Adjusting Entries:Adjustments are made for items such as outstanding checks, deposits in transit, bank fees,and interest. These adjustments ensure that both sets of records align accurately.Identification of Errors:Discrepancies may arise due to errors, double entries, or even fraudulent activities. Thereconciliation process helps pinpoint these issues for corrective action.Completion of Reconciliation:Once adjustments are made, the final reconciliation is completed, providing a clearunderstanding of the actual cash position of the company.Objective Type Question:Considering the bank reconciliation process, what is the purpose of adjusting entries?A) To inflate the company's reported cash balance B) To identify errors and discrepanciesbetween the company's records and the bank statement C) To minimize the company'sreported income D) To increase the company's liabilities on the balance sheet Introduction:Bank reconciliation is a critical accounting process that ensures the accuracy and consistencyof financial records between a company's accounting records and its bank statements. Thisprocess is vital for identifying discrepancies, errors, or fraudulent activities, and it plays acrucial role in maintaining the integrity of financial reporting.The Scenario:Consider a manufacturing company, ABC Ltd., with a complex financial landscape involvingnumerous transactions. ABC Ltd. conducts monthly bank reconciliations to reconcile itsaccounting records with the bank statements.Bank Reconciliation Process:Gathering Information:The accounting team collects all relevant financial information, including bank statements,canceled checks, deposit slips, and records of transactions.Initial Comparison:The team compares the company's cash account in the general ledger with the bankstatement to identify any variances.

The bank reconciliation statement (BRS) is prepared to determine amounts, transactions, and reasons…

Objective Type Question: Considering the bank reconciliation process, what is the purpose of adjusting entries? A) To inflate the company's reported cash balance B) To identify errors and discrepancies between the company's records and the bank statement C) To minimize the company's reported income D) To increase the company's liabilities on the balance sheet

Objective Type Question: Considering the bank reconciliation process, what is the purpose of adjusting entries? A) To inflate the company's reported cash balance B) To identify errors and discrepancies between the company's records and the bank statement C) To minimize the company's reported income D) To increase the company's liabilities on the balance sheet

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter10: Auditing Cash And Marketable Securities

Section: Chapter Questions

Problem 33MCQ

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A bank reconciliation takes time and must balance. An employee was struggling in balancing the bank reconciliation. Her supervisor told her to plug (make an unsupported entry for) the difference, record to Miscellaneous Expense, and simply move on. Discuss the internal controls problem with this directive.
Bank Reconciliation: Ensuring Financial Accuracy and Integrity Bank reconciliation is a vital accounting process that ensures the accuracy and integrity of an organization's financial records by comparing its internal financial records with the information provided by the bank. This practice is essential for detecting discrepancies, errors, or fraudulent activities that may occur during the financial transactions between the organization and the bank. Key Components of Bank Reconciliation: Starting Balance: The process begins with the starting balance, which represents the closing balance from the previous reconciliation. Adding and Deducting Transactions: Both the organization and the bank maintain records of transactions, including deposits, withdrawals, checks issued, and other related activities. Bank reconciliation involves adding deposits in transit and deducting outstanding checks to reconcile the discrepancies. Bank Fees and Interest: Bank statements often…
Certainly! Here's a detailed information on bank reconciliation presented in table format: Bank Reconciliation Information: Key Components Definition Purpose Frequency Steps in Bank Reconciliation Common Adjustments Importance of Bank Reconciliation Explanation. Bank reconciliation is a process that compares the cash balance in a company's accounting records with the balance in its bank statement. - Identify discrepancies between the company's records and the bank statement. - Ensure accuracy and completeness of financial records. Detect errors, fraud, or unauthorized transactions. Typically performed monthly, but can be more frequent for larger transactions or to catch discrepancies early. 1. Start with the ending balance of the bank statement. 2. Add deposits in transit (deposits made but not yet recorded by the bank). 3. Deduct outstanding checks (checks written but not yet cleared by the bank). 4. Add or deduct bank errors (errors made by the bank in recording transactions). 5.…
Preparing a bank reconciliation on a monthly basis is an example of: A. establishing responsibility B. Separation of duties C. Protecting assets by proving accuracy of cash records. D. Technological control
MULTIPLE CHOICE: 4. An auditor who is engaged to examine the financial statements of a business entity will request cutoff bank statement primarily in order to: A. Detect lapping B. Detect kiting C. Verify reconciling items on the client’s bank reconciliation D. Verify the cash balance reported on the bank confirmation inquiry form 5. Which of the following auditing procedures would the auditor not apply to a cutoff bank statement? A. Trace year end outstanding checks and deposits in transit to the cutoff bank statement B. Reconcile the bank account as of the end of the cutoff period C. Compare dates, payees and endorsements on returned checks with the cash disbursements record D. Determine that the year-end deposit in transit was credited by the bank on the first working day of the following accounting period.
Which of the following statements is correct? Select one: a. Account receivable turnover is equal to net credit sales divided by average net accounts receivable. b. Buying aged receivables from businesses and then collects the payments directly from the customers is called Allowance for uncollectible accounts. c. Auto generated document numbers is a fraud preventive method which is more efficient than physical controls. d. If the same people are responsible for a series of related accounting activities is called Segregation of Duties.
Match each term associated with a bank reconciliation with its description. Terms Descriptions 1. Checks outstanding 2. NSF checks 3. Company error 4. Interest earned 5. Deposits outstanding 6. Bank service fees a. Cash receipts received by the company but not yetrecorded by the bank.b. Fees imposed by the bank to the company forproviding routine services.c. Checks written to the company that are returnedby the bank as not having adequate funds.d. Checks written by the company but not yetrecorded by the bank.e. Money earned on the average daily balance of thechecking account.f. The company recorded a deposit twice.
The following June 30 bank reconciliation was prepared for Poway Co. a. Identify the errors in the following bank reconciliation: b. Prepare a new bank reconciliation for Poway , using the format shown in the illustrative problem.
Preparing bank reconciliation statement is: Select one: a. Not necessary when a perpetual inventory system is used. b. Not required for PLC companies. c. Not necessary when a periodic inventory system is used. d. A sound control activity around organizations’ cash function
Problem Solving. Required: 1. Prepare a properly classified bank reconciliation statement for each of the problems given below.2. Prepare the necessary adjusting journal entries on the company’s book for book reconciling items.
4. The starting point for the verification of the balance in the general bank account is to obtain: A. The client’s year-end bank statement B. The client’s cash account from the general ledger C. A bank reconciliation from the client D. A cutoff bank statement directly form the bank 5. Which of the following substantive audit procedures is most likely to be performed by the auditor to gather evidence in support of the balance per bank ? A. Compare to general ledger B. Trace to cash receipts journal C. Confirm directly to bank D. Trace items on the cut-off bank statement to bank reconciliation
Answer the following questions: Identify the basic concepts of an accounting information system and the types. Describe the nature and purpose of a subsidiary ledger. List the two-common subsidiary. Why the companies use special journals? List them. Define fraud and internal control. Identify the basic concepts of bank reconciliation.