Question 1

Which of the following describes the environment in internal control?

Accepted Answer

A)  Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate. 
B)  The environment is the "tone at the top" of the business. 
C)  The environment is designed to ensure that the business earns profit. 
D)  A company must identify its risks. 
A)  Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate. 
B)  The environment is the "tone at the top" of the business. 
C)  The environment is designed to ensure that the business earns profit. 
D)  A company must identify its risks.

Question 2

Regarding Electronic Data Interchange (EDI),which of the following statements is incorrect?

Accepted Answer

A)  A manager approves the invoice, and then an electronic fund transfer sends the retailer's payment to the supplier. 
B)  The retailer electronically sends an invoice to the supplier. 
C)  EDI procedures are used for both cash payments and cash receipts in many companies. 
D)  When a retailer's inventory reaches a low level, the computer creates and sends an electronic purchase order to the supplier. 
A)  A manager approves the invoice, and then an electronic fund transfer sends the retailer's payment to the supplier. 
B)  The retailer electronically sends an invoice to the supplier. 
C)  EDI procedures are used for both cash payments and cash receipts in many companies. 
D)  When a retailer's inventory reaches a low level, the computer creates and sends an electronic purchase order to the supplier.

Question 3

Electronic data interchange (EDI)allows a retailer's computers to communicate with the computers of suppliers.

Accepted Answer

A) True 
 B)False

Question 4

Public companies ________.

Accepted Answer

A)  must issue an internal control report which states that the outside auditor is responsible for the adequacy of internal controls 
B)  are audited by accounting firms that do not also provide certain consulting services to the public company 
C)  are required by the Financial Accounting Standards Board to maintain a system of internal controls 
D)  are overseen by the Public Company Accounting Oversight Board 
A)  must issue an internal control report which states that the outside auditor is responsible for the adequacy of internal controls 
B)  are audited by accounting firms that do not also provide certain consulting services to the public company 
C)  are required by the Financial Accounting Standards Board to maintain a system of internal controls 
D)  are overseen by the Public Company Accounting Oversight Board

Question 5

Which of the following is used by companies to separate cash duties and establish stronger control over cash receipts?

Accepted Answer

A)  an encryption system 
B)  an imprest system 
C)  a lock-box system 
D)  a firewall system 
A)  an encryption system 
B)  an imprest system 
C)  a lock-box system 
D)  a firewall system

Question 6

The bank made an EFT payment of a telephone bill of $5,000.How would this information be included on the bank reconciliation?

Accepted Answer

A)  an addition on the bank side 
B)  a deduction on the book side 
C)  an addition on the book side 
D)  a deduction on the bank side 
A)  an addition on the bank side 
B)  a deduction on the book side 
C)  an addition on the book side 
D)  a deduction on the bank side

Question 7

Which of the following is TRUE of internal control?

Accepted Answer

A)  A company's outside auditor is responsible for the company's internal control system. 
B)  One of the major purposes of internal control is to ensure that the assets are safeguarded. 
C)  Internal control procedures tend to diminish the importance of operational efficiency. 
D)  Internal controls are only necessary for public companies. 
A)  A company's outside auditor is responsible for the company's internal control system. 
B)  One of the major purposes of internal control is to ensure that the assets are safeguarded. 
C)  Internal control procedures tend to diminish the importance of operational efficiency. 
D)  Internal controls are only necessary for public companies.

Question 8

The data of Graham Brothers Company for two years are given below. $$\begin{array} { | l | r | r | } 
\hline & 2018 & 2019 \
\hline \text { Cash and cash } & & \
\text { equivalents } & \$ 5,300 & \$ 12,000 \
\hline \text { Total current liabilities } & 24,000 & 31,000 \
\hline
\end{array}$$ Based on the above information,which of the following statements is TRUE?

Accepted Answer

A)  Cash ratio has increased from 0.02 in 2018 to 0.03 in 2019. 
B)  Cash ratio has increased from 0.05 in 2018 to 0.08 in 2019. 
C)  Cash ratio has increased from 0.387 in 2018 to 0.221 in 2019. 
D)  Cash ratio has increased from 0.221 in 2018 to 0.387 in 2019. 
A)  Cash ratio has increased from 0.02 in 2018 to 0.03 in 2019. 
B)  Cash ratio has increased from 0.05 in 2018 to 0.08 in 2019. 
C)  Cash ratio has increased from 0.387 in 2018 to 0.221 in 2019. 
D)  Cash ratio has increased from 0.221 in 2018 to 0.387 in 2019.

Question 9

When a lock-box system is used,customers send their checks to a post office box that belongs to a bank.

Accepted Answer

A) True 
 B)False

Question 10

No journal entries are required for the reconciling items on the bank side because ________.

Accepted Answer

A)  those transactions have already been recorded in the company's journal 
B)  the adjusted balances on both sides are the same amounts 
C)  the amounts are immaterial 
D)  those transactions are already included in the bank balance 
A)  those transactions have already been recorded in the company's journal 
B)  the adjusted balances on both sides are the same amounts 
C)  the amounts are immaterial 
D)  those transactions are already included in the bank balance

Question 11

Journal entries are required if the bank reconciliation includes outstanding checks.

Accepted Answer

A) True 
 B)False

Question 12

The Sarbanes-Oxley Act was passed by the Public Company Accounting Oversight Board.

Accepted Answer

A) True 
 B)False

Question 13

A ________ is a document explaining the reasons for the difference between a depositor's Cash account in the ledger and the depositor's cash balance in its bank account.

Accepted Answer

A)  bank statement 
B)  deposit receipt 
C)  bank reconciliation 
D)  remittance advice 
A)  bank statement 
B)  deposit receipt 
C)  bank reconciliation 
D)  remittance advice

Question 14

Cash in the bank is more liquid than a petty cash fund.

Accepted Answer

A) True 
 B)False

Question 15

The following information is needed to reconcile the cash balance for Discount Dry Cleaning Company. *A deposit of $ \$ 5,600 $ is in transit.
*Outstanding checks total $ \$ 1,400 $.
*The book balance is $ \$ 6,000 $ at February 28,2019 .
*The bookkeeper recorded a $ \$ 1,600 $ check as $ \$ 17,400 $ in payment of the current month's rent
*The bank balance at February 28,2019 was $ \$ 17,130 $.
*A deposit of $ \$ 300 $ was credited by the bank for $ \$ 3,000 $.
*A customer's check for $ \$ 3,100 $ was returned for nonsufficient funds.
*The bank service charge is $ \$ 70 $.
 What was the adjusted book balance?

Accepted Answer

A)  $18,700 
B)  $17,200 
C)  $18,630 
D)  $18,770 
A)  $18,700 
B)  $17,200 
C)  $18,630 
D)  $18,770

Question 16

In reconciling a bank statement,the bank balance is $1,500,and the checkbook balance is $2,105.Which of the following is the most probable reason for the checkbook balance being larger than the bank balance?

Accepted Answer

A)  The bank has not cleared certain outstanding checks. 
B)  The bank has added interest revenue to the account balance. 
C)  A deposit in transit was made at the end of the month. 
D)  The bank received an EFT from a customer. 
A)  The bank has not cleared certain outstanding checks. 
B)  The bank has added interest revenue to the account balance. 
C)  A deposit in transit was made at the end of the month. 
D)  The bank received an EFT from a customer.

Question 17

Which of the following is a benefit provided by internal control?

Accepted Answer

A)  ensuring timely collection of accounts receivables 
B)  ensuring that collusion will never happen 
C)  ensuring that a business is profitable 
D)  promoting operational efficiency 
A)  ensuring timely collection of accounts receivables 
B)  ensuring that collusion will never happen 
C)  ensuring that a business is profitable 
D)  promoting operational efficiency

Question 18

Concerning how companies control cash received by mail,state which employee should perform the following duties:
 $$\begin{array} {| l | l | } 
\hline \text { Duty } & \begin{array} { l } 
\text { Employee who should } \
\text { perform the duty }
\end{array} \
\hline \text { Use the remittance advices to } & \
\text { record the journal entries for } & \
\text { cash receipts } & \
\hline \text { Deposit the customer checks } & \
\text { in the bank } & \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { |l | l | } 
\hline \te

Question 19

In reconciling a bank statement,the bank balance is $2,100,and the checkbook balance is $2,001.Which of the following is the most probable reason for the bank balance being larger than the book balance?

Accepted Answer

A)  There are outstanding checks. 
B)  The bank has deducted certain amounts for bank service charges. 
C)  A deposit in transit was made at the end of the month. 
D)  The company erroneously recorded a check for an amount less than the actual amount. 
A)  There are outstanding checks. 
B)  The bank has deducted certain amounts for bank service charges. 
C)  A deposit in transit was made at the end of the month. 
D)  The company erroneously recorded a check for an amount less than the actual amount.

Question 20

Proceeds from credit and debit card transactions are deposited on the day of the actual sale.

Accepted Answer

A) True 
 B)False

Exam 8: Internal Control and Cash

Which of the following describes the environment in internal control?

Regarding Electronic Data Interchange (EDI),which of the following statements is incorrect?

Electronic data interchange (EDI)allows a retailer's computers to communicate with the computers of suppliers.

Public companies ________.

Which of the following is used by companies to separate cash duties and establish stronger control over cash receipts?

The bank made an EFT payment of a telephone bill of $5,000.How would this information be included on the bank reconciliation?

Which of the following is TRUE of internal control?

The data of Graham Brothers Company for two years are given below. 2018 2019 Cash and cash equivalents \ 5,300 \ 12,000 Total current liabilities 24,000 31,000 Based on the above information,which of the following statements is TRUE?

When a lock-box system is used,customers send their checks to a post office box that belongs to a bank.

No journal entries are required for the reconciling items on the bank side because ________.

Journal entries are required if the bank reconciliation includes outstanding checks.

The Sarbanes-Oxley Act was passed by the Public Company Accounting Oversight Board.

A ________ is a document explaining the reasons for the difference between a depositor's Cash account in the ledger and the depositor's cash balance in its bank account.

Cash in the bank is more liquid than a petty cash fund.

In reconciling a bank statement,the bank balance is $1,500,and the checkbook balance is $2,105.Which of the following is the most probable reason for the checkbook balance being larger than the bank balance?

Which of the following is a benefit provided by internal control?

Concerning how companies control cash received by mail,state which employee should perform the following duties: Duty Employee who should perform the duty Use the remittance advices to record the journal entries for cash receipts Deposit the customer checks in the bank

In reconciling a bank statement,the bank balance is $2,100,and the checkbook balance is $2,001.Which of the following is the most probable reason for the bank balance being larger than the book balance?

Proceeds from credit and debit card transactions are deposited on the day of the actual sale.

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

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