352 Chapter 7 Sarbanes-Oxley, Internal Control, and Cash
- B On any specific date, the cash account in a company’s
ledger may not agree with the account in the bank’s ledger
because of delays and/or errors by either party in recording
transactions. The purpose of a bank reconciliation, therefore,
is to determine the reasons for any differences between the
two account balances. All errors should then be corrected by
the company or the bank, as appropriate. In arriving at the
adjusted cash balance according to the bank statement, out-
standing checks must be deducted (answer B) to adjust for
checks that have been written by the company but that have
not yet been presented to the bank for payment. - C All reconciling items that are added to and deducted
from the cash balance according to the company’s records on
the bank reconciliation (answer C) require that journal entries
be made by the company to correct errors made in recording
transactions or to bring the cash account up to date for delays
in recording transactions.- D To avoid the delay, annoyance, and expense that is
associated with paying all obligations by check, relatively
small amounts (answer A) are paid from a petty cash fund.
The fund is established by estimating the amount of cash
needed to pay these small amounts during a specified period
(answer B), and it is then reimbursed when the amount of
money in the fund is reduced to a predetermined minimum
amount (answer C).