Deck 7: Fraud, Internal Control, and Cash

Question 1

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

Answer 1

False

Question 2

The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals.

Answer 2

True

Question 3

Internal control is most effective when several people are responsible for a given task.

Answer 3

False

Question 4

Cash registers are an important internal control device used in controlling over-the-counter receipts.

Question 5

Employees sometimes commit fraud because of personal financial problems caused by too much debt.

Question 6

Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

Question 7

Firms use physical controls primarily to safeguard their assets.

Question 8

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

Question 9

The petty cash fund eliminates the need for a bank checking account.

Question 10

An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as check on the other.

Question 11

A voucher system is used by many large companies as a means of controlling cash receipts.

Question 12

A segregation of duties among employees eliminates the possibility of collusion.

Question 13

The safeguarding of assets is an objective of a company's system of internal control.

Question 14

The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.

Question 15

The most important element of the fraud triangle is rationalization.

Question 16

Control over cash disbursements is improved if major expenditures are paid by check.

Question 17

Internal control systems must be monitored periodically for their adequacy.

Question 18

Electronic Funds Transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another.

Question 19

For efficiency of operations and better control over cash, a company should maintain only one bank account.

Question 20

In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry.

Question 21

Cash which is restricted for a specific use should be separately reported.

Question 22

A compensating balance is excluded from the amount of cash reported on the statement of financial position.

Question 23

If a company deposits all its receipts in the bank and pays all its bills by check, then the monthly bank statement balance will always agree with the company's record of its checking account balance.

Question 24

All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.

Question 25

Savings accounts are usually classified as cash on the statement of financial position.

Question 26

Because cash is the most liquid current asset it is listed first in the current assets section of the statement of financial position.

Question 27

Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system.

Question 28

Petty cash funds are not included in the cash balance reported on the statement of financial position.

Question 29

A bank reconciliation is generally prepared by the bank and sent to the depositor along with cancelled checks.

Question 30

Cash equivalents are highly liquid investments that can be converted into a specific amount of cash.

Question 31

Checks from customers who pay their accounts promptly are called outstanding checks.

Question 32

Cash equivalents are currently reported as short-term investments on the statement of financial position.

Question 33

A deposit ticket is a negotiable instrument that can be transferred to another party by endorsement.

Question 34

Internal control consists of all the related methods and measures adopted within an organisation to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.

Question 35

Certificates of deposit are currently classified as cash on the statement of financial position.

Question 36

Because cash is the least liquid current asset it is listed last in the current assets section of the statement of financial position.

Question 37

In general, documents should be prenumbered and all documents should be accounted for.

Question 38

Cast equivalents, such as highly liquid investments that can be converted into a specific amount of cash, are currently reported with cash on the statement of financial position.

Question 39

Short-term, highly liquid investments are currently reported as short-term investments on the statement of financial position.

Question 40

Cash register overages are deposited in the petty cash fund and cash shortages are made-up from the petty cash fund.

Question 41

Controls that enhance the accuracy and reliability of the accounting records are

A)automated controls.
B)external controls.
C)physical controls.
D)human resource.

Question 42

The principle of establishing responsibility does not include

A)one person being responsible for one task.
B)authorization of transactions.
C)independent internal verification.
D)approval of transactions.

Question 43

Internal control is defined, in part, as a plan that safeguards

A)all statement of financial position accounts.
B)assets.
C)liabilities.
D)equity.

Question 44

Related buying activities include

A)ordering, receiving, paying.
B)ordering, selling, paying.
C)ordering, shipping, billing.
D)selling, shipping, paying.

Question 45

Two individuals at a retail store work the same cash register.You evaluate this situation as

A)a violation of establishment of responsibility.
B)a violation of segregation of duties.
C)supporting the establishment of responsibility.
D)supporting internal independent verification.

Question 46

A debit memorandum could show the collection of a note receivable by the bank.

Question 47

An accounts payable clerk also has access to the approved supplier master file for purchases.The control principle of

A)establishment of responsibility is violated.
B)independent internal verification is violated.
C)documentation procedures is violated.
D)segregation of duties is violated.

Question 48

The control principle related to not having the same person authorize and pay for goods is known as

A)establishment of responsibility.
B)independent internal verification.
C)segregation of duties.
D)rotation of duties.

Question 49

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

Question 50

Personnel who handle cash receipts should have the option of taking a vacation or not.

Question 51

To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.

Question 52

Internal auditors

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 53

The custodian of a company asset should

A)have access to the accounting records for that asset.
B)be someone outside the company.
C)not have access to the accounting records for that asset.
D)be an accountant.

Question 54

Related selling activities do not include

A)ordering the merchandise.
B)making a sale.
C)shipping the goods.
D)billing the customer.

Question 55

Which of the following is not one of the main factors that contribute to fraudulent activity?

A)Opportunity
B)Incompatible duties
C)Financial pressure
D)Rationalization

Question 56

Which one of the following is not an objective of a system of internal controls?

A)Safeguard company assets
B)Overstate liabilities in order to be conservative
C)Enhance the accuracy and reliability of accounting records
D)Increase efficiency of operations

Question 57

When two or more people get together for the purpose of circumventing prescribed controls, it is called

A)a fraud committee.
B)collusion.
C)a division of duties.
D)bonding of employees.

Question 58

Joe is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse.An assessment of this situation indicates

A)documentation procedures are violated.
B)independent internal verification is violated.
C)segregation of duties is violated.
D)establishment of responsibility is violated.

Question 59

The custodian of the petty cash fund has the responsibility of recording a journal entry every time cash is used from the fund.

Question 60

Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them

A)increases the potential for errors and irregularities.
B)decreases the potential for errors and irregularities.
C)is an example of good internal control.
D)is a good example of safeguarding the company's assets.

Question 61

Reconciling the bank statement monthly is an example of

A)segregation of duties.
B)independent internal verification.
C)establishment of responsibility.
D)documentation procedures.

Question 62

Allowing only the treasurer to sign checks is an example of

A)documentation procedures.
B)segregation of duties.
C)human resource controls.
D)establishment of responsibility.

Question 63

A company stamps checks received in the mail with the words "For Deposit Only".This endorsement is called a(n)

A)blank endorsement.
B)rubber stamp.
C)restrictive endorsement.
D)operational endorsement.

Question 64

Physical controls to safeguard assets do not include

A)cashier department supervisors.
B)vaults.
C)television monitors.
D)security guards.

Question 65

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

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

Question 66

An employee authorized to sign checks should not record

A)owner cash contributions.
B)mail receipts.
C)cash disbursement transactions.
D)sales transactions.

Question 67

The daily cash count of cash register receipts made by department supervisors is an example of

A)human resource controls.
B)independent internal verification.
C)establishment of responsibility.
D)segregation of duties.

Question 68

The use of remittance advices for mail receipts is an example of

A)documentation procedures.
B)human resource controls.
C)physical controls.
D)independent internal verification.

Question 69

Checks received through the mail should

A)immediately be endorsed "For Deposit Only."
B)be sent to the accounts receivable subsidiary ledger clerk for immediate posting to the customer's account.
C)be cashed at the bank as soon as possible.
D)be "rung up" on a cash register immediately.

Question 70

Mrs.Smith has worked for Grand Inc., for 20 years without taking a vacation.An internal control feature that would address this situation would be

A)human resource controls.
B)establishment of responsibility.
C)physical controls.
D)documentation procedures.

Question 71

Maximum benefit from independent internal verification is obtained when

A)it is made on a pre-announced basis.
B)it is done by the employee possessing custody of the asset.
C)discrepancies are reported to management.
D)it is done at the time of the audit.

Question 72

Proper control for over-the-counter cash receipts includes

A)a cash register with totals visible to the customer.
B)using electronic cash registers with no tapes.
C)cash count sheets requiring only the supervisor's signature.
D)cash count sheets requiring only the cashier's signature.

Question 73

An exception to disbursements being made by check is acceptable when cash is paid

A)to an owner.
B)to employees as wages.
C)from petty cash.
D)to employees as loans.

Question 74

If employees are bonded

A)it means that they are not allowed to handle cash.
B)they have worked for the company for at least 10 years.
C)they have been insured against misappropriation of assets.
D)it is impossible for them to steal from the company.

Question 75

A system of internal control

A)is infallible.
B)can be rendered ineffective by employee collusion.
C)invariably will have costs exceeding benefits.
D)is premised on the concept of absolute assurance.

Question 76

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

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 77

Allowing only designated personnel to handle cash receipts is an example of

A)establishment of responsibility.
B)segregation of duties.
C)documentation procedures.
D)independent internal verification.

Question 78

Blank checks

A)should be safeguarded.
B)should be pre-signed.
C)do not need to be safeguarded since they must be signed to be valid.
D)should not be prenumbered.

Question 79

A voucher system is a series of prescribed control procedures

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 80

Control over cash disbursements is generally more effective when

A)all bills are paid in cash.
B)disbursements are made by the accounts payable subsidiary clerk.
C)payments are made by check.
D)all purchases are made on credit.