Question 1

All of the following are true regarding the management and monitoring of cash except

Accepted Answer

A) companies may have plenty of sales, but insufficient cash to support operations. 
B) the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company. 
C) manufacturers may experience a significant lag between the purchase of raw materials and the receipt of cash from customers. 
D) companies should have sufficient cash to meet payments but minimize the amount of non-revenue-generating cash on hand. 
A) companies may have plenty of sales, but insufficient cash to support operations. 
B) the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company. 
C) manufacturers may experience a significant lag between the purchase of raw materials and the receipt of cash from customers. 
D) companies should have sufficient cash to meet payments but minimize the amount of non-revenue-generating cash on hand.

Question 2

Ron Jones has been a trusted employee for over 10 years. He is responsible for ordering merchandise inventory, receiving the inventory items, and authorizing the payment for these items. Which internal control principle, if any, is being violated?

Accepted Answer

A) None, Ron has proven to be trustworthy and has enough experience to do a good job. 
B) Documentation procedures. 
C) Establishment of responsibilities. 
D) Segregation of duties. 
A) None, Ron has proven to be trustworthy and has enough experience to do a good job. 
B) Documentation procedures. 
C) Establishment of responsibilities. 
D) Segregation of duties.

Question 3

The custodian of a company asset should

Accepted Answer

A) have access to the accounting records for that asset. 
B) be someone outside the company. 
C) not have access to the accounting records for that asset. 
D) be an accountant. 
A) have access to the accounting records for that asset. 
B) be someone outside the company. 
C) not have access to the accounting records for that asset. 
D) be an accountant.

Question 4

In the month of November Gavin Company Inc. wrote checks in the amount of $55,500. In December, checks in the amount of $75,948 were written. In November, $50,808 of these checks were presented to the bank for payment, and $65,298 in December. What is the amount of outstanding checks at the end of December?

Accepted Answer

A) $10,650. 
B) $15,342. 
C) $4,692. 
D) $21,300. 
A) $10,650. 
B) $15,342. 
C) $4,692. 
D) $21,300.

Question 5

The principles of internal control activities are used

Accepted Answer

A) in the U.S.but not globally. 
B) internationally but not in the U.S. 
C) in the U.S.and Canada but not globally. 
D) globally. 
A) in the U.S.but not globally. 
B) internationally but not in the U.S. 
C) in the U.S.and Canada but not globally. 
D) globally.

Question 6

An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of

Accepted Answer

A) establishment of responsibility is violated. 
B) independent internal verification is violated. 
C) documentation procedures is violated. 
D) separation of duties is violated. 
A) establishment of responsibility is violated. 
B) independent internal verification is violated. 
C) documentation procedures is violated. 
D) separation of duties is violated.

Question 7

A bank reconciliation should be prepared

Accepted Answer

A) whenever the bank refuses to lend the company money. 
B) when an employee is suspected of fraud. 
C) to explain any difference between the depositor's balance per books with the balance per bank. 
D) by the person who is authorized to sign checks. 
A) whenever the bank refuses to lend the company money. 
B) when an employee is suspected of fraud. 
C) to explain any difference between the depositor's balance per books with the balance per bank. 
D) by the person who is authorized to sign checks.

Question 8

All of the following actions would strengthen internal control over a petty cash fund except

Accepted Answer

A) surprise counts by a supervisor. 
B) cancellation of paid vouchers. 
C) submission of supporting documents. 
D) multiple petty cash custodians. 
A) surprise counts by a supervisor. 
B) cancellation of paid vouchers. 
C) submission of supporting documents. 
D) multiple petty cash custodians.

Question 9

Internal control is defined, in part, as a plan that safeguards

Accepted Answer

A) all balance sheet accounts. 
B) assets. 
C) liabilities. 
D) capital stock. 
A) all balance sheet accounts. 
B) assets. 
C) liabilities. 
D) capital stock.

Question 10

A petty cash fund is used to pay relatively large amounts.

Accepted Answer

A) True 
 B)False

Question 11

The control principle related to not having the same person authorize and pay for goods is known as

Accepted Answer

A) establishment of responsibility. 
B) independent internal verification. 
C) separation of duties. 
D) rotation of duties. 
A) establishment of responsibility. 
B) independent internal verification. 
C) separation of duties. 
D) rotation of duties.

Question 12

Related purchasing activities include

Accepted Answer

A) ordering, receiving, paying. 
B) ordering, selling, paying. 
C) ordering, shipping, billing. 
D) selling, shipping, paying. 
A) ordering, receiving, paying. 
B) ordering, selling, paying. 
C) ordering, shipping, billing. 
D) selling, shipping, paying.

Question 13

Bonding involves all of the following except

Accepted Answer

A) The company obtains insurance protection against misappropriation of assets by a dishonest employee. 
B) The insurance company screens employees before they are added to the policy. 
C) The company informs employees that the insurance company will vigorously prosecute all offenders. 
D) Employees do not commit inappropriate acts because of the threat of prosecution and their loyalty to the employer. 
A) The company obtains insurance protection against misappropriation of assets by a dishonest employee. 
B) The insurance company screens employees before they are added to the policy. 
C) The company informs employees that the insurance company will vigorously prosecute all offenders. 
D) Employees do not commit inappropriate acts because of the threat of prosecution and their loyalty to the employer.

Question 14

The separation of duties feature of internal control can be negated when several employees are involved in a scheme.

Accepted Answer

A) True 
 B)False

Question 15

Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

Accepted Answer

A) True 
 B)False

Question 16

If a check correctly written and paid by the bank for $491 is incorrectly recorded on the company's books for $419, the appropriate treatment on the bank reconciliation would be to

Accepted Answer

A) add $72 to the book's balance. 
B) subtract $72 from the book's balance. 
C) deduct $72 from the bank's balance. 
D) deduct $491 from the book's balance. 
A) add $72 to the book's balance. 
B) subtract $72 from the book's balance. 
C) deduct $72 from the bank's balance. 
D) deduct $491 from the book's balance.

Question 17

Only large companies need to be concerned with a system of internal control.

Accepted Answer

A) True 
 B)False

Question 18

Internal auditors

Accepted Answer

A) are hired by CPA firms to audit business firms. 
B) are employees of the IRS who evaluate the internal controls of companies filing tax returns. 
C) evaluate the system of internal controls for the companies that employ them. 
D) cannot evaluate the system of internal controls of the company that employs them because they are not independent. 
A) are hired by CPA firms to audit business firms. 
B) are employees of the IRS who evaluate the internal controls of companies filing tax returns. 
C) evaluate the system of internal controls for the companies that employ them. 
D) cannot evaluate the system of internal controls of the company that employs them because they are not independent.

Question 19

The principle of establishing responsibility does not include

Accepted Answer

A) one person being responsible for one task. 
B) authorization of transactions. 
C) independent internal verification. 
D) approval of transactions. 
A) one person being responsible for one task. 
B) authorization of transactions. 
C) independent internal verification. 
D) approval of transactions.

Question 20

In preparing a bank reconciliation, outstanding checks are

Accepted Answer

A) added to the balance per bank. 
B) deducted from the balance per books. 
C) added to the balance per books. 
D) deducted from the balance per bank. 
A) added to the balance per bank. 
B) deducted from the balance per books. 
C) added to the balance per books. 
D) deducted from the balance per bank.

Exam 6: Fraud, Internal Control, and Cash

All of the following are true regarding the management and monitoring of cash except

Ron Jones has been a trusted employee for over 10 years. He is responsible for ordering merchandise inventory, receiving the inventory items, and authorizing the payment for these items. Which internal control principle, if any, is being violated?

The custodian of a company asset should

The principles of internal control activities are used

An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of

A bank reconciliation should be prepared

All of the following actions would strengthen internal control over a petty cash fund except

Internal control is defined, in part, as a plan that safeguards

A petty cash fund is used to pay relatively large amounts.

The control principle related to not having the same person authorize and pay for goods is known as

Related purchasing activities include

Bonding involves all of the following except

The separation of duties feature of internal control can be negated when several employees are involved in a scheme.

Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

If a check correctly written and paid by the bank for $491 is incorrectly recorded on the company's books for $419, the appropriate treatment on the bank reconciliation would be to

Only large companies need to be concerned with a system of internal control.

Internal auditors

The principle of establishing responsibility does not include

In preparing a bank reconciliation, outstanding checks are

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

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