Question 1

Describe a bank reconciliation and discuss its purpose.

Accepted Answer

A bank reconciliation is a report explaining any differences between the checking account balance according to a depositor's records and the balance reported on the bank statement. It can be used to prove the accuracy of a company's cash records. The balance of a checking account reported on the bank statement rarely equals the balance in the depositor's accounting records due to information that one part has that the other does not, or due to potential errors. The reconciliation procedure examines the differences based on the information available to the company and adjusts for the differences. It also serves as a format for the discovery and correction of errors.

Question 2

Internal controls are crucial to companies that convert from U.S. GAAP to IFRS because of all of the following risks except:

Accepted Answer

A) Ineffective communication of the change to investors, creditors, and others. 
B) Possible misstatement of financial information. 
C) Management's inability to certify the effectiveness of the controls. 
D) Possible fraud. 
E) Controls are significantly different across the globe. 
A) Ineffective communication of the change to investors, creditors, and others. 
B) Possible misstatement of financial information. 
C) Management's inability to certify the effectiveness of the controls. 
D) Possible fraud. 
E) Controls are significantly different across the globe. E

Question 3

Basic bank services such as bank accounts, bank deposits, and checking contribute to the control of cash.

Accepted Answer

A) True 
 B)False  True

Question 4

Internal control procedures for cash receipts do not require that:

Accepted Answer

A) Cash sales should be recorded on a cash register at the time of each sale. 
B) Custody over cash is kept separate from its recordkeeping. 
C) An employee with no access to cash receipts should compare the total cash recorded by the register with the record of cash receipts reported by the cashier. 
D) All collections for sales are received immediately upon making the sales. 
E) Clerks having access to cash in a cash register should not have access to the register tape or file. 
A) Cash sales should be recorded on a cash register at the time of each sale. 
B) Custody over cash is kept separate from its recordkeeping. 
C) An employee with no access to cash receipts should compare the total cash recorded by the register with the record of cash receipts reported by the cashier. 
D) All collections for sales are received immediately upon making the sales. 
E) Clerks having access to cash in a cash register should not have access to the register tape or file.

Question 5

Match between columns
                        Premises: A company manager keeps pre-signed checks in his desk drawer for employees to hand write when the accountant is out of the office.
A company fails to hire a CPA to perform an annual audit.
Only sales clerks use the cash registered, but they all share the same cash drawer.
The bookkeeper prepares and signs checks and completes the bank reconciliation.
A large company has no internal auditor on staff.
A company uses a voucher system, but the cash disbursement clerk pays directly from invoices received.
A restaurant allows servers to keep cash collected in their aprons and ring in all sales at the end of the night.
A company does not bond its key cash-handling employees.
A company has a single department that handles purchasing, receiving, and inventory management.
Cashiers have access to the cash register recorded tape or file.

Accepted Answer

The Answer of Establish responsibility and Apply technological controls and is...

Question 6

Preparing a bank reconciliation on a monthly basis is an example of:

Accepted Answer

A) A technological control. 
B) Poor internal control. 
C) Separation of duties. 
D) Protecting assets by proving the accuracy of cash records. 
E) Establishing responsibility. 
A) A technological control. 
B) Poor internal control. 
C) Separation of duties. 
D) Protecting assets by proving the accuracy of cash records. 
E) Establishing responsibility.

Question 7

Since petty cash is concerned with such small amounts of cash, it is not necessary to document all transactions with a petty cash receipt.

Accepted Answer

A) True 
 B)False

Question 8

A debit balance in the Cash Over and Short account reflects an expense and is reported on the income statement as part of selling, general and administrative expenses.

Accepted Answer

A) True 
 B)False

Question 9

Clearly establishing responsibilities and assigning all accounting activities to one person is an important principle of internal control.

Accepted Answer

A) True 
 B)False

Question 10

On a bank statement, deposits are listed as credits because the bank increases its liability to the depositor when the deposit is made.

Accepted Answer

A) True 
 B)False

Question 11

A company had $43 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to:

Accepted Answer

A) Debit Cash Over and Short for $43. 
B) Debit Petty Cash for $43. 
C) Credit Cash Over and Short for $43. 
D) Credit Petty Cash for $43. 
E) Credit Cash for $43. 
A) Debit Cash Over and Short for $43. 
B) Debit Petty Cash for $43. 
C) Credit Cash Over and Short for $43. 
D) Credit Petty Cash for $43. 
E) Credit Cash for $43.

Question 12

Most large thefts occur from payment of fictitious invoices, which makes control of cash disbursements especially important for companies.

Accepted Answer

A) True 
 B)False

Question 13

A voucher system is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.

Accepted Answer

A) True 
 B)False

Question 14

If a check correctly written and paid by the bank for $749 is incorrectly recorded in the company's books for $794, how should this error be treated on the bank reconciliation?

Accepted Answer

A) Add $45 to the bank's balance. 
B) Add $45 to the book balance. 
C) Subtract $45 from the bank's balance. 
D) Subtract $45 from the bank's balance and add $45 to the book's balance. 
E) Subtract $45 from the book balance. 
A) Add $45 to the bank's balance. 
B) Add $45 to the book balance. 
C) Subtract $45 from the bank's balance. 
D) Subtract $45 from the bank's balance and add $45 to the book's balance. 
E) Subtract $45 from the book balance.

Question 15

During the month of July, Clanton Industries issued a check in the amount of $845 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

Accepted Answer

A) Add the check amount to the bank balance. 
B) Deduct the check amount from the book balance of cash. 
C) Add the check amount to the book balance of cash. 
D) Make a journal entry in the company records for an error. 
E) Deduct the check amount from the bank balance. 
A) Add the check amount to the bank balance. 
B) Deduct the check amount from the book balance of cash. 
C) Add the check amount to the book balance of cash. 
D) Make a journal entry in the company records for an error. 
E) Deduct the check amount from the bank balance.

Question 16

Describe the basic bank services that contribute to the control of cash and identify at least two internal control objectives served by the banking activities.

Accepted Answer

Basic bank services can be organized int

Question 17

The principles of internal control include:

Accepted Answer

A) Maintain minimal records. 
B) Bond all employees. 
C) Separate recordkeeping from custody of assets. 
D) Use only computerized systems. 
E) Require automated sales systems. 
A) Maintain minimal records. 
B) Bond all employees. 
C) Separate recordkeeping from custody of assets. 
D) Use only computerized systems. 
E) Require automated sales systems.

Question 18

The Sarbanes-Oxley Act (SOX)requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

Accepted Answer

A) True 
 B)False

Question 19

In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information:
$\begin{array}{|l|l|r|}
\hline \text { December } 4 & \text { Freight charge for merchandise purchased } & \$ 62 \
\hline \text { December } 7 & \text { Delivery charge for shipping to customer } & \$ 46 \
\hline \text { December } 12 & \text { Purchase of office supplies } & \$ 30 \
\hline \text { December } 18 & \text { Donation to charitable oigganization } & \$ 51 \\hline \text { December 18 } & \text { Donation to charitable organization } & \$ 51 \
\hline
\end{array}$
The adjusted cash balance per the books on January 31 is:
A) $ \$ 4,055 $
B) $ \$ 4,585 $
C) $ \$ 5,335 $
D) $ \$ 4,815 $
E) $ \$ 5,855 $

Accepted Answer

The answer of In the process of reconciling its bank...

Question 20

The following information is available for Birch Company at December 31: $$\begin{array} { | l | r | } 
\hline \text { Money market fund balance } & \$ 2,790 \
\hline \text { Certificate of deposit maturing June } 30 \text { of next year } & \$ 10,000 \
\hline \text { Postdated checks from customers } & \$ 1,475 \
\hline \text { Cash in bark account } & \$ 21,430 \
\hline \text { NSF checks from customers returned by bank } & \$ 650 \
\hline \text { Cash in petty cash fund } & \$ 200 \
\hline \text { Inventory of postage stamps } & \$ 24 \
\hline \text { U.S. Treasury bill purchased on December } 15 \text { and maturing on February }&\$5,000 \
28 \text { following year }\\hline 
\end{array}$$ Based on this information, Birch Company should report Cash and Cash Equivalents on December 31 of:

Accepted Answer

A) $38,770 
B) $29,420 
C) $41,345 
D) $31,345 
E) $39,420 
A) $38,770 
B) $29,420 
C) $41,345 
D) $31,345 
E) $39,420

Describe a bank reconciliation and discuss its purpose.

Internal controls are crucial to companies that convert from U.S. GAAP to IFRS because of all of the following risks except:

Basic bank services such as bank accounts, bank deposits, and checking contribute to the control of cash.

Internal control procedures for cash receipts do not require that:

Preparing a bank reconciliation on a monthly basis is an example of:

Since petty cash is concerned with such small amounts of cash, it is not necessary to document all transactions with a petty cash receipt.

A debit balance in the Cash Over and Short account reflects an expense and is reported on the income statement as part of selling, general and administrative expenses.

Clearly establishing responsibilities and assigning all accounting activities to one person is an important principle of internal control.

On a bank statement, deposits are listed as credits because the bank increases its liability to the depositor when the deposit is made.

A company had $43 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to:

Most large thefts occur from payment of fictitious invoices, which makes control of cash disbursements especially important for companies.

A voucher system is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.

If a check correctly written and paid by the bank for $749 is incorrectly recorded in the company's books for $794, how should this error be treated on the bank reconciliation?

During the month of July, Clanton Industries issued a check in the amount of $845 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

Describe the basic bank services that contribute to the control of cash and identify at least two internal control objectives served by the banking activities.

The principles of internal control include:

The Sarbanes-Oxley Act (SOX)requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters

Exam 8: Cash and Internal Controls

Describe a bank reconciliation and discuss its purpose.

Internal controls are crucial to companies that convert from U.S. GAAP to IFRS because of all of the following risks except:

Basic bank services such as bank accounts, bank deposits, and checking contribute to the control of cash.

Internal control procedures for cash receipts do not require that:

Preparing a bank reconciliation on a monthly basis is an example of:

Since petty cash is concerned with such small amounts of cash, it is not necessary to document all transactions with a petty cash receipt.

A debit balance in the Cash Over and Short account reflects an expense and is reported on the income statement as part of selling, general and administrative expenses.

Clearly establishing responsibilities and assigning all accounting activities to one person is an important principle of internal control.

On a bank statement, deposits are listed as credits because the bank increases its liability to the depositor when the deposit is made.

A company had $43 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to:

Most large thefts occur from payment of fictitious invoices, which makes control of cash disbursements especially important for companies.

A voucher system is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.

If a check correctly written and paid by the bank for $749 is incorrectly recorded in the company's books for $794, how should this error be treated on the bank reconciliation?

During the month of July, Clanton Industries issued a check in the amount of $845 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

Describe the basic bank services that contribute to the control of cash and identify at least two internal control objectives served by the banking activities.

The principles of internal control include:

The Sarbanes-Oxley Act (SOX)requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters