Test 2 Chap 6-12

Question 1

Another name for a cash payments journal when the journal has a column for check numbers

Answer 1

Check register

Question 2

Journal (referred to as book of original entry) in which all vouchers are recorded after they have been approved.

Answer 2

Voucher register

Question 3

Document containing a checklist of steps necessary for approving the recording and payment of an invoice; also called check authorization.

Answer 3

Invoice approval

Question 4

Form used to report that ordered goods were received and to describe their quantity and condition

Answer 4

receiving report

Question 5

Itemized record of goods prepared by the vendor that lists the customer’s name, items sold, sales prices, and terms of sale.

Answer 5

Invoice

Question 6

Document used by the purchasing department to place an order with a seller (vendor)

Answer 6

Purchase order

Question 7

Document listing merchandise needed by a department and requesting it be purchased

Answer 7

Purchase requisition

Question 8

Measure of the liquidity of receivables, computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365; also called days’ sales in receivables

Answer 8

Days’ sales uncollected

Question 9

Add interest earned and unrecorded cash receipts
Subtract bank fees and NSF checks
Add or subtract corrections of book errors

Answer 9

Book Balance Adjustments

Question 10

Add deposits in transit
Subtract outstanding checks
Add or subtract corrections of bank errors

Answer 10

Bank Balance Adjustments

Question 11

Checks written and recorded by the depositor but not yet paid by the bank at the bank statement date.

Answer 11

Outstanding checks

Question 12

Deposits recorded by the company but not yet recorded by its bank

Answer 12

Deposits in transit

Question 13

Report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement, for purposes of computing the adjusted cash balance.

Answer 13

Bank reconciliation

Question 14

• Bank service fees
  -Checks deposited that are uncollectible
  -Corrections of previous errors
  -Withdrawals through ATMS
  -Payments arranged in advance by a depositor

Answer 14

Usual deductions on banks statement:

Question 15

Checks that the bank has paid and deducted from the depositor’s account.

Answer 15

Canceled checks

Question 16

Bank report on the depositor’s beginning and ending cash balances, and a listing of its changes( deposits and withdrawals), for a period.

Answer 16

Bank Statement

Question 17

Use of electronic communication to transfer cash from one party to another.

Companies use because convenience and low cost
(payrolls, rent, utilities, insurance and interest payments)

Answer 17

Electronic funds transfer (EFT)

Question 18

maker: who signs check
payee: recipient of check
bank( payer): on which the check is drawn

Answer 18

3 parties involving a check

Question 19

(to withdraw money used by depositor) Document signed by a depositor instructing the bank to pay a specified amount to a designated recipient

Answer 19

Check

Question 20

Lists items such as currency, coins, and checks deposited and their corresponding dollar amounts (bank gives customer as proof of receipt)

Answer 20

Deposit ticket

Question 21

Includes the signature of each person authorized to sign checks on the bank account. (verifies signatures)

Answer 21

Signature Card

Question 22

Used to deposit money for safekeeping and helps control withdrawls

Answer 22

Bank Account

Question 23

Debit: Cash
Credit: Petty cash

Answer 23

Record decrease of petty cash fund

Question 24

Debit: merchandise inventory/any expenses
Credit: Cash

Answer 24

Record petty cash payments report and reimburse the fund

Question 25

Debit: petty cash (asset) Credit: Cash ***After the petty cash fund is established, the Petty Cash account is not touched again unless the amount of the fund is changed***

Answer 25

Record the setup of petty cash fund/increase petty cash fund

Question 26

Small amount of cash in a fund to pay minor expenses; accounted for using an imprest system.

Answer 26

Petty Cash

Question 27

Procedures and approvals designed to control cash payments and acceptance of liabilities: -verifying, approving, and recording liabilities for cash payment -issuing checks for payment of these approved, verified, and recorded liabilities

Answer 27

Voucher System

Question 28

-require all payments to be made by check -deny access to accounting records to anyone other than the owner who has authority to sign checks -voucher and petty cash system

Answer 28

Controls of Cash payment

Question 29

Debit: Cash and Cash over and short Credit: Sales

Answer 29

Record cash sales and its shortage:

Question 30

Debit: Cash Credit: Cash Over and Short and Sales

Answer 30

Record cash sales and its overage:

Question 31

Income statement account used to record cash overages and cash shortages arising from errors in cash receipts or payments (this would be an expense account)

Answer 31

Cash over and short

Question 32

The cashier and clerk have access to the cash but no access to the accounting records. The supervisor has access to the records for cash but not the actual cash.

Answer 32

Over the counter cash receipts flow

Question 33

- Encourage collection of receivables - Delay payment of liabilities - Keep only necessary assets - Plan expenditures - Invest excess cash

Answer 33

Cash management strategies:

Question 34

Treasurer

Answer 34

Who is responsible for cash management?

Question 35

1. Plan cash receipts to meet cash payments when due 2. Keep a minimum level of cash necessary to operate

Answer 35

Goals of cash management

Question 36

Short-term investment assets that are readily convertible to a known cash amount or sufficiently close to their maturity date (usually within 90 days) so that market value is not sensitive to interest rate changes.

Answer 36

Cash equivalents

Question 37

Includes currency, coins, and amounts on deposit in bank checking or savings accounts (checks and money orders)

Answer 37

Cash

Question 38

Resources such as cash that are easily converted into other assets or used to pay for goods, services, or liabilities

Answer 38

Liquid Assets

Question 39

Availability of resources to meet short-term cash requirements

Answer 39

Liquidity

Question 40

1. Handling cash is separate from recordkeeping of cash 2. Cash receipts are promptly deposited in a bank 3. Cash Payments are made by check or electronic funds transfer (EFT)

Answer 40

Internal control guidelines to protect cash

Question 41

costs of internal controls should not exceed their benefits

Answer 41

Cost benefit constraint

Question 42

Highlights three factors that push a person to commit fraud: opportunity, pressure, and rationalization

Answer 42

Fraud Triangle

Question 43

- human error or fraud - cost-benefit constraint

Answer 43

Limitations of Internal control

Question 44

Technology used to create a secure ledger of transactions

Answer 44

Blockchain

Question 45

- Credit card theft - Computer Viruses - Identity theft

Answer 45

E-Commerce transactions are involved with what risks:

Question 46

- establish responsibility - maintain records - insure assets/bond key employees - separate recordkeeping from custody of assets - divide responsibility for related transactions - apply technological controls perform reviews

Answer 46

Principles of Internal Control:

Question 47

- Company must have effective internal controls - Auditors must evaluate internal controls - Violators receive harsh penalties -Auditors' work is overseen by the Public Company Accounting Oversight Board (PCAOB)

Answer 47

Requirements of SOX act:

Question 48

Requires managers and auditors of companies who stock is traded on exchange to document and verify internal controls. Some of the requirements include:

Answer 48

What is the Sarbanes-Oxley Act (SOX)?

Question 49

Prevent avoidable losses, plan operations, and monitor company and employee performance

Answer 49

What do managers use internal control system for?

Question 50

All policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies

Answer 50

What is internal control system?

Question 51

Debit: Accounts Receivable Credit: Sales

Answer 51

record credit sale to company

Question 52

debit cash credit accounts receivable

Answer 52

Record a collection of cash from a prior credit sale

Question 53

- the seller does not have to decide who gets credit and how much - seller avoids risk of the customers not paying it -seller typically receives cash from the card company sooner -more credit options lead to more sales

Answer 53

Why do sellers allow customers to use debit and credit cards?

Question 54

Debit Cash and Credit card expense Credit sales

Answer 54

Record credit card expense as selling expense

Question 55

Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit; also called uncollectible accounts

Answer 55

bad debts

Question 56

Method that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate bad debts.

Answer 56

direct write-off method

Question 57

Debit: Bad debts expense Credit: Accounts receivable

Answer 57

Record uncollectible amount (direct write off)

Question 58

Debit: Cash Credit: Accounts Receivable

Answer 58

Recover a bad debt (direct write off)

Question 59

1. expense recognition: requires expenses to be reported in the same period as the sales they helped produce 2. Materiality constraint: GAAP permits the use of the simple, low cost direct write off method when its results approximate those using the allowance method

Answer 59

2 concepts when considering the direct write-off method

Question 60

Procedure that (a) estimates and matches bad debts expense with its sales for the period and/or (b) reports accounts receivable at estimated realizable value.

Answer 60

Allowance method

Question 61

Debit: Bad debts expense Credit: Allowance for doubtful accounts

Answer 61

Record estimate of the accounts receivable uncollectible

Question 62

Contra asset account with a balance approximating uncollectible accounts receivable; also called

Answer 62

Allowance for doubtful accounts

Question 63

Debit: Allowance for doubtful accounts Credit: Account receivable

Answer 63

Record write off of uncollectible account (allowance method)

Answer 64

Percent of receivables method