Question 1

Identify each of the following items as either (a)cash or (b)cash equivalent._____ 1. Coins_____ 2. Petty cash_____ 3. Three-month certificate of deposit_____ 4. Currency_____ 5. Certified cheque_____ 6. Cashier's cheque_____ 7. Loose change in a coffee tin_____ 8. Money orders

Accepted Answer

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Question 2

Discuss the purpose of an internal control system.

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Question 3

The quick ratio differs from the current ratio:

Accepted Answer

The quick ratio excludes prepaid expenses and inventory from current assets to measure a company's ability to meet short-term obligations without relying on the sale of inventory.

Question 4

Identify how each of the following items would be treated on a bankreconciliation by entering one of the following codes in the space provided.  1. Outstanding cheques.2. Deposits in transit.3. Cheque #32, subtracted from the bank balance on last month's bank reconciliation, was returned with this month's statement.4. Included with the bank statement was a debit memo for bank servicecharges.5. Cash receipts placed in the bank's night depository after banking hours were not included on the bank statement prepared on the same date.6. Cheque #47 was written and recorded by the bank as $753. The business recorded the cheque as $735.7. A cheque listed as outstanding on last month's bank reconciliation was not returned with the current month's cancelled cheques.8. A deposit listed as outstanding on last month's bank reconciliationappeared as a deposit on the current month's bank statement.9. A credit memo enclosed with the bank statement shows that the bank collected a note on behalf of the account holder.10. A debit memo enclosed with the bank statement shows that the bankpaid a note on behalf of the account holder.

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Question 5

Liquidity problems exist for a company when its quick ratio:

Accepted Answer

A quick ratio below 1 to 1 indicates that the company may have difficulty meeting its short-term obligations with its current assets. This is a sign of liquidity problems. The industry average is not as relevant in this context, as a company may have unique factors that affect its liquidity. A quick ratio higher than 1 to 1 may indicate that the company is holding excess assets that could be invested elsewhere, but it does not necessarily indicate liquidity problems.

Question 6

Explain the difference between cash and cash equivalents.

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Question 7

In reconciling the bank balance, the amount of an unrecorded bank service charge should be:

Accepted Answer

An unrecorded bank service charge should be deducted from the book balance of cash because it represents an expense that reduces the cash balance in the company's records.

Question 8

Identify the principles of internal control.

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Question 9

J.C. Penney's total quick assets were $5,888 million. Its current assets were $11,700. Its current liabilities were $8,000. The quick ratio is:

Accepted Answer

Quick ratio = Quick assets / Current liabilities= 5,888 / 8,000= 0.74

Question 10

What is the purpose of the petty cash account?

Accepted Answer

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Question 11

Z-Mart made a bank deposit on September 30 that did not appear on September's bank statement. In preparing September's bank reconciliation, the company should:

Accepted Answer

The deposit is an outstanding deposit that has not yet been recorded by the bank, so it should be added to the bank statement balance to reconcile the bank statement with the company's records.

Question 12

The quick assets are:

Accepted Answer

Quick assets are those that can be quickly converted into cash, such as cash itself, short-term investments, and accounts receivable.

Question 13

Outstanding cheques are cheques that:

Accepted Answer

Outstanding cheques are cheques that have been written, recorded on the company books, and sent to the payees, but have not yet been paid by the bank. This means that the company has already recorded the transaction as an expense or a payable, but the bank has not yet deducted the funds from the company's account to pay for the cheque.

Question 14

Discuss how the principles of internal control apply to cash receipts.

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Question 15

Identify whether each of the following items affects the bank side or the book side of a bank statement reconciliation._____ (1)Bank service charges_____ (2)Outstanding cheques_____ (3)Deposits in transit_____ (4)NSF cheque_____ (5)Interest on a chequing account_____ (6)The bank recorded a cheque for $958The bank printed cheques for the depositor._____ (8)Debit memo_____ (9)Credit memo_____ (10)The bank collected a $1,000 note for the depositor.

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Question 16

You just joined XYZ Company as their junior accountantbalance of cash in XYZ's general ledger on June 30?

Accepted Answer

The question provides the balance of the bank statement ($14,570) as of June 30. The bank statement balance represents the actual balance in the bank account, while the general ledger balance represents the company's records. Items that may cause a difference between the two balances include outstanding checks, deposits in transit, bank charges, and interest. Since the question does not provide any additional information regarding these items, we can assume that the only difference between the two balances is the bank service charge of $85 ($15,470 - $14,570 = $900 - $85 = $815). Therefore, the general ledger balance on June 30 is $14,570 + $815 = $15,385, which is closest to answer choice C ($14,570 + $900 - $85 = $14,570 + $815 = $15,385).

Question 17

The acid-test ratio:

Accepted Answer

The acid-test ratio is also called the quick ratio and it measures liquidity. Therefore, option D is the correct answer. Option A and B are incorrect because the acid-test ratio does not measure profitability. Option C is not the best choice because it only provides the alternative name for the acid-test ratio without explaining what it measures.

Question 18

Match each of the following items with the appropriate internal control principle(s).(a)Establish responsibility.(b)Maintain adequate records.(c)Insure assets and bond employees.(d)Separate recordkeeping from custody of assetsDivide responsibility for related transactions.(f)Apply technological controls.(g)Perform regular and independent reviews._____ (1)The cashier does not have access to the cash register record tape and file.:_____ (2)Z-Mart uses a voucher system._____ (3)Two clerks share the same cash drawer._____ (4)The bookkeeper prepares and signs cheques._____ (5)Z-Mart uses a computerized point of sale system._____ (6)Z-Mart hires Nelson and McGuire, CAs, to perform an audit._____ (7)Z-Mart buys an insurance policy to protect against employee theft._____ (8)Z-Mart has separate departments for purchasing, receiving, and accounts payable._____ (9)Z-Mart has an internal auditor on staff._____ (10)Z-Mart uses a cheque protector.

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Question 19

A cheque that was outstanding on last month's bank reconciliation was not among the cancelled cheques returned by the bank this month. As a result, in preparing thismonth's reconciliation, the amount of this cheque should be:

Accepted Answer

Since the outstanding cheque did not clear, it means the bank never deducted that amount from the company's account. Therefore, it should be deducted from the bank balance of cash to arrive at the correct ending bank balance for the current month.

Question 20

Z-Mart's current assets were $17,980. Its quick assets were $11,420. Its current liabilities were $12,190. Its quick ratio is:

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Quiz 7: Internal Control and Cash

Identify each of the following items as either (a)cash or (b)cash equivalent.___ 1. Coins_ 2. Petty cash_ 3. Three-month certificate of deposit_ 4. Currency_ 5. Certified cheque_ 6. Cashier's cheque_ 7. Loose change in a coffee tin___ 8. Money orders