Q: A company receives an electronic funds transfer (EFT) from a customer that was not previously recorded. What journal entry should be made?

$$\text{Cash} \quad \text{Dr} \\ \text{Accounts Receivable} \quad \text{Cr}$$

Q: A company receives a bank statement showing a service charge of $25 that was not recorded in the books. What is the correct journal entry?

$$\text{Bank Charges Expense} \quad \text{Dr} \\ \text{Cash} \quad \text{Cr}$$

Question 1

Which of the following is NOT one of the five primary components of a good internal control system?

Accepted Answer

Financial forecasting

Question 2

A company assigns each cashier responsibility for their own cash drawer. This is an example of which control activity?

Accepted Answer

Assignment of responsibility

Question 3

Which of the following best describes the limitation of internal control systems?

Accepted Answer

They can only provide reasonable assurance due to factors such as human error and collusion.

Question 4

Which control activity is demonstrated when a company uses computer passwords and security cameras to protect its assets?

Accepted Answer

Physical controls

Question 5

A company receives an electronic funds transfer (EFT) from a customer that was not previously recorded. What journal entry should be made?

Accepted Answer

$$	ext{Cash} \quad 	ext{Dr} \ 	ext{Accounts Receivable} \quad 	ext{Cr}$$

Question 6

Which of the following is considered cash for reporting purposes?

Accepted Answer

Coins, currency, cheques, and money orders accepted by the bank for deposit

Question 7

During a bank reconciliation, which item would be added to the balance per bank statement?

Accepted Answer

Deposits in transit

Question 8

If a company discovers a bank error that understated its deposit by $500, what is the correct adjustment on the bank reconciliation?

Accepted Answer

Add $500 to the balance per bank

Question 9

Which of the following is a key reason for segregating duties in cash handling?

Accepted Answer

To reduce the risk of errors and fraud by dividing authorization, recording, and custody among different individuals

Question 10

A company’s bank statement shows a balance of $$12,000. There are 2$$,000 in deposits in transit and $1,500 in outstanding cheques. What is the adjusted cash balance per bank?

Accepted Answer

$$12,000 + 2,000 - 1,500 = 12,500$$

Question 11

Which of the following would NOT require a journal entry during the bank reconciliation process?

Accepted Answer

Outstanding cheques

Question 12

If a company’s cash account is in overdraft at year-end, how is it reported on the statement of financial position?

Accepted Answer

As a current liability called bank indebtedness

Question 13

Which of the following is an example of fraud as defined in financial accounting?

Accepted Answer

Recording expenses as assets

Question 14

Which control activity is best illustrated by the use of original, detailed receipts for all transactions?

Accepted Answer

Documentation

Question 15

A company receives a bank statement showing a service charge of $25 that was not recorded in the books. What is the correct journal entry?

Accepted Answer

$$	ext{Bank Charges Expense} \quad 	ext{Dr} \ 	ext{Cash} \quad 	ext{Cr}$$

Question 16

Which of the following is a cash equivalent?

Accepted Answer

A 3-month government treasury bill

Question 17

Why is it important for companies to deposit cash receipts daily or by electronic funds transfer?

Accepted Answer

To reduce the risk of theft and ensure accurate recording

Question 18

Which of the following is a reconciling item per books in a bank reconciliation?

Accepted Answer

EFT payments not previously recorded

Question 19

A company’s cash balance per books is $$8,953. After reconciling, the following adjustments are made: add electronic receipts 1$$,276, subtract bank service charge $$40, and add deposit in transit 1$$,968. What is the adjusted cash balance per books?

Accepted Answer

$$8,953 + 1,276 - 40 = 10,189$$

Chapter 7: Internal Control and Cash – Financial Accounting Study Notes

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