Deck 6: Cash and Internal Controls

Question 1

The use of internal controls provides a guarantee against losses due to operating activities.

Answer 1

False

Question 2

Collusion is a form of fraud where individuals collaborate to thwart separation of duties.

Answer 2

True

Question 3

Internal control in technologically advanced accounting systems depends less on the design and operation of the information system and more on the analysis of its resulting documents.

Answer 3

False

Question 4

Electronic funds transfers (EFTs) are decreasingly used by companies due to the inconvenience and high cost.

Question 5

Internal control systems are subject to limitations that usually arise from either (1) human error or human fraud, or (2) the cost-benefit principle.

Question 6

Money orders, cashier's checks, and certified checks are all examples of cash.

Question 7

Because employees know that bonding is an insurance policy against loss from theft, bonding does not generally discourage loss from theft.

Question 8

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

Question 9

Cash equivalents are short-term highly liquid investment assets that are readily converted to a known cash amount, and have maturities of one year.

Question 10

Separation of duties involves dividing responsibility for a transaction or a series of related transactions between two or more individuals or departments.

Question 11

According to good internal control policies, a person who controls an asset also maintains that asset's accounting records.

Question 12

Cash registers, check protectors, time clocks and personal identification scanners are examples of technologies that can improve internal control.

Question 13

A properly designed internal control system is a key part of systems design, analysis, and performance.

Question 14

Liquidity refers to a company's ability to pay its long-term obligations.

Question 15

Technologically advanced accounting systems rarely need monitoring for errors because computers always process transactions correctly.

Question 16

Maintaining adequate records is an important internal control principle.

Question 17

The payee is the person who signs a check, authorizing its payment.

Question 18

An internal control system consists of the policies and procedures companies use to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.

Question 19

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

Question 20

Insuring assets and requiring all accounting personnel to have CPA licenses are two important principles of internal control.

Question 21

When evaluating the days' sales uncollected ratio, generally the higher the receivables balance, the better the ratio.

Question 22

The clerk who has access to the cash in the cash register should also have access to the cash register tape or file.

Question 23

Signature cards, deposit tickets, checks, and bank statements are all examples of internal control devices for banking activities.

Question 24

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

Question 25

If the Cash Over and Short account has a credit balance at the end of the period, the amount is reported as miscellaneous revenue.

Question 26

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

Question 27

A voucher is an external document used to accumulate information to control cash disbursements and to ensure that a transaction is properly recorded.

Question 28

A check involves 3 parties: a maker who signs the check, a payee who is the recipient, and a bank on which the check is drawn.

Question 29

A voucher system establishes procedures for verifying, approving, and recording obligations for eventual cash disbursement.

Question 30

Vouchers should be used for purchases of inventory and all other expenditures made within a company.

Question 31

The days' sales uncollected ratio measures the liquidity of accounts receivable.

Question 32

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

Question 33

A voucher system's control over cash disbursements begins when a company incurs an obligation that will result in eventual payment of cash.

Question 34

Internal control of cash receipts aims to ensure that all cash received is properly recorded and deposited.

Question 35

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

Question 36

The days' sales uncollected ratio measures a company's ability to manage its debt.

Question 37

Canceled checks are checks the bank has paid and deducted from the customer's account during the period.

Question 38

The Petty Cash account is a separate bank account used for small amounts.

Question 39

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

Question 40

Assigning purchasing, receiving, and paying for merchandise to one department or individual is a way to streamline a voucher system.

Question 41

Which of the following is not one of the policies and procedures that make up an internal control system?

A)Protect assets.
B)Ensure reliable accounting.
C)Guarantee a return to investors.
D)Urge adherence to company policies.
E)Promote efficient operations.

Question 42

Proper internal control would require that a department manager inform the purchasing department of its needs for additional merchandise by preparing and signing a purchase requisition which lists the merchandise needed and requests that it be purchased.

Question 43

A receiving report is a document used within a company to notify the appropriate persons that ordered goods have been received and to describe the quantities and condition of the goods.

Question 44

The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared.

Question 45

The net method for recording purchases records the purchase invoice at its gross amount and records cash discounts in the Merchandise Inventory account.

Question 46

Outstanding checks are checks the bank has paid and deducted from the customer's account during the month.

Question 47

After preparing a bank reconciliation, adjustments must be made for items reconciling the book balance.

Question 48

Outstanding checks, deposits in transit, deductions for bank fees, additions for interest, and errors are all factors that can cause the bank statement balance for a checking account to be different from the company's checking account balance.

Question 49

Deposits in transit are deposits made and recorded by the depositor but not yet recorded on the bank statement.

Question 50

A purchase order is a document the purchasing department sends to the vendor to place an order.

Question 51

In order to streamline the purchasing process, department managers should place orders directly with suppliers.

Question 52

Petty cash reimbursement requires a journal entry that involves a debit to the appropriate expenses and a credit to Cash.

Question 53

It is generally not necessary for businesses to reconcile their checking accounts since banks keep accurate records and provide internal control support for cash.

Question 54

An invoice is an itemized statement of goods prepared by the customer listing the customer's name, items sold, sales prices, and terms of sale.

Question 55

Approved vouchers are recorded in a journal called the voucher register.

Question 56

When a voucher system is used, an invoice approval is not needed as long as the purchase is evidenced by an invoice and purchase order.

Question 57

A bank reconciliation explains any differences between the balance of a checking account on the depositor's records and the balance reported on the bank statement.

Question 58

The Discounts Lost account represents the cost of not taking advantage of purchase discounts.

Question 59

The entry to increase the balance in petty cash from $50 to $75 would include a credit to Petty Cash of $25.

Question 60

Outstanding checks, deposits, and bank service charges are added to the beginning balance of the bank statement to determine the adjusted bank balance.

Question 61

Basic bank services do not include:

A)Bank accounts.
B)Bank deposits.
C)Checking.
D)Electronic funds transfer.
E)Petty cash management.

Question 62

Cash, not including cash equivalents, includes:

A)Postage stamps.
B)Customer checks, cashier checks, and money orders.
C)IOUs.
D)Two-year certificates of deposit.
E)Money market funds.

Question 63

An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

A)Cash Lost.
B)Bank Reconciliation.
C)Petty Cash.
D)Cash Over and Short.
E)Cash Receivable.

Question 64

A company's internal control system:

A)Eliminates the company's risk of loss.
B)Monitors company and employee performance.
C)Eliminates human error.
D)Eliminates the need for audits.
E)Eliminates the need for managers' certification of controls.

Question 65

A set of procedures and approvals for verifying, approving and recording obligations for eventual cash disbursement, and for issuing checks for payment only of verified, approved, and recorded obligations is referred to as a(n):

A)Internal cash system.
B)Petty cash system.
C)Cash disbursement system.
D)Voucher system.
E)Cash control system.

Question 66

Internal control procedures for cash receipts do not require that:

A)Custody over cash is kept separate from its recordkeeping.
B)All collections for sales are be received immediately upon making the sales.
C)Clerks having access to cash in a cash register should not have access to the register tape or file.
D)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.
E)Cash sales should be recorded on a cash register at the time of each sale.

Question 67

The Cash Over and Short account:

A)Is used when the cash account reports a credit balance.
B)Is used to record the income effects of errors in making change and/or processing petty cash transactions.
C)Is not necessary in a computerized accounting system.
D)Can never have a debit balance.
E)Can never have a credit balance.

Question 68

Cash equivalents meet all of the following criteria except:

A)Are readily convertible to a known cash amount.
B)Include short-term investments purchased within 3 months of their maturity dates.
C)Have a market value that is not sensitive to interest rate changes.
D)Include short-term U.S. treasury bills.
E)Are more liquid than cash.

Question 69

A bank does not issue a debit memorandum to notify the depositor of which of the following?

A)All withdrawals through an ATM.
B)A fee assessed to the depositor's account.
C)An uncollectible check.
D)Periodic payments arranged in advance, by a depositor.
E)A deposit to their account.

Question 70

Managers place a high priority on internal control systems because the systems assist managers in all of the following except:

A)Promoting efficient operations.
B)Protecting assets.
C)Urging adherence to company policies.
D)Ensuring reliable accounting.
E)Assuring that no loss will occur.

Question 71

Internal control policies and procedures have limitations not including:

A)Human error.
B)Human fraud.
C)Cost-benefit principle.
D)Collusion.
E)Establishing responsibilities.

Question 72

The three parties involved with a check are:

A)The writer, the cashier, and the bank.
B)The maker, the payee, and the bank.
C)The maker, the manager, and the payee.
D)The bookkeeper, the payee, and the bank.
E)The signer, the cashier, and the company.

Question 73

A bank statement provided by the bank includes:

A)A list of outstanding checks.
B)A list of petty cash amounts.
C)The beginning and the ending balance of the depositor's account.
D)A listing of deposits in transit.
E)A reconciliation to the depositor cash account.

Question 74

Principles of internal control include all of the following except:

A)Apply technological controls.
B)Maintaining security by having one person track and record assets.
C)Perform regular and independent reviews.
D)Separate recordkeeping from custody of assets.
E)Divide responsibilities for related transactions.

Question 75

The days' sales uncollected ratio is used to:

A)Measure how many days of sales remain until the end of the year.
B)Determine the number of days that have passed without collecting on accounts receivable.
C)Identify the likelihood of collecting sales on account.
D)Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.
E)Measure the amount of cash sales during a period.

Question 76

The number of days' sales uncollected is calculated by:

A)Dividing accounts receivable by net sales.
B)Dividing accounts receivable by net sales and multiplying by 365.
C)Dividing net sales by accounts receivable.
D)Dividing net sales by accounts receivable and multiplying by 365.
E)Multiplying net sales by accounts receivable and dividing by 365.

Question 77

Cash equivalents:

A)Include savings accounts.
B)Include checking accounts.
C)Are readily converted to a known cash amount.
D)Include time deposits.
E)Have no immediate value.

Question 78

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

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

Question 79

Which internal control principle prescribes the use of pre-numbered printed checks?

A)Technological controls.
B)Maintain adequate records.
C)Perform regular and independent reviews.
D)Establish responsibilities.
E)Divide responsibility for related transactions.

Question 80

Internal control systems are:

A)Developed by the Securities and Exchange Commission for public companies.
B)Developed by the Small Business Administration for non-public companies.
C)Developed by the Internal Revenue Service for all U.S. companies.
D)Required by Sarbanes-Oxley (SOX) to be documented and certified if the company's stock is traded on an exchange.
E)Required only if a company plans to engage in interstate commerce.