Accounting Chap 7`

Question 1

___ includes currency, coins, checks, money orders, and cashier’s checks

Answer 1

Cash

Question 2

Because ___ plays such a central role in operating a business, a system of ___ is necessary

Answer 2

cash

internal control

Question 3

A set of procedures designed to ensure proper accounting for transactions
Including transactions:
 All cash received should be deposited DAILY in a bank
 All disbursements, except for payments from petty cash, should be made by CHECK

Answer 3

INTERNAL CONTROL

Question 4

When opening a checking account, A ___ must be completed and signed by an authorized person and the depositor’s social security number or employer identification
number (EIN) is shown on the card to identify the depositor.

Answer 4

signature card

Question 5

This card is used to verify the depositor’s signature on any banking transactions

Answer 5

signature card

Question 6

A ___ is a form showing a detailed listing of items being deposited
 Currency, coins, and checks are listed
separately

Answer 6

deposit ticket

Question 7

Checks are identified by their

Answer 7

ABA (American Bankers Association) Numbers

Question 8

 Each check being deposited must be endorsed by the depositor
 Consist of stamping or writing the depositor’s name and sometimes other information on the back of the check

Answer 8

ENDORSEMENTS

Question 9

The depositor simply signs the back of the check.

This makes the check payable to any bearer.

Answer 9

Blank endorsement

Question 10

The depositor adds words such as “For deposit,” “Pay to any bank,” or “Pay to Daryl Beck only” to restrict the payment of the check.

Answer 10

Restrictive endorsement

Question 11

Automated teller machines (ATMs) allow depositors to make deposits or withdrawals at all times.

Answer 11

a) Each depositor has a plastic card.
b) Each depositor has a personal identification number (PIN).
c) It is important for the depositor to keep an accounting record of ATM transactions.

Question 12

A ___ is a document ordering a bank to pay cash from a depositor’s account

Answer 12

check

Question 13

Three parties to each check

Answer 13

drawer
drawee
payee

Question 14

The ___ is the depositor who orders the bank to pay the cash.

Answer 14

drawer

Question 15

The ___ is the bank on which the check is drawn

Answer 15

drawee

Question 16

The ___ is the person being paid the cash

Answer 16

payee

Question 17

Recording methods

Answer 17

a) Check stubs
b) Check register
c) Financial computer software package

Question 18

Steps in preparing a check

Answer 18

a) Complete the check stub or register.
b) Enter the date, payee name, and the amount of the check.
d) Sign the check.

Question 19

The check stub or register should be completed ___ and that the signature is done ___ since it is the actual authorization to the bank to pay the money.

Answer 19

first

last

Question 20

Bank Statement

Answer 20

1. Gives the balance at the beginning of the period.
2. Lists deposits and other amounts added during the period.
3. Lists checks and other amounts subtracted during the period.
4. Gives the balance at the end of the period.
5. Provides the depositor with cancelled checks or the equivalent and any other forms representing items added to or subtracted from the account.

Question 21

With ___ & ___, there can be timing differences between the depositor’s books and the bank’s books

Answer 21

deposits

cash payments

Question 22

Reasons for Differences Between Bank and Book Balances

Answer 22

1. Deposits in transit
2. Outstanding checks
3. Service charges
4. Collections
5. Not sufficient fund (NSF) checks
6. Errors

Question 23

Deposits that have not reached the bank
or been recorded by the bank before the
statement is prepared

Answer 23

Deposits in transit

Question 24

Checks that have not been presented to

the bank for payment before the statement is prepared

Answer 24

Outstanding checks

Question 25

Bank charges for services such as check printing and processing

Answer 25

Service charges

Question 26

Collections of promissory notes or charge accounts made by the bank on behalf of the depositor

Answer 26

Collections

Question 27

Checks deposited but not paid because | the drawer did not have sufficient funds

Answer 27

Not sufficient fund (NSF) checks

Question 28

Errors made by the bank or by the | depositor in recording cash transactions

Answer 28

Errors

Question 29

Steps in Preparing the Bank Reconciliation

Answer 29

1. Identify deposits in transit and any related errors. 2. Identify outstanding checks and any related errors. 3. Identify additional reconciling items

Question 30

Identify deposits in transit and any related errors.

Answer 30

a) Compare deposits listed on the bank statement with deposits in transit on last month’s bank reconciliation. (1) All of last month’s deposits in transit should appear on the current month’s bank statement. b) Compare the remaining deposits on the bank statement with deposits listed in the accounting records. (1) Any deposits listed in the accounting records but not on the bank statement are deposits in transit on the current bank reconciliation. c) Compare the individual deposit amounts on the bank statement and in the accounting records. (1) If they differ, the error needs to be corrected.

Question 31

Identify outstanding checks and any related errors.

Answer 31

a) Compare canceled checks with the bank statement and the accounting records. (1) If the amounts differ, the error needs to be corrected. c) As each canceled check is compared with the accounting records, place a check mark on the check stub or other accounting record to indicate that the check has cleared. c) Any checks written that have not been checked off represent outstanding checks on the bank reconciliation. (1) This includes outstanding checks from last month’s bank reconciliation that have not yet cleared.

Question 32

A depositor’s account is a ___ to the bank. Thus, a credit memo ___ this liability; a debit memo ___ the liability.

Answer 32

liability increases reduces

Question 33

Illustration of a Bank Reconciliation 1. Deposits in transit are ___ to the bank statement balance. 2. Outstanding checks are ___ from the bank statement balance.

Answer 33

added subtracted

Question 34

Illustration of a Bank Reconciliation 3. Error in recording a check a) ___ to the book balance if too much is deducted. b) ___ from the book balance if not enough is deducted. 4. Unrecorded ATM withdrawals are ___ from the book balance.

Answer 34

Add Subtract deducted

Question 35

Illustration of a Bank Reconciliation 5. NSF check amounts are ___ from the book balance. 6. Bank service charges are ___ from the book balance.

Answer 35

deducted deducted

Question 36

BANK RECONCILIATION JOURNAL ENTRIES | Only two kinds of items appearing on a bank reconciliation require journal entries:

Answer 36

1. Errors in the depositor’s books | 2. Bank additions and deductions that do not already appear in the books

Question 37

ALL items in the ___ section of the reconciliation require a journal entry

Answer 37

book balance

Question 38

Journal Entries

Answer 38

1. Errors in the depositor’s books require journal entries. 2. Bank additions and deductions that do not already appear in the books require journal entries. 3. Cash is debited or credited as appropriate. 4. The account for which cash was spent or received is debited or credited as appropriate.

Question 39

Uses a computer rather than paper checks to complete bank transactions.

Answer 39

Electronic Funds Transfer (EFT)

Question 40

A fund set up to pay for small items with cash |  Checks for very small amounts are cumbersome

Answer 40

PETTY CASH FUND

Question 41

Establishing a Petty Cash Fund

Answer 41

1. A check is written to the petty cash custodian for the amount to be set aside in the fund. 2. The custodian cashes the check and places the money in a petty cash box

Question 42

Petty Cash is an asset that is listed immediately ___ Cash on the balance sheet.

Answer 42

below

Question 43

3. The ___ should be the only person authorized to make payments from the petty cash fund.

Answer 43

custodian

Question 44

A receipt prepared for every payment from the petty cash fund

Answer 44

Petty cash vouchers

Question 45

Petty Cash Voucher shows the:

Answer 45

 Name of the payee  Purpose of the payment  Account to be charged for the payment (e.g., Postage Expense)  Signatures of the custodian and payee

Question 46

Making Payments from a Petty Cash Fund

Answer 46

1. Petty cash vouchers should be prepared for each payment from the fund. 2. Vouchers should be signed by the custodian and by the person receiving the cash. 3. Vouchers should be numbered consecutively so that all vouchers can be accounted for.

Question 47

A special multi-column record that supplements the regular accounting records  Provides a record of each petty cash payment  Broken down by account – e.g.: Travel/Entertainment Expense, Postage Expense, etc.  Used to prepare the replenishment journal entry

Answer 47

PETTY CASH PAYMENTS RECORD

Question 48

The petty cash fund should be replenished whenever the fund runs ___ and at the ___ of each accounting period

Answer 48

low end

Question 49

Once the petty cash fund is established by ___ Petty Cash and ___ Cash, no further entries are made to Petty Cash

Answer 49

debiting crediting

Question 50

To replenish the fund, ___ are made to appropriate expense accounts and Cash is ___  Only if the amount of the fund itself is being changed would there be a debit or credit to Petty Cash

Answer 50

debits credited

Question 51

Replenishing the Petty Cash Fund

Answer 51

1. Should be replenished when the fund runs low. 2. Should be replenished at the end of each accounting period. 3. The information in the petty cash payments record is used to replenish the petty cash fund. a) Once the petty cash is established, an entry is made to Petty Cash only if the amount of the fund is being changed. b) In the journal entry to replenish the fund, the debits are to appropriate expense and drawing accounts and the credit is to Cash.

Question 52

A supply of currency and coins kept in the cash register or cash drawer  Allows businesses to make change when customers pay in cash

Answer 52

CHANGE FUND

Question 53

Establish a Change Fund

Answer 53

1. Once established, no further entries are made to the change fund unless the amount of the change fund itself is being changed. 2. The change fund is an asset that is listed immediately below cash on the balance sheet.

Question 54

Used to accumulate cash shortages and overages throughout the accounting period.

Answer 54

Cash Short and Over

Question 55

1. The Cash Short & Over account is ___ when cash is short and ___ when cash is over. 2. At the end of the period, a debit balance in the Cash Short & Over account (a net shortage) is treated as an ___. 3. At the end of the period, a credit balance in the Cash Short & Over account (a net overage) is treated as revenue.

Answer 55

debited credited expense

Question 56

Is the set of procedures, processes, and records established to initiate, process, record, and report the business’s transactions. Accounts for the related assets and liabilities.

Answer 56

Information and Communication System