Illustration 11: Prepare the Bank Reconciliation Statement from the following data as on 30.11.06: (i) Balance as per the Pass Book 30.11.06 (Dr.) Rs. The account represents tax refunds due to the company. A company's ability to pay its short-term obligations depends on many factors including how quickly it sells its inventory. Which of the following is not one of the three factors of the fraud triangle? In the period the supplies are used, regardless of when they were purchased. Which of the following is constructed immediately prior to preparing the financial statements with the purpose of demonstrating that the accounts balance? The Prepaid Insurance account has a normal balance of $3,750 at the beginning of the month. A company has a loan that accrues interest at a rate of $20 a day. Salaries and wages amount to $100 a day and the company has a seven-day work week. (b) To prepare a reconciliation statement. A company should always keep extra inventory on hand; it could be needed if demand increases and it has to be bought sooner or later so it adds nothing to cost. Most businesses accept remote sources of payment on account. Which of the following is not related to the segregation of duties for cash received in person? If so, the net impact on the financial statements may be immaterial, so the client may be justified in not recording the entire group of adjustments. When should the company record the related Service Revenue? Ensure that the business pays only for properly authorized transactions. If a company has a net loss during the current accounting period, then the ending Retained Earnings will be smaller than the beginning Retained Earnings. In addition to indicating the corrected amounts, indicate the effect of each omitted adjustment by setting up and completing a columnar table similar to the following. During November, the company bought $2,000 of supplies. A company reports Equipment on its classified balance sheet. Which of the following is not a reason that a business needs an effective internal control system? What is the effect of the adjusting entry for depreciation on the accounting equation? The note payable and the accrued interest will become due and payable next year. A highly effective internal control should not be implemented if the cost is greater than the benefit. A/R $500 and Dr. Which of the following adjustments is not correct if someone is trying to calculate cash flow from financing activities? The Purpose Of The AMT Is To Replace The Regular Income Tax. A net loss increases the balance in Retained Earnings. Cost of goods sold is reported on both the income statement and the balance sheet. Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages. Sales Returns and Allowances $500 d) Dr. A/R $500. Correct Answer: Simulation analysis is a computerized version of scenario analysis where input variables are selected randomly on the basis of their probability distributions. Interest on the note payable is classified as an expense since it is a cost of borrowing. The adjusting entry to record services earned but not yet billed requires: a debit to Accounts Receivable and credit to Service Revenue. Which of the following is not an internal control for checks received through the mail? The firm must address all independence impairment issues on the date of the audit opinion. At the end of each month, what kind of adjustment is required? The Cash account should be adjusted for the effects of accrued revenues and expenses during the accounting period. Which of the following is a correct statement regarding the nature and timing of communications between an accounting firm performing an initial audit of an issuer and the issuer's audit committee? Identify the related account that is associated with this account (the other account in the adjusting entry). Your business purchased an investment security on April 1 that will pay $90 interest on June 30. On December 31, 2016, the balance in Retained Earnings is $19,100. Which of the following is not an example of internal control? Sonic Gateway purchased $1,000 of app software that is estimated to have four years of usefulness. Great tool for your practice. The adjustment for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account. To recognize the use of and benefit received from long-lived assets, such as equipment, during the accounting period, ______ Expense should be recorded. If revenues are less than expenses, the company has a net loss and Retained Earnings decreases. Employee fraud is often grouped into three categories, including corruption, asset misappropriation, and embezzlement. Dividends are subtracted to calculate the ending balance of Retained Earnings. Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance. How will the interest affect the adjustments at the end of the period? Which of the following is not a correct statement? Sales Returns and Allowances S500, Cr. A company declared and paid a dividend of $8,000 this year. What is the amount of rent expense that will be recorded in the related adjusting entry dated June 30? Accounts Receivable should be increased by $400 and Sales Revenue should be increased by $400. It guarantees the management will behave ethically. Identify ways to circumvent applicable laws and regulations. The entry to record to replenishing the petty cash fund involves debiting ______ and crediting: A company is either a service company, a merchandising company, or a manufacturer, but cannot be more than one of these. Which of the following statements is correct regarding the adjustment to record interest accrued on a note payable? Which of the following statements is not correct? Which of the following statements about the need to make accrual adjustments at the end of the accounting period is not correct? A. The accounting department counts the cash, prepares the deposit slip and deposits the cash in the bank, The cash count sheet determines all of the following except the. Financial statements are prepared only after the adjusted trial balance has shown that debits equal credits. Temporary accounts are closed at what stage of the accounting process? Which of the following is not a commonly used internal control? The journal entry to establish a petty cash fund should include a debit to: The petty cash fund was used to reimburse employees for office expenses during the month. At the end of the year, accrual adjustments could include a: debit to an expense and a credit to a liability. Accounting staff then ensure the receipts from cash sales are properly recorded in the accounting system. Interest Expense should be increased, because the cost of interest relates to the current period. Which of the following adjustments would be made at the end of a month in which no payment for interest was made? After the closing entries have been posted, the account will: The balance in retained earnings prior to the closing process equals, the balance at the end of the previous accounting period. The post-closing trial balance is a check that the accounting records are still in balance after posting all closing entries to the accounts. Which of the following is the equation for cost of goods sold? Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period. Managers can be sentenced to maximum jail terms of up to 20 years for each violation. D) All of the above statements are correct. On December 31, 2015, interest of $500 is owed on a bank loan that will not be paid until June 30, 2016. Which of the following statements is incorrect? At the end of the month, the related adjusting journal entry would result in a(n): decrease in an asset and an equal increase in expenses. Identify the related account that is associated with this account (the other account in the adjusting entry). What are the effects on the accounting equation from the adjustment for income tax expense accrued, but not paid, at the end of the accounting period? Which of the following statements is correct? Debit Interest Receivable and credit Interest Revenue for $30. However, the net effect of ignoring these changes could be the reporting of amounts in the wrong line items in the financial statements, which could be misleading to the users of those statements. The adjusted trial balance should be prepared ______ the financial statements are prepared in order to prove the ______ of the debits and credits. temporary accounts are closed; permanent accounts are not. At the end of the accounting cycle, a business must make adjustments to close out all of its temporary accounts and prepare final financial statements for the period. The amount of Retained Earnings reported on the balance sheet as of December 31, 2016 will be: Pinkney's Inc. had income before income tax of $164,000 last quarter and a 34% tax rate. If an expense has been incurred but will be paid later, then: a liability account is created or increased and an expense is recorded. The evaluation of the internal control system to determine whether it is working as intended is referred to as: The purpose of internal controls includes all of the following except: Which of the following is a set of regulations passed by Congress in 2002 in an attempt to improve financial reporting and restore investor confidence? 9,204. The incentive element of the fraud triangle includes reasons why top management may commit fraud such as enhancing job security and obtaining bigger paychecks. Now, it's necessary to make a prior period adjustment. Which of the following entries records the adjustment for revenue earned, but not yet collected? An adjustment to two figures are now needed. Which line item is reported on both the income statement and statement of retained earnings? The term, deferral, best describes a situation in which: cash is paid in advance of recognizing an expense. During 2016, dividends of $4,000 were declared and paid. Which of the following statements about an adjusted trial balance is not correct? Which of the following statements about the income statement is correct? Which of the following statements is correct regarding the use of the cash account in deferral and accrual adjustments at the end of the accounting period? For fill-in-the-blank questions press or click on the blank space provided. Companies that choose to use FIFO must report in the financial statement notes what their inventory balance would have been had they used LIFO. At the end of the year the company determined that only $300 of supplies are still on hand. After closing entries are posted, the balances of the income statement accounts will be zero. Which of the following statements concerning electronic funds transfers is not correct? The main purposes of internal controls include all of the following except: providing more favorable financial information. 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