Question 1

Which one of the following procedures is incorrect for setting up and maintaining a petty cash fund?

Accepted Answer

The incorrect procedure for setting up and maintaining a petty cash fund is recognizing an increase in the petty cash account when the fund is replenished. Instead, expenses are recorded based on the documentation retained by the petty cash custodian, and the petty cash account balance remains constant.

Question 2

How would customer's NSF checks be dealt with in a bank reconciliation?

Accepted Answer

If a customer's check bounces (NSF), it means that the amount they were supposed to pay to the company was not received by the bank. Therefore, the company's book balance needs to be adjusted by deducting the amount of the NSF check to reconcile with the bank statement balance.

Question 3

Which of the following is an example of a credit memorandum?

Accepted Answer

A credit memorandum is an entry by a bank into a depositor's account, indicating an increase in the account balance. Collection of a note receivable by the bank on behalf of the customer is an example of a transaction that would result in a credit memorandum, as it increases the customer's bank account balance.

Question 4

How would bank service charges be dealt with in a bank reconciliation?

Accepted Answer

Bank service charges are a fee charged by the bank to the company's account for maintaining the account, providing various services, etc. Therefore, these charges will reduce the company's book balance, and they need to be deducted from the book balance while doing the bank reconciliation.

Question 5

How would outstanding checks be dealt with in a bank reconciliation?

Accepted Answer

The answer of How would outstanding checks be dealt with...

Question 6

While reconciling the checking account,an accountant with Sonic Corporation noticed that an error had been made in recording a check received by the company.Sonic recorded the receipt as $729 and the correct amount of the check was $279.What reconciling adjustment is required?

Accepted Answer

Since the company recorded the receipt as $729 instead of the correct amount of $279, this means they have overstated their book balance by $450 ($729 - $279 = $450). Therefore, a reconciling adjustment is required to deduct $450 from the company's book balance to correct the error.

Question 7

Which of the following statements is trueregarding a credit memorandum?

Accepted Answer

A credit memorandum is issued by a bank to increase a company's bank account balance, typically for transactions like the bank collecting a note receivable on behalf of the company or depositing interest earned. Therefore, it is added to the balance per the company's books.

Question 8

If a company erroneously records a $500 deposit as $400 in its books,which of the following must occur when reconciling the bank statement?

Accepted Answer

Since the company erroneously recorded a lesser amount than the actual deposit, the company's books would show a lower balance than what was actually deposited. Therefore, the balance per the books would need to be increased by $100 to reflect the correct amount of the deposit.

Question 9

The accountant for Rogan Corp.was preparing a bank reconciliation as of February 28,2014.The following items were identified:  What amount will Rogan report as its adjusted cash balance at February 28,2014?

Accepted Answer

The answer of The accountant for Rogan Corp.was preparing a...

Question 10

Realistic Sound's unadjusted bank balance amounted to $3,000.Outstanding checks amounted to $500 and deposits in transit totaled $300.Based on this information alone,Realistic's adjusted cash balance is:

Accepted Answer

The answer of Realistic Sound's unadjusted bank balance amounted to...

Question 11

Which of the following is an example of a debit memorandum?

Accepted Answer

The answer of Which of the following is an example...

Question 12

How would interest earned on a checking account be dealt with in a bank reconciliation?

Accepted Answer

Interest earned on a checking account increases the company's book balance because it is income that has not yet been recorded in the company's books.

Question 13

How would deposits in transit be dealt with in a bank reconciliation?

Accepted Answer

The answer of How would deposits in transit be dealt...

Question 14

A debit memorandum appeared on Cinco Inc.'s May bank statement.How will Cinco treat this amount on its May bank reconciliation?

Accepted Answer

A debit memorandum on a bank statement indicates an amount deducted by the bank from the account. Therefore, to reconcile, it should be deducted from the book balance to match the bank's records.

Question 15

If the balance on the bank statement does not equal the balance in the cash account,then it can be assumed that:

Accepted Answer

If the balances do not match, there must be some items that have not yet been accounted for or reconciled. This could include items such as outstanding checks, deposits in transit, bank fees, or interest. Therefore, a reconciling process must take place to find the items that have caused the difference. Option A is incorrect because there could be errors in the company's records. Option B is possible, but it is not always the case. Option C is also possible, but it is not always the case.

Question 16

A credit memorandum appeared on Central Company's bank statement.How will Central treat this amount on its bank reconciliation?

Accepted Answer

The answer of A credit memorandum appeared on Central Company's...

Question 17

Which one of the following items is a reconciling item on the bank side of a bank reconciliation?

Accepted Answer

Outstanding checks are checks that have been issued by the company but have not yet cleared the bank. These items need to be reconciled to ensure that the company's account balance matches the bank's account balance. Canceled checks, NSF checks, and service charges are already recorded in the bank statement and do not require further reconciliation.

Question 18

The set of items below was identified in preparing a bank reconciliation for Heath Corp.as of August 31,2014.  Heath Corp.'s balance per books before the reconciliation is

Accepted Answer

To find the balance per books before the reconciliation, we need to add the deposits in transit and subtract the outstanding checks from the bank statement balance. The bank statement balance given in the set of items is $17,100. Adding the deposits in transit of $150 and subtracting the outstanding checks of $60 (checks #354 and #356), we get a balance per books of $17,190. Therefore, the correct answer is choice C.

Question 19

Flake Company accepted a check from Ramos Company as payment for services rendered by Flake Company.Later Flake's bank statement revealed that Ramos' check was an NSF check.Recognizing the NSF check on Flake's books would act to:

Accepted Answer

The answer of Flake Company accepted a check from Ramos...

Question 20

Which of the following statements is false regarding a credit memorandum?

Accepted Answer

A credit memorandum is added to the balance per the company's books, not subtracted as stated in option D. Credit memos are issued by the bank to increase the customer's account balance, such as for interest earned or for other transactions recorded by the bank on behalf of the customer. A credit memorandum could also be issued by the bank when it collects a note on behalf of the customer, but this is not the only reason for a credit memo.

Quiz 6: Cash and Internal Control