Question 1

The duties of approving an item for payment and paying the item should be done by different departments or individuals.

Accepted Answer

A) True 
 B)False  True

Question 2

A debit balance in Cash Over and Short is reported as a

Accepted Answer

A)  contra asset. 
B)  miscellaneous asset. 
C)  miscellaneous expense. 
D)  miscellaneous revenue. 
A)  contra asset. 
B)  miscellaneous asset. 
C)  miscellaneous expense. 
D)  miscellaneous revenue. C

Question 3

Identify the internal control procedures applicable to cash disbursements followed by Downey Company in each of the following cases.
1. Company checks are prenumbered.
2. Only the treasurer is authorized to sign checks.
3. All employees are required to take vacations.
4. Blank checks are stored in a locked safe.
5. The bookkeeper, not the treasurer, records cash disbursements.

Accepted Answer

1. Documentation procedures
2. Establishment of responsibility
3. Human resource controls
4. Physical controls
5. Segregation of duties

Question 4

The most important element of the fraud triangle is rationalization.

Accepted Answer

A) True 
 B)False

Question 5

Identify whether each of the following items would be (a) added to the book balance, (b) deducted from the book balance in a bank reconciliation, (c) added to the bank balance, or (d) deducted from the bank balance.
1. Deposits in transit
2. Bank service charge
3. Collection of note and interest by bank on company's behalf
4. NSF check
5. Outstanding checks

Accepted Answer

1. c
2. b

Question 6

In large companies, the independent internal verification procedure is often assigned to

Accepted Answer

A)  computer operators. 
B)  management. 
C)  internal auditors. 
D)  outside auditors. 
A)  computer operators. 
B)  management. 
C)  internal auditors. 
D)  outside auditors.

Question 7

A voucher system is a series of prescribed control procedures

Accepted Answer

A)  to check the credit worthiness of customers. 
B)  designed to assure that disbursements by check are proper. 
C)  which eliminates the need for a sales journal. 
D)  specifically designed for small firms who may not have checking accounts. 
A)  to check the credit worthiness of customers. 
B)  designed to assure that disbursements by check are proper. 
C)  which eliminates the need for a sales journal. 
D)  specifically designed for small firms who may not have checking accounts.

Question 8

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

Accepted Answer

A) True 
 B)False

Question 9

An example of poor internal control is

Accepted Answer

A)  the accountant should not have physical custody of the asset nor access to it. 
B)  the custodian of an asset should not maintain or have access to the accounting records. 
C)  one person should be responsible for handling related transactions. 
D)  a salesperson makes the sale, and a different person ships the goods. 
A)  the accountant should not have physical custody of the asset nor access to it. 
B)  the custodian of an asset should not maintain or have access to the accounting records. 
C)  one person should be responsible for handling related transactions. 
D)  a salesperson makes the sale, and a different person ships the goods.

Question 10

An adjusting entry is not required for

Accepted Answer

A)  outstanding checks. 
B)  collection of a note by the bank. 
C)  NSF checks. 
D)  bank service charges. 
A)  outstanding checks. 
B)  collection of a note by the bank. 
C)  NSF checks. 
D)  bank service charges.

Question 11

Tayler Company wrote checks totaling $34,160 during October and $37,300 during November. $32,480 of these checks cleared the bank in October, and $36,440 cleared the bank in November. What was the amount of outstanding checks on November 30?

Accepted Answer

A)  $2,540 
B)  $460 
C)  $1,220 
D)  $3,960 
A)  $2,540 
B)  $460 
C)  $1,220 
D)  $3,960

Question 12

Kline Company had checks outstanding totaling $19,200 on its May bank reconciliation. In June, Kline Company issued checks totaling $119,700. The July bank statement shows that $89,100 in checks cleared the bank in July. A check from one of Kline Company's customers in the amount of $900 was also returned marked "NSF." The amount of outstanding checks on Kline Company's July bank reconciliation should be

Accepted Answer

A)  $58,800. 
B)  $30,600. 
C)  $49,800. 
D)  $10,400. 
A)  $58,800. 
B)  $30,600. 
C)  $49,800. 
D)  $10,400.

Question 13

If the month-end bank statement shows a balance of $90,000, outstanding checks are $30,000, a deposit of $10,000 was in transit at month end, and a check for $1,250 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

Accepted Answer

A)  $68,750. 
B)  $71,250. 
C)  $51,250. 
D)  $108,750. 
A)  $68,750. 
B)  $71,250. 
C)  $51,250. 
D)  $108,750.

Question 14

Fraud experts often say that there are three primary factors that contribute to employee fraud. Identify the three factors and explain what is meant by each.

Accepted Answer

The three main factors that contribute t

Question 15

Identify the three activities that pertain to a petty cash fund, and indicate an internal control principle that is applicable to each activity. (b) When are journal entries required in the operation of a petty cash fund?

Accepted Answer

The activities in a petty cash system an

Question 16

The entry to replenish a petty cash fund includes a credit to

Accepted Answer

A)  Petty Cash. 
B)  Cash. 
C)  Freight-In. 
D)  Postage Expense. 
A)  Petty Cash. 
B)  Cash. 
C)  Freight-In. 
D)  Postage Expense.

Question 17

Internal auditors

Accepted Answer

A)  are hired by accounting firms to audit business firms. 
B)  are employees of the taxing authority 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 accounting firms to audit business firms. 
B)  are employees of the taxing authority 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 18

Under a voucher system, a prenumbered voucher is prepared for every

Accepted Answer

A)  cash receipt, regardless of source. 
B)  transaction entered into by the business. 
C)  expenditure except those made from petty cash. 
D)  journal entry. 
A)  cash receipt, regardless of source. 
B)  transaction entered into by the business. 
C)  expenditure except those made from petty cash. 
D)  journal entry.

Question 19

On a bank reconciliation, deposits in transit are

Accepted Answer

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

Question 20

On April 30, the bank reconciliation of Baxter Company shows three outstanding checks: no. 354, $650, no. 355, $820, and no. 357, $655. The May bank statement and the May cash payments journal show the following.   Instructions
Using step 2 in the reconciliation procedure, list the outstanding checks at May 31.

Accepted Answer

The outsta

The duties of approving an item for payment and paying the item should be done by different departments or individuals.

A debit balance in Cash Over and Short is reported as a

The most important element of the fraud triangle is rationalization.

In large companies, the independent internal verification procedure is often assigned to

A voucher system is a series of prescribed control procedures

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

An example of poor internal control is

An adjusting entry is not required for

Tayler Company wrote checks totaling $34,160 during October and $37,300 during November. $32,480 of these checks cleared the bank in October, and $36,440 cleared the bank in November. What was the amount of outstanding checks on November 30?

If the month-end bank statement shows a balance of $90,000, outstanding checks are $30,000, a deposit of $10,000 was in transit at month end, and a check for $1,250 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

Fraud experts often say that there are three primary factors that contribute to employee fraud. Identify the three factors and explain what is meant by each.

Identify the three activities that pertain to a petty cash fund, and indicate an internal control principle that is applicable to each activity. (b) When are journal entries required in the operation of a petty cash fund?

The entry to replenish a petty cash fund includes a credit to

Internal auditors

Under a voucher system, a prenumbered voucher is prepared for every

On a bank reconciliation, deposits in transit are

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Liabilities

Corporations: Organization, Share Transactions, Dividends, and Retained Earnings

Investments

Statement of Cash Flows

Financial Statement Analysis

Accounting Principles and Contingent Liabilities in Business Operations

Filters

Exam 7: Fraud, Internal Control, and Cash

The duties of approving an item for payment and paying the item should be done by different departments or individuals.

A debit balance in Cash Over and Short is reported as a

The most important element of the fraud triangle is rationalization.

In large companies, the independent internal verification procedure is often assigned to

A voucher system is a series of prescribed control procedures

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

An example of poor internal control is

An adjusting entry is not required for

Tayler Company wrote checks totaling $34,160 during October and $37,300 during November. $32,480 of these checks cleared the bank in October, and $36,440 cleared the bank in November. What was the amount of outstanding checks on November 30?

If the month-end bank statement shows a balance of $90,000, outstanding checks are $30,000, a deposit of $10,000 was in transit at month end, and a check for $1,250 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

Fraud experts often say that there are three primary factors that contribute to employee fraud. Identify the three factors and explain what is meant by each.

Identify the three activities that pertain to a petty cash fund, and indicate an internal control principle that is applicable to each activity. (b) When are journal entries required in the operation of a petty cash fund?

The entry to replenish a petty cash fund includes a credit to

Internal auditors

Under a voucher system, a prenumbered voucher is prepared for every

On a bank reconciliation, deposits in transit are

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Liabilities

Corporations: Organization, Share Transactions, Dividends, and Retained Earnings

Investments

Statement of Cash Flows

Financial Statement Analysis

Accounting Principles and Contingent Liabilities in Business Operations

Filters