Multiple Choice
When a company receives cash from an account receivable, which of the following is the correct accounting entry?
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7. Receivables and Investments
Types of Receivables
Multiple Choice
Banks are liable for losses on counterfeit checks in all the following scenarios except:
A
When the bank pays a check with a forged endorsement without proper verification.
B
When the customer fails to promptly notify the bank of an unauthorized transaction after receiving the bank statement.
C
When the bank fails to exercise ordinary care in processing the check.
D
When the drawer's signature is forged and the bank fails to verify it.
Verified step by step guidance1
Understand the concept of liability for losses on counterfeit checks: Banks are generally liable for losses on counterfeit checks if they fail to exercise ordinary care or proper verification in processing checks.
Analyze the scenarios provided: Each scenario describes a situation where the bank's liability is determined based on its actions or the customer's actions.
Scenario 1: 'When the bank pays a check with a forged endorsement without proper verification' - This indicates the bank's failure to verify the endorsement, making it liable.
Scenario 2: 'When the customer fails to promptly notify the bank of an unauthorized transaction after receiving the bank statement' - This shifts the liability to the customer, as the bank cannot act on unauthorized transactions it is unaware of.
Scenario 3: 'When the bank fails to exercise ordinary care in processing the check' and Scenario 4: 'When the drawer's signature is forged and the bank fails to verify it' - Both scenarios involve the bank's failure to act responsibly, making it liable. Therefore, the exception is Scenario 2, where the customer fails to notify the bank promptly.
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