,4A -)easurement

&. 5ist the principal ad antage of (lectronic unds *ransfers.9NS;Ad antage/ more efficient transfer and recording of cash among companies.D / (asy O / 0&-0"

A*/ AA,S *echnology 3 A ,4A -5e eraging *echnology

;. =hy +ould a ban# re'uire a company to maintain a compensating balance9NS;Csually it is part of a loan agreement or line of credit.D / (asy O / 0&-0"

A*/ AA,S Analytic 3 A ,4A - ndustry


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !;!

ndicate +hether the item +ould appear as debit or credit memorandum on the ban#statement and +hether the item +ould increase or decrease the balance of your account. Csethe follo+ing format/

Appears on the

an# Statement as a ncreases @Decreases thea Debit or ,redit alance of the Depositor6stem o. )emorandum an# Account

9NS;Appears on the

an# Statement as a ncreases @Decreases thea Debit or ,redit alance of the Depositor6s

tem o. )emorandum an# Account1. Debit )emorandum Decreases2. ,redit )emorandum ncreases

!. Debit )emorandum Decreases". Debit )emorandum Decreases

D / (asy O / 0&-0" A*/ AA,S Analytic 3 A ,4A -)easurement *O4/ (xample (xercise &-2

10. Csing the follo+ing ban# reconciliation for ,ole ,o. for )ay !17 200&7 record theappropriate journal entries that +ould be necessary.

,ole ,o.an# Eeconciliation

)ay !17 200&

,ash balance according to ban# statement B!7012Add deposits in transit not recorded by ban# &0"

B!7&1%Deduct outstanding chec#s $


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11. Csing the follo+ing ban# reconciliation for Allen ,o. for une !07 200&7 record theappropriate journal entries that +ould be necessary.

Allen ,o.

an# Eeconciliationune !07 200&

,ash balance according to ban# statement B;7000.00Add deposits in transit not recorded by ban# $00.00

B;7$00.00Deduct outstanding chec#s 27200.00Adjusted balance B%7!00.00,ash balance according to depositor8s records B!7%&$.00Add/ ote collected by ban#7 including B$0 interest B27;$0.00

(rror in recording cash sales of B!"2 as B!2" 1;.00 27;%;.00B%7$"!.00

Deduct/ S chec# from Alice ell B 21;.00 an# ser ice charges 2$.00 2"!.00Adjusted balance B%7!00.00

9NS;,ash 27;%;.00 otes Eecei able 27;00.00 nterest Ee enue $0.00

Sales 1;.00Accounts Eecei able-Alice ell 21;.00)iscellaneous Administrati e (xpense 2$.00 ,ash 2"!.00

D / )oderate O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

12. Csing the follo+ing information7 prepare a ban# reconciliation for ,ole ,o. for )ay !17200&/

@a *he ban# statement balance is B!7012.@b *he cash account balance is B!71%$.@c Outstanding chec#s amounted to B$


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !;$

9NS;

,ole ,o.an# Eeconciliation

)ay !17 200&

,ash balance according to ban# statement B!7012Add deposits in transit not recorded by ban# &0"

B!7&1%Deduct outstanding chec#s $


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1". Csing the follo+ing information7 prepare a ban# reconciliation for ature ,o. for uly !17200&/

@a *he ban# statement balance is B"70%2

@b *he cash account balance is B"71%$.@c Outstanding chec#s amounted to B%"0.@d Deposits in transit are B&0".@e *he ban# ser ice charge is B!0.@f A chec# for B&% for supplies +as recorded as B%& in the ledger.

9NS;

ature ,o.an# Eeconciliation

uly !17 200&

,ash balance according to ban# statement B"70%2Add deposits in transit not recorded by ban# &0"

B"7&%%Deduct outstanding chec#s %"0Adjusted balance B"712%,ash balance according to depositor8s records B"71%$Deduct/ an# ser ice charge B !0 (rror in recording < !<Adjusted balance B"712%

D / )oderate O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

1$. ournali?e the entries to record the follo+ing/an 1 (stablished a petty cash fund of B$00.00an !1 *he amount of cash in the petty cash fund is no+ B12!.00. *he fund is

replenished based on the follo+ing receipts/ office supplies7 B21$.00F sellingexpenses7 B1%;.00.Eecord any discrepancy in the cash short and o er account.


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !;&

Jo"rnal


e* !eb(t Cre8(t

9NS;

Jo"rnal


e* !eb(t Cre8(tan 1 4etty ,ash $00.00

,ash $00.00

an !1 Office Supplies 21$.00Selling (xpenses 1%;.00 ,ash Short and O er %.00 ,ash !&&.00

D / )oderate O / 0&-0% A*/ AA,S Analytic 3 A ,4A -)easurement *O4/ (xample (xercise &-"

1%. On anuary 2nd )ega Sales decides to establish a B100.00 4etty ,ash Account to relie e the burden on Accounting.@a ournali?e this e ent.@b On anuary 10th the petty cash fund has receipts for mail and postage of

B!&.$07 contributions and donations of B1".&$7 meals and entertainment ofB!%.2$ and B11.2$ in cash. ournali?e the replenishment of the fund.

@c On anuary 11th )ega Sales decides to increase petty cash to B200.00.ournali?e this e ent.


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9NS;@a an 2 4etty ,ash 100.00

,ash 100.00

@b an 10 )ail and 4ostage (xpense !&.$0,ontributions and Donations (xpense 1".&$)eals and (ntertainment (xpense !%.2$,ash O er and Cnder 0.2$ ,ash ;;.&$

@c an 11 4etty ,ash 100.00 ,ash 100.00

D / )oderate O / 0&-0% A*/ AA,S Analytic 3 A ,4A -)easurement *O4/ (xample (xercise &-"

1&.@a =here are cash e'ui alents disclosed in the financial statements@b 5ist three examples of cash e'ui alents.

9NS;@a ,ash account on the balance sheet.@b )oney mar#et fundsF notes of major corporations @commercial paper F Cnited

States *reasury ills.

D / (asy O / 0&-0& A*/ AA,S Analytic 3 A ,4A -)easurement


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !;<

5 OB:E4

1. 5ist and define each of the fi e elements of internal control.9NS;

@1 ,ontrol (n ironment. *he control en ironment is the o erall attitude ofmanagement and employees about the importance of internal controls.@2 Eis# assessment. Eis# assessment is the identification of ris#s faced by an

organi?ation so that management can ta#e necessary actions to control them.@! ,ontrol 4rocedures. *he control procedures are the policies and procedures

designed to pro ide reasonable assurance that the business goals are met andfraud is pre ented.

@" )onitoring. )onitoring locates deficiencies in the internal control systemand impro es control effecti eness.

@$ nformation and ,ommunication. nformation and communication tomanagement about the control en ironment7 ris# assessment7 control

procedures7 and monitoring elements of internal control are needed bymanagement to guide operations and ensure compliance +ith reporting7legal7 and regulatory re'uirements.

D / (asy O / 0&-02 A*/ AA,S Analytic 3 A ,4A - ndustry


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2. *+o features of internal control are presented in the follo+ing sections. (ach is follo+ed bya list of four irregularities that occurred in processing data. dentify the one irregularity fromeach list that +ould be disco ered or pre ented by the feature of internal control described.

@a *he sum of the balances of the accounts in the customers ledger is compared at theend of each month +ith the balance of the accounts recei able account in thegeneral ledger by a person +ho has no responsibility for maintaining either thegeneral ledger or the customers ledger.

@1 i e hours of ser ices +ere rendered but the customer +as only billed for fourhours.

@2 A cash receipt of B&$0 +as recorded correctly in the accounts recei ablecontrolling account but +as posted to the customers ledger as B&$.

@! A bill for ser ices rendered to ,ole ,o. +as erroneously posted to the accountof ,oleman ,o. in the customers ledger.

@" o entry +as made in the accounting records for ser ices rendered to acustomer.

@b oth cash and credit charges for ser ices rendered are recorded on prenumberedin oices. At the end of the day7 all in oices are accounted for before the duplicatecopies of the in oices are routed to the accounting department for entry into theaccounts and the cash is sent to the cashier8s department for deposit.

@1 Some charge customers complained that the monthly statements of account didnot add all amounts correctly.

@2 Some cler#s used incorrect hourly rates in preparing in oices.

@! Some cler#s destroyed duplicate copies of cash in oices and misappropriatedthe cash.@" Some charge customers complained that the monthly statement of account did

not indicate credits for payments made.

9NS;@a @2@b @!

D / )oderate O / 0&-02 A*/ AA,S Analytic 3 A ,4A -)easurement


37/43


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". =estern lyers recei ed its ban# statement for the month of uly +ith an ending balance ofB1170%$.00. =estern lyers determined that chec# I$


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !

D / Difficult O / 0&-0$ A*/ AA,S Analytic 3 A ,4A -)easurement

$. ig Kault an# sent 4aper 4unchers their end of month ban# statement for )arch. *he end

of month balance by the ban# is B


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%. *he cash account for L5 ,o. on )arch !17200& indicated a balance of B1%7"$0.00. *he)arch ban# statement indicated an ending balance of B1;7!"$.00. ,omparing the ban#statement7 the canceled chec#s7 and the accompanying memorandums +ith the recordsre ealed the follo+ing reconciling items/

@a ,hec#s outstanding totaled B!7%20.00@b A deposit of B"7"


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !: Co%Ban? e'on'(l(at(on

4ar'h .+, 7,ash balance according to ban# statement B1;7!"$.00Add/ Deposits not recorded by ban# "7"


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9NS;@a eb ! 4etty ,ash 100.00

,ash 100.00

@b eb 11 )ail and 4ostage (xpense !%.&$,ontributions and Donations (xpense 1$.2$)eals and (ntertainment (xpense !$.$0 ,ash O er and Cnder 0.2$ ,ash ;&.2$

@c eb 12 4etty ,ash 100.00 ,ash 100.00

D / )oderate O / 0&-0% A*/ AA,S Analytic 3 A ,4A -)easurement

;. 4resent entries to record the follo+ing transactions/

@a (stablished a petty cash fund of B!$0.@b *he petty cash fund no+ has a balance of B&$.;0. Eeplenished the fund7 based on

the follo+ing disbursements as indicated by a summary of the petty cash receipts/office supplies expense7 B;


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Chapter 7 /Sarbanes-Oxley, Internal Control, & Cash !

ch07 sarbanes-oxley, internal control, & cash

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