Financial and Managerial Accounting

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Chapter 7: Cash and Internal Control

Student: ___________________________________________________________________________

1. In a small business, active involvement by the owner can be a practical substitute for the separation of some
duties.
True False

2. An effective system of internal control requires that individuals take periodic vacations.
True False

3. Bonding means insuring a company against loss due to employee theft.

True False

4. Management's regular assessment of its internal controls is part of monitoring.

True False

5. A system of internal control cannot be considered good until the possibility of human error has been
completely eliminated.
True False

6. Proper control procedures can guarantee the prevention of theft.

True False

7. Internal control involves, in part, the protection of a company's assets.

True False

8. Taking a physical inventory is not necessary under a perpetual inventory system.

True False
9. Cash and inventory are very vulnerable to theft.
True False

10. Damaged goods that can be sold at a reduced price should be included in a company’s merchandise
inventory.
True False

11. Merchandisers usually take a physical inventory when the volume of goods is at its lowest levels.
True False

12. Merchandisers usually end their fiscal year during the peak season.
True False

13. Using bar codes to take a physical inventory is considered poor accounting practice.
True False

14. The periodic inventory system provides no means of identifying losses from spoilage, shoplifting, and theft.
True False

15. An understated ending inventory will produce an overstated cost of goods sold.
True False

16. Under the perpetual inventory system, inventory losses can be identified more easily than under the periodic
inventory system.
True False

17. Separation of duties relates to a control activity in the accounting system.

True False

18. It is unlikely that a company would want to bond its employees who handle cash or inventory.
True False
19. Good internal control dictates that one employee should oversee all related parts of a transaction.
True False

20. Bonding provides a guarantee against theft.

True False

21. The degree of separation of duties varies with the size of the business.
True False

22. Under an effective system of internal control, errors occur only as a result of fraud or dishonesty.
True False

23. The use of a cash register is an example of a physical control.

True False

24. The receiving department must compare goods received with goods purchased, as indicated on the purchase
order.
True False

25. Cash received through the mail should be handled by only one employee to achieve effective internal
control.
True False

26. A purchase requisition is a document sent by a company to a vendor.

True False

27. A check authorization is a document that permits the issuance of a check to pay an invoice.
True False

28. It is best that the receiving department not be given a copy of the purchase order or the invoice.
True False
29. Invoices are documents prepared by a vendor and sent to the accounting department of its customers.
True False

30. A remittance advice accompanies a check sent to a vendor or the vendor’s bank.
True False

31. A purchase requisition is prepared after a purchase order.

True False

32. A check authorization would be prepared after a receiving report.

True False

33. In addition to keeping the records of a purchase transaction, the accounting department should prepare and
mail checks in payment of invoices.
True False

34. Effective internal control requires a department to purchase supplies on its own.
True False

35. The treasurer should prepare and sign a check only after a proper check authorization has been provided.
True False

36. Sound internal control activities dictate that extra cash should always be on hand.
True False

37. The purchasing department prepares a purchase requisition addressed to the vendor (seller) containing
instructions related to the items ordered.
True False
38. At the end of each day, the cashier should be the one responsible for comparing the amount on the cash
register tape with the day's cash additions to the cash register.
True False

39. A formal request for a purchase from a requesting department of a business is known as a purchase order.
True False

40. The use of prenumbered documents is important to a good system of internal control.
True False

41. Merchandising companies do not need as good a system of internal control as service companies.
True False

42. An effective system of internal control centralizes functions in a single, capable individual.
True False

43. The taking of a physical inventory is an example of periodic independent verification.

True False

44. When an individual uses a debit card to make a purchase, the amount of the purchase is deducted directly
from the individual’s bank account.
True False

45. Cash equivalents are defined as investments that carry terms of 90 days or less.
True False

46. It is usually a good business practice to maintain as large a balance in the Cash account as possible.
True False

47. Cash equivalents are usually listed as short-term investments on the balance sheet.
True False
48. On a bank reconciliation, interest income would be added to the balance per bank.
True False

49. One example of a periodic independent verification is the bank reconciliation.

True False

50. Management is responsible for establishing a satisfactory system of internal control.

True False

51. The use of electronic funds transfers makes check writing unnecessary.
True False

52. In the financial statements, the balance of the Petty Cash account and the balance of the Cash account are
shown separately.
True False

53. When a petty cash fund is established, the entry contains a credit to Cash.
True False

54. When the balance of a petty cash fund is increased, the entry would contain a credit to Petty Cash.
True False

55. When a petty cash fund is replenished, the entry requires a debit to Petty Cash.
True False

56. When a petty cash fund is replenished, the entry requires a credit to Cash.
True False

57. The petty cash voucher should be kept by the person being reimbursed.
True False
58. One of the best ways to control a petty cash fund is through an imprest system.
True False

59. A petty cash fund is established for small payments for which writing a check would be impractical.
True False

60. The materiality concept dictates that no internal controls be established over petty cash.
True False

61. The amount in the petty cash fund plus the sum of the petty cash vouchers should at all times equal the
amount shown in the Petty Cash account.
True False

62. Cash Short or Over would be debited for a shortage.

True False

63. The financial statements of nonpublic companies are not required to be audited by an independent CPA.
True False

64. To assure an efficient system of internal control, management should authorize all transactions.
True False

65. The Sarbanes-Oxley Act of 2002 does not require any certification from a public company's chief executive
officer about the company's system of internal control.
True False

66. Public companies must have their financial statements audited, but are not required to have their internal
control systems audited.
True False
67. Annual reports of public companies will include statements from both management and independent
auditors regarding the adequacy of internal control.
True False

68. The Sarbanes-Oxley Act has not stopped the occurrence of fraud, and additional guidance with regard to
internal controls is expected to be issued.
True False

69. A physical inventory is usually taken

A. in the middle of the fiscal year.
B. at the peak of the busy season.
C. at the end of the fiscal year.
D. at December 31.

70. A company's merchandise inventory includes all of the following, except

A. goods in warehouses.
B. goods sold, but not yet delivered.
C. goods in transit from suppliers, if title has passed to the merchandiser.
D. goods in trucks between the warehouse and the store.

71. A company's merchandise inventory includes all of the following, except

A. goods in possession, but which cannot be sold.
B. goods on shelves.
C. damaged goods that can be sold at a reduced price.
D. goods in storerooms.

72. Under the perpetual inventory system, the entry to recognize inventory losses usually contains a
A. debit to Cost of Goods Sold.
B. debit to Merchandise Inventory.
C. credit to Gross Margin.
D. credit to Cash.

73. A good system of internal control is designed to achieve all of the following except
A. efficiency of operations.
B. reliability of financial reporting.
C. compliance with relevant laws and regulations.
D. attainment of target sales.
74. All of the following are examples of internal control activities except
A. adequate supervision.
B. rotation of key personnel.
C. customer satisfaction surveys.
D. insistence that employees take earned vacations.

75. Each of the following is a feature of internal control except

A. management planning.
B. periodic independent verification.
C. limited access to assets.
D. authorization of transactions.

76. The bonding of employees is an example of which feature of a good system of internal control?
A. Authorization of transactions
B. Sound personnel policies
C. Separation of duties
D. Limited access to assets

77. Which of the following would not be found in a good system of internal control?
A. Requiring all employees to take earned vacations
B. Establishing a system of checks and balances
C. Having one person handle all the responsibilities of a department
D. Establishing an internal audit staff

78. A result of a separation of duties is that

A. operations become extremely inefficient because of constant training of employees.
B. more employees will need to be bonded.
C. theft by employees becomes impossible.
D. theft is possible only if several employees scheme together.

79. Internal control is weakened by all of the following except

A. collusion.
B. separation of duties.
C. human error.
D. effects of changing conditions.
80. Which of the following is not a goal of a system of internal control over merchandising transactions?
A. Keep credit losses as low as possible.
B. Prevent the theft of cash and inventory.
C. Keep the maximum amount of inventory on hand at all times.
D. Keep enough cash on hand to take advantage of purchase discounts.

81. Which of the following attributes of internal control would be violated if the purchasing department wrote
checks to pay accounts payable?
A. Adequate design of documents
B. Sound personnel procedures
C. Periodic independent verification
D. Separation of duties

82. A very small company would have the most difficulty in implementing which of the following internal
control activities?
A. Sound personnel procedures
B. Periodic independent verification
C. Limited access to assets
D. Separation of duties

83. In a small business, because it is often cost-prohibitive to hire extra employees, the lack of certain
separations of duties can best be overcome by
A. bonding the employees.
B. getting the owner actively involved.
C. hiring only honest employees.
D. holding one person responsible for a given set of transactions.

84. Which of the following is not an internal control activity for cash?
A. Unannounced audits of cash on hand should be made occasionally.
B. The number of persons who have access to cash should be limited.
C. The functions of recordkeeping and keeping custody of cash should be combined.
D. All cash receipts should be recorded promptly.

85. Which of the following documents is mailed to the vendor (seller) of goods?
A. Receiving report
B. Invoice
C. Purchase order
D. Purchase requisition
86. In a purchase system, the most appropriate department to control goods upon arrival at the company is the
A. accounting department.
B. receiving department.
C. treasury department.
D. requesting department.

87. The document prepared by a department requesting the company to buy something is called a(n)
A. purchase order.
B. invoice.
C. receiving report.
D. purchase requisition.

88. A remittance advice is attached to a(n)

A. receiving report.
B. check.
C. purchase order.
D. invoice.

89. Which of the following is not an internal control activity for cash?
A. The amount of cash on hand should be kept to a minimum.
B. Banking facilities should be used as much as possible.
C. Employees who have access to cash should be bonded.
D. All payments should be made with currency, not checks.

90. When payment is received by mail, a detailed list of such receipts would not be retained by the
A. receiving department.
B. accounting department.
C. person who opens the mail.
D. cashier.

91. A purchase order is sent from a company's

A. purchasing department to the supplier.
B. requesting department to the supplier.
C. requesting department to its accounting department.
D. treasurer to the supplier.
92. Before a check authorization is issued, the following documents must be in agreement, except for the
A. purchase order.
B. receiving report.
C. remittance advice.
D. invoice.

93. Which of the following documents is prepared by a company's accounting department?

A. Bank statement
B. Receiving report
C. Check authorization
D. Invoice

94. When a company makes payment for goods or services, the check is prepared by the company's
A. requesting department.
B. treasurer.
C. accounting department.
D. receiving department.

95. Which of the following documents would not originate with the purchasing company?
A. Purchase order
B. Receiving report
C. Check
D. Invoice

96. Which of the following documents would be sent to the treasurer?

A. Purchase order
B. Invoice
C. Check authorization
D. Bank statement

97. Which of the following is an appropriate internal control activity for cash?
A. Recordkeeping and custodianship over cash should be performed by the same person.
B. The amount of cash on hand should be kept to a minimum.
C. Banking facilities should be used as little as possible.
D. All payments should be made with currency, not checks.
98. Which of the following documents would be prepared (by a buyer of goods) after the others?
A. Purchase order
B. Check
C. Purchase requisition
D. Receiving report

99. Which of the following sets of documents are in the correct sequence?
A. Purchase order, check, receiving report
B. Purchase requisition, purchase order, invoice
C. Purchase requisition, receiving report, purchase order
D. Purchase order, purchase requisition, invoice

100. Which of the following would be added to the balance per books on a bank reconciliation?
A. Notes collected by the bank
B. Deposits in transit
C. Service charges
D. Outstanding checks

101. An NSF check should appear in which section of the bank reconciliation?
A. Deductions from the balance per books
B. Deductions from the balance per bank
C. Additions to the balance per books
D. Additions to the balance per bank

102. Which of the following would be added to the balance per bank?
A. Outstanding checks
B. Bank service charges
C. Collection of a note receivable by the bank
D. Deposits in transit

103. A check for $236 is incorrectly recorded by the company as $263. On the bank reconciliation, the error
would
A. appear as a deduction of $27 from the balance per books.
B. appear as an addition of $27 to the balance per bank.
C. appear as a deduction of $263 from the balance per books and an addition of $236 to the balance per bank.
D. appear as an addition of $27 to the balance per books.
104. On a bank reconciliation, $75 interest earned on a checking account would
A. appear as a deduction of $75 from the balance per books.
B. appear as an addition of $75 to the balance per bank.
C. appear as an addition of $75 to the balance per books.
D. not appear as an adjustment on the bank reconciliation

105. Which of the following bank reconciliation items would not result in a journal entry?
A. Service charge
B. NSF check of a customer
C. Collection of a note by the bank
D. Deposits in transit

106. Which of the following bank reconciliation items would result in a journal entry?
A. Checks outstanding
B. An adjustment for a check recorded for the wrong amount
C. Deposits in transit
D. A bank error on the bank statement

107. For which of the following errors should the appropriate amount be added to the balance per bank on a
bank reconciliation?
A. Deposit of $250 recorded by the bank as $25
B. Deposit of $25 recorded by the bank as $250
C. Check for $25 recorded in company books as $52
D. Check for $52 recorded in company books as $25

108. Conan Company has the following bank items:

Balance per company books $25,000

Balance per bank statement 25,225
Deposit in transit 400
Outstanding checks 600
Interest income 50
Service charge 25

The adjusted bank balance should be

A. $25,000
B. $25,025
C. $25,400
D. $25,425
109. Marta Company has the following bank items:

Balance per company books $50,000

Balance per bank statement 50,450
Deposit in transit 800
Outstanding checks 1,200
Interest income 100
Service charge 50

The adjusted book balance should be

A. $49,250
B. $50,000
C. $50,050
D. $50,850

110. Cash and equivalents can consist of all of the following except
A. deposits in checking accounts.
B. IOUs from customers.
C. certificates of deposit (CDs).
D. U.S. Treasury notes.

111. Which of the following would not be a valid reason for keeping currency on hand at a place of business?
A. To pay small, unforeseen expenses
B. To make up for any imbalance in the books
C. To advance money to sales reps for travel expenses
D. To provide money for cash registers

112. Which of the following would be deducted from the balance per books on a bank reconciliation?
A. Notes collected by the bank
B. Deposits in transit
C. Service charges
D. Outstanding checks
113. A $150 petty cash fund has cash of $64 and valid receipts for $75. The entry to replenish the fund would
be:
A. Cash 86
Various Expenses 75
Cash Short or Over 11
B. Petty Cash 86
Cash 86
C. Cash 64
Petty Cash 64
D. Various Expenses 75
Cash Short or Over 11
Cash 86

114. A $200 petty cash fund has cash of $20 and valid receipts of $164. The entry to replenish the fund would
be:
A. Cash 184
Petty Cash 184
B. Cash Short or Over 16
Petty Cash 16
C. Various Expenses 164
Cash Short or Over 16
Cash 180
D. Petty Cash 164
Cash 164

115. Use the following information regarding Larson Company to answer the question below.

1. Established a petty cash fund in the amount of $250.

2. Reimbursed the petty cash fund given the following petty cash fund disbursements:
a. Payment for postage, $20.
b. Payment for supplies, $70.
3. Increased the petty cash fund to $300.
4. Cash over at the end of the first period was $5.

The entry to record the reimbursement of the petty cash fund would include a
A. credit to Postage Expense for $20.
B. debit to Petty Cash for $90.
C. credit to Cash for $85.
D. debit to cash for $5.
116. The entry for establishing a $300 petty cash fund would be:
A. Cash 300
Petty Cash 300
B. Miscellaneous Expense 300
Cash 300
C. Petty Cash 300
Cash 300
D. Cash 300
Miscellaneous Expense 300

117. The petty cash fund should be replenished

A. only for the total amount of expense receipts on hand.
B. for the total amount that was originally set up in the imprest fund.
C. for the total amount of expense receipts on hand plus cash remaining before replenishment.
D. for the amount needed to bring the petty cash fund back to its imprest amount.

118. As the controller of a large company, you notice that the Cash Short or Over account is consistently
debited for fairly large sums of cash when the petty cash fund is replenished. You probably will want to
A. increase the amount of the fund.
B. decrease the amount of the fund.
C. find a new custodian for the fund.
D. offer the custodian your congratulations.

119. Use the following information regarding Larson Company to answer the question below.

1. Established a petty cash fund in the amount of $250.

2. Reimbursed the petty cash fund given the following petty cash fund disbursements:
a. Payment for postage, $20.
b. Payment for supplies, $70.
3. Increased the petty cash fund to $300.
4. Cash over at the end of the first period was $5.

The entry to establish the petty cash fund would include a

A. debit to the Cash account for $250.
B. debit to the Petty Cash account for $250.
C. memorandum entry only in the ledger.
D. credit to the Petty Cash account for $250.
120. Use the following information regarding Larson Company to answer the question below.

1. Established a petty cash fund in the amount of $250.

2. Reimbursed the petty cash fund given the following petty cash fund disbursements:
a. Payment for postage, $20.
b. Payment for supplies, $70.
3. Increased the petty cash fund to $300.
4. Cash over at the end of the first period was $5.

The entry to record the increase in the Petty Cash account would include a
A. debit to the Petty Cash account for $50.
B. credit to the Petty Cash account for $50.
C. memorandum entry only in the ledger.
D. debit to the Cash account for $50.

121. The Sarbanes-Oxley Act has succeeded in

A. heightening awareness and diligence with respect to internal control.
B. increasing transparency in privately owned companies.
C. stopping fraud from occurring.
D. all of these.

122. The following is a quote found in a company’s annual report:

In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting. . .
This statement would have been made by
A. the company’s independent auditors.
B. the chief financial officer.
C. the chief executive officer.
D. the board of directors.

123. The management of public companies must establish systems that

A. safeguard the firm’s assets.
B. ensure reliability of its accounting records.
C. see that employees comply with legal requirements
D. do all of these.

124. Privately owned companies

A. are required to have an independent CPA audit their financial statements.
B. are required to have their internal control systems audited.
C. are required to have both the financial statements and internal control systems audited.
D. are not required to do any of these.
125. The Sarbanes-Oxley Act of 2002 requires all of the following to certify a public company's system of
internal control, except for the
A. chief financial officer.
B. the independent auditors.
C. the board of directors.
D. chief executive officer.

126. The Sarbanes-Oxley Act of 2002 requires management to acknowledge its responsibility for internal
control
A. in the company’s annual report.
B. in a public statement posted on social media.
C. in a posted notice at the front of company headquarters.
D. in all of these.

127. The Sarbanes-Oxley Act of 2002 does not apply to

A. public companies with assets over $300 million.
B. public companies with assets under $1 million.
C. privately owned companies.
D. companies established after 2002.

128. Public companies are required to

A. have an independent audit of financial statements.
B. have an audit of the internal control systems.
C. fully document and certify the company’s system of internal controls.
D. do all of these.

129. Under a perpetual inventory system, is it necessary to take a physical inventory at the end of the period?
Why or why not?
130. An accountant is responsible for the following activities: (1) receiving all cash; (2) maintaining the general
ledger; (3) maintaining the accounts receivable subsidiary ledger that includes the individual records of each
customer; (4) maintaining the journals for recording sales, purchases, and cash receipts; and (5) preparing
monthly statements to be sent to customers. As a service to customers and employees, the company allows the
accountant to cash checks of up to $75 with money from the cash receipts. When deposits are made, the checks
are included in place of the cash receipts. What weaknesses in internal control exist in this system?

131. The Report of Management in Brighton Company's annual report states, “Management has established a
system of internal controls to provide reasonable assurance that assets are maintained and accounted for in
accordance with its policies and that transactions are recorded accurately on the company's books and records.”
Name five control activities Townsgate could and probably does implement.

132. Mandisa Sounds, Inc., a specialty retailer of customized audio systems for automobiles, installed a
perpetual inventory system in the second quarter of 2011. The new system allowed the firm to adjust its
merchandise inventories to sales patterns more effectively and to prepare monthly financial statements.
Although the system led to an improvement in sales and income, the gross margin on the monthly income
statements was falling below both management's expectations and the industry average. At the end of 2014, a
physical inventory revealed that actual merchandise inventory was considerably lower than the perpetual
inventory records indicated. The merchandise inventories of some stores were off more than others, but all had
deficiencies. What probably caused these losses and what steps could be taken to prevent them in the future?
133. Why is the separation of duties an important control activity in a good system of internal control?

134. On a balance sheet, what items normally are included in Cash?

135. Why do businesses need to keep some currency on hand?

136. Explain management’s responsibility as it pertains to internal control of a company.

137. Match each description with the document it is describing.

1. Document describing items in a shipment of goods check

delivered authorization ____
2. Document issued to permit the treasurer to make a
payment invoice ____
3. Written request prepared by a department asking the purchase
purchasing department to make a purchase requisition ____
4. Document sent to a vendor requesting shipment of remittance
goods advice ____
5. Accompanies a check and indicates what the check is receiving
for report ____
6. Bill sent by the vendor to the purchaser purchase order ____

138. For each listed document, indicate the letter of the department/person that would prepare it.

1. check requesting department ____

2. invoice receiving department ____
3. check authorization vendor ____
4. receiving report accounting department ____
5. purchase requisition treasurer ____

139. Compute the correct amount for each letter in the following table:

Case 1 Case 2 Case 3

Balance per bank statement $ (a) $17,800 $3,980
Deposits in transit 1,200 (b) 250
Outstanding checks 3,000 2,000 150
Balance per books 6,900 18,800 (c)
140. The following information pertains to the bank transactions of Rawlins Company:

a. Cash on the books as of April 30 was $499. Cash as shown on the bank statement for the same date was
$1,330.
b. A deposit of $160, representing cash receipts as of April 30, did not appear on the bank statement.
c. Outstanding checks totaled $240.
d. Bank service charges for April amounted to $9
e. The bank collected for Rawlins Company $840 (which includes $40 interest) on a note left for collection.
f. An NSF check for $80 from a customer, Joe Beck, was returned with the statement.

Required:
1. Prepare a bank reconciliation for Rawlins Company as of April 30.
2. State the amount of cash that would appear on the balance sheet as of April 30.

Rawlins Company
Bank Reconciliation
April 30, 2014

141. Jasmine Company has established a petty cash fund for small expenditures. Prepare journal entries for the
following transactions (omit explanations).

April 5 Established a $200 petty cash fund with cash withdrawn from company checking account.
30 The petty cash fund has $10 remaining and is replenished. Expenditures for April were $60 for supplies, $50 for meals,
$65 for postage, and $20 for freight-in.
May 31 The petty cash fund has $20 remaining and is replenished. Expenditures for May were $55 for postage, $40 for
charitable contributions, $56 for supplies, and $25 for freight-in.
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit

142. Chaney Company has established a petty cash fund for small expenditures. Prepare journal entries for the
following transactions (omit explanations).

June 5 Established a $250 petty cash fund with cash withdrawn from company checking account.
30 The petty cash fund has $12 remaining and is replenished. Expenditures for June were $75 for supplies, $60 for meals,
$80 for postage, and $25 for freight-in.
July 31 The petty cash fund has $24 remaining and is replenished. Expenditures for July were $70 for postage, $45 for
charitable contributions, $80 for supplies, and $30 for freight-in.
GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit

143. A company establishes a $200 petty cash fund. The fund is replenished in the amount of $180, after petty
cash vouchers of $80 for postage, $68 for donations, and $54 for meals had accumulated. Was there a cash
shortage, overage, or neither? (State amount if overage or shortage.)

144. The petty cash fund of Writer Company was established on May 1 and appeared as follows on May 31:

Cash on hand $ 48
Petty cash vouchers:
Postage $60
Office supplies 12 72
$120
a. Prepare the journal entry on May 1 to establish the fund (omit explanation).
b. Prepare the journal entry on May 31 to replenish the fund (omit explanation).

GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit

145. A company establishes a $150 petty cash fund. The fund is replenished in the amount of $136, after petty
cash vouchers of $66 for transportation, $44 for supplies, and $22 for postage had accumulated. Was there a
cash shortage, overage, or neither? (State amount if overage or shortage.)
Chapter 7: Cash and Internal Control Key

1. In a small business, active involvement by the owner can be a practical substitute for the separation of some
duties.
TRUE

2. An effective system of internal control requires that individuals take periodic vacations.
TRUE

3. Bonding means insuring a company against loss due to employee theft.

TRUE

4. Management's regular assessment of its internal controls is part of monitoring.

TRUE

5. A system of internal control cannot be considered good until the possibility of human error has been
completely eliminated.
FALSE

6. Proper control procedures can guarantee the prevention of theft.

FALSE

7. Internal control involves, in part, the protection of a company's assets.

TRUE

8. Taking a physical inventory is not necessary under a perpetual inventory system.

FALSE
9. Cash and inventory are very vulnerable to theft.
TRUE

10. Damaged goods that can be sold at a reduced price should be included in a company’s merchandise
inventory.
TRUE

11. Merchandisers usually take a physical inventory when the volume of goods is at its lowest levels.
TRUE

12. Merchandisers usually end their fiscal year during the peak season.
FALSE

13. Using bar codes to take a physical inventory is considered poor accounting practice.
FALSE

14. The periodic inventory system provides no means of identifying losses from spoilage, shoplifting, and theft.
TRUE

15. An understated ending inventory will produce an overstated cost of goods sold.
TRUE

16. Under the perpetual inventory system, inventory losses can be identified more easily than under the periodic
inventory system.
TRUE

17. Separation of duties relates to a control activity in the accounting system.

TRUE

18. It is unlikely that a company would want to bond its employees who handle cash or inventory.
FALSE
19. Good internal control dictates that one employee should oversee all related parts of a transaction.
FALSE

20. Bonding provides a guarantee against theft.

FALSE

21. The degree of separation of duties varies with the size of the business.
TRUE

22. Under an effective system of internal control, errors occur only as a result of fraud or dishonesty.
FALSE

23. The use of a cash register is an example of a physical control.

TRUE

24. The receiving department must compare goods received with goods purchased, as indicated on the purchase
order.
FALSE

25. Cash received through the mail should be handled by only one employee to achieve effective internal
control.
FALSE

26. A purchase requisition is a document sent by a company to a vendor.

FALSE

27. A check authorization is a document that permits the issuance of a check to pay an invoice.
TRUE

28. It is best that the receiving department not be given a copy of the purchase order or the invoice.
TRUE
29. Invoices are documents prepared by a vendor and sent to the accounting department of its customers.
TRUE

30. A remittance advice accompanies a check sent to a vendor or the vendor’s bank.
TRUE

31. A purchase requisition is prepared after a purchase order.

FALSE

32. A check authorization would be prepared after a receiving report.

TRUE

33. In addition to keeping the records of a purchase transaction, the accounting department should prepare and
mail checks in payment of invoices.
FALSE

34. Effective internal control requires a department to purchase supplies on its own.
FALSE

35. The treasurer should prepare and sign a check only after a proper check authorization has been provided.
TRUE

36. Sound internal control activities dictate that extra cash should always be on hand.
FALSE

37. The purchasing department prepares a purchase requisition addressed to the vendor (seller) containing
instructions related to the items ordered.
FALSE
38. At the end of each day, the cashier should be the one responsible for comparing the amount on the cash
register tape with the day's cash additions to the cash register.
FALSE

39. A formal request for a purchase from a requesting department of a business is known as a purchase order.
FALSE

40. The use of prenumbered documents is important to a good system of internal control.
TRUE

41. Merchandising companies do not need as good a system of internal control as service companies.
FALSE

42. An effective system of internal control centralizes functions in a single, capable individual.
FALSE

43. The taking of a physical inventory is an example of periodic independent verification.

TRUE

44. When an individual uses a debit card to make a purchase, the amount of the purchase is deducted directly
from the individual’s bank account.
TRUE

45. Cash equivalents are defined as investments that carry terms of 90 days or less.
TRUE

46. It is usually a good business practice to maintain as large a balance in the Cash account as possible.
FALSE

47. Cash equivalents are usually listed as short-term investments on the balance sheet.
FALSE
48. On a bank reconciliation, interest income would be added to the balance per bank.
FALSE

49. One example of a periodic independent verification is the bank reconciliation.

TRUE

50. Management is responsible for establishing a satisfactory system of internal control.

TRUE

51. The use of electronic funds transfers makes check writing unnecessary.
TRUE

52. In the financial statements, the balance of the Petty Cash account and the balance of the Cash account are
shown separately.
FALSE

53. When a petty cash fund is established, the entry contains a credit to Cash.
TRUE

54. When the balance of a petty cash fund is increased, the entry would contain a credit to Petty Cash.
FALSE

55. When a petty cash fund is replenished, the entry requires a debit to Petty Cash.
FALSE

56. When a petty cash fund is replenished, the entry requires a credit to Cash.
TRUE

57. The petty cash voucher should be kept by the person being reimbursed.
FALSE
58. One of the best ways to control a petty cash fund is through an imprest system.
TRUE

59. A petty cash fund is established for small payments for which writing a check would be impractical.
TRUE

60. The materiality concept dictates that no internal controls be established over petty cash.
FALSE

61. The amount in the petty cash fund plus the sum of the petty cash vouchers should at all times equal the
amount shown in the Petty Cash account.
TRUE

62. Cash Short or Over would be debited for a shortage.

TRUE

63. The financial statements of nonpublic companies are not required to be audited by an independent CPA.
TRUE

64. To assure an efficient system of internal control, management should authorize all transactions.
FALSE

65. The Sarbanes-Oxley Act of 2002 does not require any certification from a public company's chief executive
officer about the company's system of internal control.
FALSE

66. Public companies must have their financial statements audited, but are not required to have their internal
control systems audited.
FALSE
67. Annual reports of public companies will include statements from both management and independent
auditors regarding the adequacy of internal control.
TRUE

68. The Sarbanes-Oxley Act has not stopped the occurrence of fraud, and additional guidance with regard to
internal controls is expected to be issued.
TRUE

69. A physical inventory is usually taken

A. in the middle of the fiscal year.
B. at the peak of the busy season.
C. at the end of the fiscal year.
D. at December 31.

70. A company's merchandise inventory includes all of the following, except

A. goods in warehouses.
B. goods sold, but not yet delivered.
C. goods in transit from suppliers, if title has passed to the merchandiser.
D. goods in trucks between the warehouse and the store.

71. A company's merchandise inventory includes all of the following, except

A. goods in possession, but which cannot be sold.
B. goods on shelves.
C. damaged goods that can be sold at a reduced price.
D. goods in storerooms.

72. Under the perpetual inventory system, the entry to recognize inventory losses usually contains a
A. debit to Cost of Goods Sold.
B. debit to Merchandise Inventory.
C. credit to Gross Margin.
D. credit to Cash.

73. A good system of internal control is designed to achieve all of the following except
A. efficiency of operations.
B. reliability of financial reporting.
C. compliance with relevant laws and regulations.
D. attainment of target sales.
74. All of the following are examples of internal control activities except
A. adequate supervision.
B. rotation of key personnel.
C. customer satisfaction surveys.
D. insistence that employees take earned vacations.

75. Each of the following is a feature of internal control except

A. management planning.
B. periodic independent verification.
C. limited access to assets.
D. authorization of transactions.

76. The bonding of employees is an example of which feature of a good system of internal control?
A. Authorization of transactions
B. Sound personnel policies
C. Separation of duties
D. Limited access to assets

77. Which of the following would not be found in a good system of internal control?
A. Requiring all employees to take earned vacations
B. Establishing a system of checks and balances
C. Having one person handle all the responsibilities of a department
D. Establishing an internal audit staff

78. A result of a separation of duties is that

A. operations become extremely inefficient because of constant training of employees.
B. more employees will need to be bonded.
C. theft by employees becomes impossible.
D. theft is possible only if several employees scheme together.

79. Internal control is weakened by all of the following except

A. collusion.
B. separation of duties.
C. human error.
D. effects of changing conditions.
80. Which of the following is not a goal of a system of internal control over merchandising transactions?
A. Keep credit losses as low as possible.
B. Prevent the theft of cash and inventory.
C. Keep the maximum amount of inventory on hand at all times.
D. Keep enough cash on hand to take advantage of purchase discounts.

81. Which of the following attributes of internal control would be violated if the purchasing department wrote
checks to pay accounts payable?
A. Adequate design of documents
B. Sound personnel procedures
C. Periodic independent verification
D. Separation of duties

82. A very small company would have the most difficulty in implementing which of the following internal
control activities?
A. Sound personnel procedures
B. Periodic independent verification
C. Limited access to assets
D. Separation of duties

83. In a small business, because it is often cost-prohibitive to hire extra employees, the lack of certain
separations of duties can best be overcome by
A. bonding the employees.
B. getting the owner actively involved.
C. hiring only honest employees.
D. holding one person responsible for a given set of transactions.

84. Which of the following is not an internal control activity for cash?
A. Unannounced audits of cash on hand should be made occasionally.
B. The number of persons who have access to cash should be limited.
C. The functions of recordkeeping and keeping custody of cash should be combined.
D. All cash receipts should be recorded promptly.

85. Which of the following documents is mailed to the vendor (seller) of goods?
A. Receiving report
B. Invoice
C. Purchase order
D. Purchase requisition
86. In a purchase system, the most appropriate department to control goods upon arrival at the company is the
A. accounting department.
B. receiving department.
C. treasury department.
D. requesting department.

87. The document prepared by a department requesting the company to buy something is called a(n)
A. purchase order.
B. invoice.
C. receiving report.
D. purchase requisition.

88. A remittance advice is attached to a(n)

A. receiving report.
B. check.
C. purchase order.
D. invoice.

89. Which of the following is not an internal control activity for cash?
A. The amount of cash on hand should be kept to a minimum.
B. Banking facilities should be used as much as possible.
C. Employees who have access to cash should be bonded.
D. All payments should be made with currency, not checks.

90. When payment is received by mail, a detailed list of such receipts would not be retained by the
A. receiving department.
B. accounting department.
C. person who opens the mail.
D. cashier.

91. A purchase order is sent from a company's

A. purchasing department to the supplier.
B. requesting department to the supplier.
C. requesting department to its accounting department.
D. treasurer to the supplier.
92. Before a check authorization is issued, the following documents must be in agreement, except for the
A. purchase order.
B. receiving report.
C. remittance advice.
D. invoice.

93. Which of the following documents is prepared by a company's accounting department?

A. Bank statement
B. Receiving report
C. Check authorization
D. Invoice

94. When a company makes payment for goods or services, the check is prepared by the company's
A. requesting department.
B. treasurer.
C. accounting department.
D. receiving department.

95. Which of the following documents would not originate with the purchasing company?
A. Purchase order
B. Receiving report
C. Check
D. Invoice

96. Which of the following documents would be sent to the treasurer?

A. Purchase order
B. Invoice
C. Check authorization
D. Bank statement

97. Which of the following is an appropriate internal control activity for cash?
A. Recordkeeping and custodianship over cash should be performed by the same person.
B. The amount of cash on hand should be kept to a minimum.
C. Banking facilities should be used as little as possible.
D. All payments should be made with currency, not checks.
98. Which of the following documents would be prepared (by a buyer of goods) after the others?
A. Purchase order
B. Check
C. Purchase requisition
D. Receiving report

99. Which of the following sets of documents are in the correct sequence?
A. Purchase order, check, receiving report
B. Purchase requisition, purchase order, invoice
C. Purchase requisition, receiving report, purchase order
D. Purchase order, purchase requisition, invoice

100. Which of the following would be added to the balance per books on a bank reconciliation?
A. Notes collected by the bank
B. Deposits in transit
C. Service charges
D. Outstanding checks

101. An NSF check should appear in which section of the bank reconciliation?
A. Deductions from the balance per books
B. Deductions from the balance per bank
C. Additions to the balance per books
D. Additions to the balance per bank

102. Which of the following would be added to the balance per bank?
A. Outstanding checks
B. Bank service charges
C. Collection of a note receivable by the bank
D. Deposits in transit

103. A check for $236 is incorrectly recorded by the company as $263. On the bank reconciliation, the error
would
A. appear as a deduction of $27 from the balance per books.
B. appear as an addition of $27 to the balance per bank.
C. appear as a deduction of $263 from the balance per books and an addition of $236 to the balance per bank.
D. appear as an addition of $27 to the balance per books.
104. On a bank reconciliation, $75 interest earned on a checking account would
A. appear as a deduction of $75 from the balance per books.
B. appear as an addition of $75 to the balance per bank.
C. appear as an addition of $75 to the balance per books.
D. not appear as an adjustment on the bank reconciliation

105. Which of the following bank reconciliation items would not result in a journal entry?
A. Service charge
B. NSF check of a customer
C. Collection of a note by the bank
D. Deposits in transit

106. Which of the following bank reconciliation items would result in a journal entry?
A. Checks outstanding
B. An adjustment for a check recorded for the wrong amount
C. Deposits in transit
D. A bank error on the bank statement

107. For which of the following errors should the appropriate amount be added to the balance per bank on a
bank reconciliation?
A. Deposit of $250 recorded by the bank as $25
B. Deposit of $25 recorded by the bank as $250
C. Check for $25 recorded in company books as $52
D. Check for $52 recorded in company books as $25

108. Conan Company has the following bank items:

Balance per company books $25,000

Balance per bank statement 25,225
Deposit in transit 400
Outstanding checks 600
Interest income 50
Service charge 25

The adjusted bank balance should be

A. $25,000
B. $25,025
C. $25,400
D. $25,425
109. Marta Company has the following bank items:

Balance per company books $50,000

Balance per bank statement 50,450
Deposit in transit 800
Outstanding checks 1,200
Interest income 100
Service charge 50

The adjusted book balance should be

A. $49,250
B. $50,000
C. $50,050
D. $50,850

110. Cash and equivalents can consist of all of the following except
A. deposits in checking accounts.
B. IOUs from customers.
C. certificates of deposit (CDs).
D. U.S. Treasury notes.

111. Which of the following would not be a valid reason for keeping currency on hand at a place of business?
A. To pay small, unforeseen expenses
B. To make up for any imbalance in the books
C. To advance money to sales reps for travel expenses
D. To provide money for cash registers

112. Which of the following would be deducted from the balance per books on a bank reconciliation?
A. Notes collected by the bank
B. Deposits in transit
C. Service charges
D. Outstanding checks
113. A $150 petty cash fund has cash of $64 and valid receipts for $75. The entry to replenish the fund would
be:
A. Cash 86
Various Expenses 75
Cash Short or Over 11
B. Petty Cash 86
Cash 86
C. Cash 64
Petty Cash 64
D. Various Expenses 75
Cash Short or Over 11
Cash 86

114. A $200 petty cash fund has cash of $20 and valid receipts of $164. The entry to replenish the fund would
be:
A. Cash 184
Petty Cash 184
B. Cash Short or Over 16
Petty Cash 16
C. Various Expenses 164
Cash Short or Over 16
Cash 180
D. Petty Cash 164
Cash 164

115. Use the following information regarding Larson Company to answer the question below.

1. Established a petty cash fund in the amount of $250.

2. Reimbursed the petty cash fund given the following petty cash fund disbursements:
a. Payment for postage, $20.
b. Payment for supplies, $70.
3. Increased the petty cash fund to $300.
4. Cash over at the end of the first period was $5.

The entry to record the reimbursement of the petty cash fund would include a
A. credit to Postage Expense for $20.
B. debit to Petty Cash for $90.
C. credit to Cash for $85.
D. debit to cash for $5.
116. The entry for establishing a $300 petty cash fund would be:
A. Cash 300
Petty Cash 300
B. Miscellaneous Expense 300
Cash 300
C. Petty Cash 300
Cash 300
D. Cash 300
Miscellaneous Expense 300

117. The petty cash fund should be replenished

A. only for the total amount of expense receipts on hand.
B. for the total amount that was originally set up in the imprest fund.
C. for the total amount of expense receipts on hand plus cash remaining before replenishment.
D. for the amount needed to bring the petty cash fund back to its imprest amount.

118. As the controller of a large company, you notice that the Cash Short or Over account is consistently
debited for fairly large sums of cash when the petty cash fund is replenished. You probably will want to
A. increase the amount of the fund.
B. decrease the amount of the fund.
C. find a new custodian for the fund.
D. offer the custodian your congratulations.

119. Use the following information regarding Larson Company to answer the question below.

1. Established a petty cash fund in the amount of $250.

2. Reimbursed the petty cash fund given the following petty cash fund disbursements:
a. Payment for postage, $20.
b. Payment for supplies, $70.
3. Increased the petty cash fund to $300.
4. Cash over at the end of the first period was $5.

The entry to establish the petty cash fund would include a

A. debit to the Cash account for $250.
B. debit to the Petty Cash account for $250.
C. memorandum entry only in the ledger.
D. credit to the Petty Cash account for $250.
120. Use the following information regarding Larson Company to answer the question below.

1. Established a petty cash fund in the amount of $250.

2. Reimbursed the petty cash fund given the following petty cash fund disbursements:
a. Payment for postage, $20.
b. Payment for supplies, $70.
3. Increased the petty cash fund to $300.
4. Cash over at the end of the first period was $5.

The entry to record the increase in the Petty Cash account would include a
A. debit to the Petty Cash account for $50.
B. credit to the Petty Cash account for $50.
C. memorandum entry only in the ledger.
D. debit to the Cash account for $50.

121. The Sarbanes-Oxley Act has succeeded in

A. heightening awareness and diligence with respect to internal control.
B. increasing transparency in privately owned companies.
C. stopping fraud from occurring.
D. all of these.

122. The following is a quote found in a company’s annual report:

In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting. . .
This statement would have been made by
A. the company’s independent auditors.
B. the chief financial officer.
C. the chief executive officer.
D. the board of directors.

123. The management of public companies must establish systems that

A. safeguard the firm’s assets.
B. ensure reliability of its accounting records.
C. see that employees comply with legal requirements
D. do all of these.

124. Privately owned companies

A. are required to have an independent CPA audit their financial statements.
B. are required to have their internal control systems audited.
C. are required to have both the financial statements and internal control systems audited.
D. are not required to do any of these.
125. The Sarbanes-Oxley Act of 2002 requires all of the following to certify a public company's system of
internal control, except for the
A. chief financial officer.
B. the independent auditors.
C. the board of directors.
D. chief executive officer.

126. The Sarbanes-Oxley Act of 2002 requires management to acknowledge its responsibility for internal
control
A. in the company’s annual report.
B. in a public statement posted on social media.
C. in a posted notice at the front of company headquarters.
D. in all of these.

127. The Sarbanes-Oxley Act of 2002 does not apply to

A. public companies with assets over $300 million.
B. public companies with assets under $1 million.
C. privately owned companies.
D. companies established after 2002.

128. Public companies are required to

A. have an independent audit of financial statements.
B. have an audit of the internal control systems.
C. fully document and certify the company’s system of internal controls.
D. do all of these.

129. Under a perpetual inventory system, is it necessary to take a physical inventory at the end of the period?
Why or why not?

A physical inventory must be taken to determine whether or not the actual quantity of goods matches the
quantity contained in the perpetual inventory record. Discrepancies could arise as a result of error or theft.
130. An accountant is responsible for the following activities: (1) receiving all cash; (2) maintaining the general
ledger; (3) maintaining the accounts receivable subsidiary ledger that includes the individual records of each
customer; (4) maintaining the journals for recording sales, purchases, and cash receipts; and (5) preparing
monthly statements to be sent to customers. As a service to customers and employees, the company allows the
accountant to cash checks of up to $75 with money from the cash receipts. When deposits are made, the checks
are included in place of the cash receipts. What weaknesses in internal control exist in this system?

In this case, the principle of separation of duties is violated. Because the accountant collects the cash and keeps
the records for accounts receivable, he or she could divert incoming checks from customers and cash the checks
out of cash collections. At the end of the month, when statements are mailed to customers, the accountant could
destroy the statements to the customers whose checks he or she had embezzled. The customers then would
believe that the company had received the payments because they would not receive a subsequent statement. In
addition, there is no sign of any outside verification. Furthermore, allowing checks to replace cash receipts does
not provide for consistent documentation of the firm's transactions.

131. The Report of Management in Brighton Company's annual report states, “Management has established a
system of internal controls to provide reasonable assurance that assets are maintained and accounted for in
accordance with its policies and that transactions are recorded accurately on the company's books and records.”
Name five control activities Townsgate could and probably does implement.

Any of the following control activities would be used by Brighton's management:

a. Authorization of transactions and activities
b. Recording of all transactions
c. Design and use of adequate documents
d. Permit access to assets only with management's authorization
e. Record must be checked against the assets by some other responsible person
f. Separation of functional duties
g. Sound personnel procedures must be followed

132. Mandisa Sounds, Inc., a specialty retailer of customized audio systems for automobiles, installed a
perpetual inventory system in the second quarter of 2011. The new system allowed the firm to adjust its
merchandise inventories to sales patterns more effectively and to prepare monthly financial statements.
Although the system led to an improvement in sales and income, the gross margin on the monthly income
statements was falling below both management's expectations and the industry average. At the end of 2014, a
physical inventory revealed that actual merchandise inventory was considerably lower than the perpetual
inventory records indicated. The merchandise inventories of some stores were off more than others, but all had
deficiencies. What probably caused these losses and what steps could be taken to prevent them in the future?

The merchandise inventory losses probably were due to shoplifting and embezzlement. Management must
carefully review its controls at the individual stores and install a system that will protect its merchandise
inventory from these forms of theft. This goal can be accomplished through an internal control structure that
creates an environment that encourages compliance with a company's policies, a good accounting system, and
specific activities designed to safeguard the merchandise inventory.
133. Why is the separation of duties an important control activity in a good system of internal control?

When only one employee is responsible for processing a transaction from beginning to end, it is likely that an
error or theft by that employee would go unnoticed. However, when two or more employees are involved in the
process, an error by an employee, whether honest or not, probably would be detected by one of the other
employees.

134. On a balance sheet, what items normally are included in Cash?

The items normally included in Cash are coins and currency on hand; checks and money orders from customers;
deposits in bank accounts, including short-term certificates of deposit; short-term government securities, such as
U.S. Treasury notes; and any other security that may be converted to cash within 90 days. These items may
carry a caption of just “Cash” or “Cash and cash equivalents” or “Cash and equivalents” on the balance sheet.

135. Why do businesses need to keep some currency on hand?

Businesses need to keep some currency on hand to provide money for cash registers in order to make change; to
pay small, spur-of-the moment expenses, such as postage stamps, shipping charges due, or minor purchases of
pens, paper, and other office supplies; or to provide money in advance to salespersons for their travel and
entertainment expenses.

136. Explain management’s responsibility as it pertains to internal control of a company.

Management is responsible for establishing a satisfactory system of internal controls, which safeguard assets,
ensure reliability of accounting records, and see that employees comply with legal requirements. The chief
executive officer and check financial officer, along with the auditor, must fully document and certify the
company’s system of internal controls in the annual report.

137. Match each description with the document it is describing.

1. Document describing items in a shipment of goods check

delivered authorization 2
2. Document issued to permit the treasurer to make a
payment invoice 6
3. Written request prepared by a department asking the purchase
purchasing department to make a purchase requisition 3
remittance
4. Document sent to a vendor requesting shipment of goods advice 5
5. Accompanies a check and indicates what the check is for receiving report 1
6. Bill sent by the vendor to the purchaser purchase order 4
138. For each listed document, indicate the letter of the department/person that would prepare it.

1. check requesting department 5

2. invoice receiving department 4
3. check authorization vendor 2
4. receiving report accounting department 3
5. purchase requisition treasurer 1

139. Compute the correct amount for each letter in the following table:

Case 1 Case 2 Case 3

Balance per bank statement $ (a) $17,800 $3,980
Deposits in transit 1,200 (b) 250
Outstanding checks 3,000 2,000 150
Balance per books 6,900 18,800 (c)

(a) $8,700 ($6,900 - $1,200 + $3000)

(b) $3,000 ($18,800 + $2,000 - $17,800)
(c) $4,080 ($3,980 + 250 - $150)
140. The following information pertains to the bank transactions of Rawlins Company:

a. Cash on the books as of April 30 was $499. Cash as shown on the bank statement for the same date was
$1,330.
b. A deposit of $160, representing cash receipts as of April 30, did not appear on the bank statement.
c. Outstanding checks totaled $240.
d. Bank service charges for April amounted to $9
e. The bank collected for Rawlins Company $840 (which includes $40 interest) on a note left for collection.
f. An NSF check for $80 from a customer, Joe Beck, was returned with the statement.

Required:
1. Prepare a bank reconciliation for Rawlins Company as of April 30.
2. State the amount of cash that would appear on the balance sheet as of April 30.

Rawlins Company
Bank Reconciliation
April 30, 2014

1.

Rawlins Company
Bank Reconciliation
April 30, 2014
Balance per bank, April 30 $1,330
Add deposit in transit 160
$1,490
Less outstanding checks 240
Adjust bank balance, April 30 $1,250

Balance per books, April 30 $ 499

Add:
Note collected by bank $800
Interest on note collected by bank 40 840
Less: $1,339
Bank service charges $ 9
NSF check of Jack Betz 80 89
Adjusted book balance, April 30 $1,250
2. Cash on the balance sheet as of April 30 = $1,250

141. Jasmine Company has established a petty cash fund for small expenditures. Prepare journal entries for the
following transactions (omit explanations).

April 5 Established a $200 petty cash fund with cash withdrawn from company checking account.
30 The petty cash fund has $10 remaining and is replenished. Expenditures for April were $60 for supplies, $50 for meals,
$65 for postage, and $20 for freight-in.
May 31 The petty cash fund has $20 remaining and is replenished. Expenditures for May were $55 for postage, $40 for
charitable contributions, $56 for supplies, and $25 for freight-in.

GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit

GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
April 5 Petty Cash 200
Cash 200

30 Supplies 60
Meals (or Entertainment) Expense 50
Postage Expense 65
Freight-In 20
Cash 190
Cash Short or Over 5

May 31 Postage Expense 55

Charitable Contributions 40
Supplies 56
Freight-In 25
Cash Short or Over 4
Cash 180
142. Chaney Company has established a petty cash fund for small expenditures. Prepare journal entries for the
following transactions (omit explanations).

June 5 Established a $250 petty cash fund with cash withdrawn from company checking account.
30 The petty cash fund has $12 remaining and is replenished. Expenditures for June were $75 for supplies, $60 for meals,
$80 for postage, and $25 for freight-in.
July 31 The petty cash fund has $24 remaining and is replenished. Expenditures for July were $70 for postage, $45 for
charitable contributions, $80 for supplies, and $30 for freight-in.

GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit

GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
June 5 Petty Cash 250
Cash 250

30 Supplies 75
Meals (or Entertainment) Expense 60
Postage Expense 80
Freight-In 25
Cash 238
Cash Short or Over 2

July 31 Postage Expense 70

Charitable Contributions 45
Supplies 80
Freight-In 30
Cash Short or Over 1
Cash 226
143. A company establishes a $200 petty cash fund. The fund is replenished in the amount of $180, after petty
cash vouchers of $80 for postage, $68 for donations, and $54 for meals had accumulated. Was there a cash
shortage, overage, or neither? (State amount if overage or shortage.)

$22 overage ($80 + $68 + $54 - $180)

144. The petty cash fund of Writer Company was established on May 1 and appeared as follows on May 31:

Cash on hand $ 48
Petty cash vouchers:
Postage $60
Office supplies 12 72
$120

a. Prepare the journal entry on May 1 to establish the fund (omit explanation).
b. Prepare the journal entry on May 31 to replenish the fund (omit explanation).

GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit

GENERAL
JOURNAL
Post. Ref.
Date Description Debit Credit
a. May 1 Petty Cash 120
Cash 120

b. 31 Postage Expense 60
Office Supplies 12
Cash 72

145. A company establishes a $150 petty cash fund. The fund is replenished in the amount of $136, after petty
cash vouchers of $66 for transportation, $44 for supplies, and $22 for postage had accumulated. Was there a
cash shortage, overage, or neither? (State amount if overage or shortage.)

$4 shortage ($136 - $66 - $44 - $22)