Deck 4: Internal Control and Cash

Question 1

The bank statement balance is $6,450 and shows a service charge of $30, interest earned of $25, and an NSF check for $475. Deposits in transit total $1,850; outstanding checks are $1,125. What is the adjusted bank balance?

A)$7,175
B)$7,655
C)$5,725
D)$5,970

Answer 1

A

Question 2

Which of the following is the first step in the ethical decision framework?

A)Identify the legal issues.
B)Assess the possible outcomes.
C)Specify the alternatives.
D)Identify the ethical issues.

Answer 2

D

Question 3

Checks written by a company, but not yet paid by the bank, appear on the bank reconciliation as and are called _ .

A)an addition to the bank balance; checks in transit
B)deductions from the bank balance; outstanding checks
C)deductions from the bank balance; checks in transit
D)These checks would not appear on the bank reconciliation.

Answer 3

B

Question 4

Differences between the amount of cash reported on a company's bank statement and the balance in the company's Cash account before the bank reconciliation are primarily due to:

A)timing difference in recording transactions.
B)errors in the accounting process by the company.
C)differences between the cash basis and accrual basis of accounting.
D)errors made by the bank.

Question 5

Which of the following items will cause a difference between the book balance and the bank balance?

A)Bank collections
B)Outstanding voided checks
C)Canceled checks
D)Deposits in timing

Question 6

The discipline on business conduct placed by outsiders who interact with the company is referred to as:

A)external controls.
B)external factors.
C)external environment.
D)internal controls.

Question 7

When a company receives cash by mail, the bank deposit for the cash receipts should be made by the:

A)controller.
B)mail room clerk.
C)certified public accountant.
D)treasurer.

Question 8

A cash budget includes estimated cash:

A)receipts and estimated cash disbursements.
B)disbursements, accounts receivable, accounts payable balances, and tax payments.
C)receipts, cash disbursements, and non- cash expenses such as depreciation expense.
D)receipts, accounts receivable, accounts payable balances, and interest payments.

Question 9

Which characteristic will NOT be found in an effective system of internal control?

A)Documents and records
B)A separation of duties
C)Competent, reliable, and ethical personnel
D)A combination of duties

Question 10

An imprest petty cash fund of $400 was established for minor disbursements. At the end of the month the fund included petty cash tickets for the purchase of $185 in supplies, $41 for postage, $86 for fuel and a delivery charge of $65. How much cash is left in the fund if there is no shortage or overage?

A)$ 23
B)$174
C)$ 88
D)$377

Question 11

Rotating employees through various jobs is a part of which characteristic of internal control?

A)Separation of duties
B)Competent and reliable personnel
C)Assignment of responsibilities
D)Proper authorization

Question 12

One way to guard against a hacker reading a message sent from one company to another over the Internet is to use:

A)encryption.
B)an intrusion protection device.
C)an incident response procedure.
D)a firewall.

Question 13

Assuming a beginning cash balance of $2,000, estimated cash receipts of $105,900, and a desired ending cash balance of $3,500, then the estimated cash disbursements are:

A)$108,400.
B)$106,900.
C)$105,400.
D)$104,400.

Question 14

The company's has the primary responsibility for establishing and maintaining a company's system of internal control.

A)stockholders
B)internal auditors
C)external auditors
D)top management

Question 15

Which of the following is a limitation of internal control?

A)Safeguarding company assets
B)Operational efficiency
C)Accurate and reliable accounting records
D)Employee collusion

Question 16

In a bank reconciliation, an EFT cash payment is:

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

Question 17

A bank charge of $40 for imprinting checks would appear on the bank reconciliation as an) to or from the balance.

A)addition; book
B)addition; bank
C)deduction; bank
D)deduction; book

Question 18

Which of the following are controls over cash received in a store?

A)The customer should be able to see the amounts entered into the register.
B)The clerk must have access to the cash register tape.
C)The cash drawer can be opened only when the sales clerk needs change.
D)A receipt should not be given to the customer.

Question 19

A receiving report is prepared by what department?

A)Accounting
B)Purchasing
C)Shipping
D)Marketing

Question 20

When preparing a bank reconciliation, which of the following items should be subtracted from the bank balance?

A)Outstanding checks
B)Deposits in transit
C)EFT cash receipts
D)Bank service charges

Question 21

If a bank statement included a bank collection and related interest revenue, the journal entry to record this reconciling item should include a:

A)credit to Cash.
B)debit to Note Payable.
C)debit to Note Receivable.
D)debit to Cash.

Question 22

If the bank records a deposit of $1,500 as $150, the error should be shown on a bank reconciliation as an):

A)addition to the bank balance of $1,350.
B)addition to the book balance of $1,350.
C)deduction from the bank balance of $1,350.
D)deduction from the book balance of $1,350.

Question 23

An imprest petty cash fund of $400 was established for minor disbursements. At the end of the month the fund included petty cash tickets for the purchase of $185 in supplies, $41 for postage, $86 for fuel and a delivery charge of $65. If there is $13 left in the fund, how much cash is required to replenish the fund?

A)$236
B)$377
C)$387
D)$367

Question 24

A fidelity bond is an):

A)contract prohibiting former employees from working for a competitor.
B)insurance policy that reimburses a company for employee theft.
C)employment contract for a specified period of time.
D)promise by a company to safeguard customers' personal information.

Question 25

Internal control can be broken down in the following items:

A)monitoring of controls, risk assessment, control environment.
B)risk assessment, control procedures, information database.
C)control environment, risk assessment, control policies.
D)monitoring of controls, information database, risk assessment.

Question 26

At the time of payment, what journal entry is required to record a petty cash disbursement for postage?

A)debit Postage Expense, credit Petty Cash
B)debit Petty Cash, credit cash
C)debit Postage Expense, credit Cash
D)No journal entry is required.

Question 27

An EFT is an:

A)electric funds transfer.
B)electronic flows transfer.
C)electronic funds transfer.
D)emergency funds transfer.

Question 28

Gamma Company has an account at First Bank. Gamma writes a check payable to Delta Company. In this transaction, Delta Company is the:

A)payer.
B)maker.
C)drawer.
D)payee.

Question 29

In a bank reconciliation, items recorded by the bank, but not yet recorded by the company, include:

A)outstanding checks.
B)bank collections.
C)deposits in transit.
D)both deposits in transit and outstanding checks.

Question 30

A cash budget is:

A)a means of identifying future cash receipts and future cash payments.
B)part of the bank reconciliation process.
C)used to facilitate minor cash disbursements.
D)all of the above.

Question 31

Where do cash equivalents appear on the balance sheet?

A)They are not reported on the balance sheet.
B)They are reported immediately after Cash.
C)They are included with Cash Pledged as Collateral.
D)They are reported in conjunction with Cash.

Question 32

Albert Company's accountant considered the following items: cash in a checking account, $1,400; cash in a time deposit account, $450; cash pledged as collateral, $250. How much should appear as Cash on the balance sheet?

A)$1,650
B)$2,100
C)$1,200
D)$1,850

Question 33

A bank collected $200 on behalf of its customer. The $200 should appear on the bank reconciliation as:

A)added to the book balance.
B)The collection would not appear on the bank reconciliation.
C)deducted from the book balance.
D)added to the bank balance.

Question 34

In a bank reconciliation, an EFT cash receipt is:

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

Question 35

Interest paid by the bank to a company's account should appear on the bank reconciliation as:

A)added to the book balance.
B)added to the bank balance.
C)deducted from the book balance.
D)Interest received would not appear on the bank reconciliation.

Question 36

Which guideline for ethical judgments is correct?

A)Assess the possible outcomes.
B)Identify the outcomes and unethical issues.
C)Identify all federal and state tax effects of each alternative.
D)Both A and B are correct.

Question 37

Which of the following is prepared by the accounting department and sent to the vendor who sells the needed merchandise?

A)Purchase request
B)An invoice
C)Purchase order
D)None of the above

Question 38

All of the following are purposes of internal control EXCEPT:

A)to encourage adherence to company policies.
B)to ensure accurate and reliable accounts records.
C)to safeguard assets.
D)to promote operational inefficiency.

Question 39

Which of the following steps should be performed by the accounting department prior to the approval of a disbursement?

A)The mathematical accuracy of the invoice should be proved.
B)The check should be processed and signed by the purchasing department supervisor.
C)The invoice should be compared with a copy of the purchase order and invoice.
D)The invoice should be compared with the disbursing report.

Question 40

The beginning cash balance is $3,000, estimated cash receipts are $105,000, and estimated cash disbursements are $111,000. How much cash must be borrowed to have a desired ending balance of $5,000?

A)$5,000
B)$2,000
C)$6,000
D)$8,000

Question 41

When preparing a bank reconciliation, which of the following items should be added to the book balance?

A)Collection items
B)Deposits in transit
C)EFT receipts
D)Both EFT receipts and collection items

Question 42

The checks that have been paid by the bank on behalf of the depositor, which are included with the bank statement, are called:

A)outstanding checks.
B)NSF checks.
C)checks in transit.
D)canceled checks.

Question 43

Herbert Company deposited $25,000 in its bank on the same day as-but after-the bank prepared Herbert Company's bank statement. The deposit should appear on the bank reconciliation as an) and is called an).

A)addition to the bank balance; outstanding deposit
B)deduction to the bank balance; deposit in transit
C)addition to the bank balance; deposit in transit
D)The deposit would not appear on the bank reconciliation.

Question 44

When opening incoming mail, the mailroom employee should compare the amount of the check received with the amount shown on the:

A)customer order form.
B)sales invoice.
C)remittance advice.
D)purchase order.

Question 45

Which of the following expresses the order by which documents are prepared in the purchasing process?

A)purchase order, purchase request, payment packet, invoice
B)purchase request, purchase order, receiving report, payment packet
C)purchase order, receiving report, invoice, payment packet
D)invoice, receiving report, purchase order, purchase request

Question 46

Many businesses have their customers pay directly to a special post office box. This system is known as an):

A)imprest system.
B)bank account reconciliation system.
C)EFT system.
D)lock- box system.

Question 47

A bank reconciliation included an outstanding check of $1,300 for the purchase of supplies. The journal entry to record this reconciling item:

A)should debit Accounts Receivable and credit Cash for $1,300.
B)should debit Cash and credit Supplies for $1,300.
C)should debit Supplies and credit Cash for $1,300.
D)is not required.

Question 48

A recent cash budget showed estimated cash receipts of $159,000, estimated cash disbursements of $155,000, and a desired ending cash balance of $6,000, with no borrowing of funds. The beginning cash balance was:

A)$ 2,000.
B)$10,000.
C)$ 4,000.
D)There is not enough information to calculate.

Question 49

The bank statement balance is $6,450 and shows a service charge of $30, interest earned of $25, and an NSF check for $475. Deposits in transit total $1,850; outstanding checks are $1,125. What is the adjusted book balance?

A)$7,175
B)$5,725
C)$7,655
D)$5,970

Question 50

Requiring employees to take annual vacations is a part of which characteristic of internal control?

A)Separation of duties
B)Competent and reliable personnel
C)Assignment of responsibilities
D)Proper authorization

Question 51

An imprest petty cash fund of $400 was established for minor disbursements. At the end of the month, the fund included petty cash tickets for the purchase of $185 in supplies, $41 for postage, $86 for fuel and a delivery charge of $65. How much cash is required to replenish the fund?

A)$226
B)$377
C)$312
D)$ 23

Question 52

The effect of the entry to establish the petty cash fund is to:

A)decrease Cash and increase Petty Cash.
B)increase Petty Cash and decrease total assets.
C)increase Cash and decrease Petty Cash.
D)decrease Petty Cash and increase total assets.

Question 53

Alpha Company has an account at First Bank. Alpha writes a check payable to Beta Company. In this transaction, Alpha Company is the:

A)maker.
B)payer.
C)payee.
D)drawer.

Question 54

If a bookkeeper mistakenly recorded a disbursement as $36 instead of the correct amount of $63, the error should be shown on the bank reconciliation as a:

A)$36 addition to the books.
B)$27 deduction from the books.
C)$36 deduction from the books.
D)$27 addition to the books.

Question 55

A bank statement included a NSF check from Kim Fields for $2,100. The journal entry to record this reconciling item should:

A)debit NSF and credit Cash for $2,100.
B)debit Accounts Receivable and credit Cash for $2,100.
C)debit Cash and credit NSF for $2,100.
D)debit Cash and credit Accounts Receivable for $2,100.

Question 56

In a bank reconciliation, items recorded by the company, but not yet been recorded by the bank, include:

A)NSF checks.
B)bank service charges.
C)interest.
D)outstanding checks.

Question 57

Bill Bosworth files a tax return overstating a client's expenses, and the client receives the appropriate refund from the IRS. What kind of ethics is involved?

A)Falsifying IRS documents
B)Being greedy
C)Colluding with the client to defraud the government
D)All of the above

Question 58

There are two records of a business's cash-the:

A)bank statement and the cash in petty cash.
B)cash account in the general ledger and the journal entries from the bank reconciliation.
C)bank statement and the cash account in the general ledger.
D)cash account in the general ledger and the petty cash box.

Question 59

A bank deposit of $450 recorded by the bank as $500 should appear on a bank reconciliation as an):

A)addition to the bank balance of $50.
B)deduction from the book balance of $50.
C)deduction from the bank balance of $50.
D)addition to the book balance of $50.

Question 60

If a bank statement included an EFT payment of $945 for insurance, the journal entry to record this reconciling item should include a:

A)debit to Accounts Payable for $945.
B)credit to Cash for $945.
C)credit to Prepaid Insurance for $945.
D)debit to Cash for $945.

Question 61

The AICPA Code of Professional Conduct and the Standards of Ethical Conduct for Management Accountants set the minimum standards of conduct for members of the AICPA.

Question 62

The treasurer is the chief accounting officer in an organization.

Question 63

A cash budget is prepared by subtracting expected cash receipts and adding expected cash disbursements from ending cash on hand.

Question 64

A fund with a small amount of cash on hand for minor disbursements is called a:

A)cash fund.
B)slush fund.
C)miscellaneous expense fund.
D)petty cash fund.

Question 65

The first step in the four- step ethical decision framework is to identify the ethical issue.

Question 66

Differences between the bank statement and the company's Cash account are primarily the result of timing errors made by the company.

Question 67

The journal entry for a NSF check involves a credit to Accounts Receivable.

Question 68

Carla Company's cash balance at the end of the month was $6,500. After comparing the company's records with the monthly bank statement, Carla's accountant identified the following reconciling items: outstanding checks, $800; deposits in transit, $700; bank service charge, $30; NSF check, $500. What is the adjusted bank balance?

A)$6,370
B)$5,970
C)$6,600
D)The adjusted bank balance cannot be determined from this information.

Question 69

The person to whom a check is drawn is referred to as the drawee.

Question 70

A compensating balance requires a borrower to maintain a maximum balance in a checking account.

Question 71

In a bank reconciliation, a NSF check is:

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

Question 72

If a bookkeeper mistakenly recorded a disbursement as $810 instead of the correct amount of $180, the error should be shown on the bank reconciliation as an):

A)$630 addition to the books.
B)$630 deduction from the books.
C)$180 addition to the books.
D)$180 deduction from the books.

Question 73

A bank statement compares the company's Cash account to the bank's records.

Question 74

A petty cash system is a system where the total of all receipts less the cash in the box equals the amount of the fund.

Question 75

Collusion is the method widely used to defeat the adequate segregation of duties.

Question 76

A payment packet:

A)identifies the need for merchandise and begins the purchasing process.
B)includes the invoice, receiving report, purchase order and purchase request.
C)reports the arrival of items purchased.
D)is sent by the purchasing department to the vendor selling the item.

Question 77

The journal entry for a note collected by the bank with interest requires a credit to Cash and a debit to both Notes Receivable and Interest Revenue.

Question 78

Both internal audits and external audits examine company processes.

Question 79

A purchase request:

A)includes the invoice, receiving report, purchase order and purchase request.
B)identifies that the merchandise has been received and ends the purchasing process.
C)identifies the need for merchandise and begins the purchasing process.
D)is sent by the purchasing department to the customer who purchases the item.

Question 80

If a bank reconciliation included deposits in transit amounting to $3,700, the journal entry to record this reconciling item should:

A)debit Deposit in Transit and credit Cash for $3,700.
B)debit Accounts Receivable and credit Cash for $3,700.
C)debit Cash and credit Deposit in Transit for $3,700.
D)No entry is required.