Deck 7: Fraud, Internal Control and Cash

Question 1

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.

Answer 1

False

Question 2

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.

Answer 2

False

Question 3

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

Answer 3

B

Question 4

Related selling activities do not include

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

Question 5

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

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

Question 6

A petty cash fund should be replenished

A)every day.
B)at the end of every accounting period.
C)once a year.
D)as soon as an expense is paid from the fund.

Question 7

A remittance advice attached to a company check provides

A)details about the running cash balance in the checking account.
B)the magnetic bank routing numbers.
C)the explanation of the purpose of the check.
D)the signature space for the maker.

Question 8

If a check correctly written and paid by the bank for $427 is incorrectly recorded on the company's books for $472, the appropriate treatment on the bank reconciliation would be to

A)add $45 to the bank's balance.
B)add $45 to the book's balance.
C)deduct $45 from the bank's balance.
D)deduct $427 from the book's balance.

Question 9

Hoppmann Company wrote checks totaling $25,620 during October and $27,975 during November.$24,360 of these checks cleared the bank in October, and $27,330 cleared the bank in November.What was the amount of outstanding checks on November 30?

A)$645
B)$1,260
C)$1,905
D)$2,355

Question 10

When making a payment from the petty cash fund for postage stamps, the following journal entry is made.

Question 11

Only large companies need to be concerned with a system of internal control.

Question 12

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

Question 13

A system of internal control is defined, in part, as a plan that safeguards

A)all balance sheet accounts.
B)assets.
C)liabilities.
D)capital stock.

Question 14

The independent internal verification principle involves each of the following except the ______________ of data prepared by other employees.

A)comparison
B)reconciliation
C)review
D)segregation

Question 15

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

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

Question 16

A petty cash fund should not be used for

A)postage due.
B)loans to the petty cash custodian.
C)taxi fares.
D)customer lunches.

Question 17

A deposit made by a company will appear on the bank statement as a

A)debit.
B)credit.
C)debit memorandum.
D)credit memorandum.

Question 18

Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry:

A)Accounts Receivable Cash
B)Cash Accounts Receivable
C)Miscellaneous Expense Accounts Receivable
D)No adjusting entry is necessary.

Question 19

Fitzgerald Company wrote checks totaling $34,160 during October and $37,300 during November.$32,480 of these checks cleared the bank in October, and $36,440 cleared the bank in November.What was the amount of outstanding checks on November 30?

A)$2,860
B)$1,680
C)$2,540
D)$3,140

Question 20

All of the following would involve a debit memorandum except

A)a bank service charge.
B)an NSF check.
C)the cost of printing checks.
D)interest earned.

Question 21

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

Question 22

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

Question 23

The most important element of the fraud triangle is

A)financial pressure.
B)incompatible duties.
C)opportunity.
D)rationalization.

Question 24

Related buying activities include

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

Question 25

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 26

The size of the petty cash fund is dependent on

A)the wishes of the custodian of the fund.
B)anticipated disbursements for the year.
C)anticipated disbursements for a three- to four-week period.
D)the size of the regular cash account.

Question 27

A check returned by the bank marked "NSF" means

A)no service fee.
B)no signature found.
C)not satisfactorily filled-out.
D)not sufficient funds.

Question 28

Jukebox Company had checks outstanding totaling $10,800 on its June bank reconciliation.In July, Jukebox Company issued checks totaling $77,800.The July bank statement shows that $76,600 in checks cleared the bank in July.A check from one of Jukebox Company's customers for $1,000 was also returned marked "NSF." The amount of outstanding checks on Jukebox Company's July bank reconciliation should be

A)$1,200.
B)$11,000.
C)$12,000.
D)$13,000.

Question 29

Carothers Company assembled the following information in completing its March bank reconciliation: balance per bank $7,640; outstanding checks $1,550; deposits in transit $2,500; NSF check $160; bank service charge $50; cash balance per books $8,800.As a result of this reconciliation, Carothers will

A)reduce its cash account by $50.
B)reduce its cash account by $210.
C)reduce its cash account by $950.
D)increase its cash account by $110.

Question 30

A bank may issue a credit memorandum for

A)a bank service charge.
B)an NSF (not sufficient funds) check from a customer.
C)the collection of a note receivable for the depositor by the bank.
D)the cost of printing checks.

Question 31

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

Question 32

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

Question 33

Companies that are subject to, but fail to comply with, the Sarbanes-Oxley Act

A)may do so legally by obtaining an exemption.
B)will be automatically dissolved.
C)may be subject to fines and officer imprisonment.
D)may be forced to sell their foreign subsidiaries.

Question 34

Jolene 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 35

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.

Question 36

Replenishing the petty cash fund requires

A)a debit to Cash.
B)a credit to Petty Cash.
C)debits to various expense accounts.
D)no accounting entry.

Question 37

A debit memorandum would not be issued by the bank for

A)a bank service charge.
B)the issuance of traveler's checks.
C)the wiring of funds to a supplier.
D)the collection of a notes receivable.

Question 38

Each of the following items affect the cash balance per books except

A)bank service charges.
B)notes collected by the bank.
C)NSF checks.
D)outstanding checks.

Question 39

Macrinez Company assembled the following information in completing its July bank reconciliation: balance per bank $22,920; outstanding checks $4,650; deposits in transit $7,500; NSF check $480; bank service charge $150; cash balance per books $26,400.As a result of this reconciliation, Macrinez will

A)reduce its cash account by $150.
B)reduce its cash account by $630.
C)reduce its cash account by $2,850.
D)increase its cash account by $330.

Question 40

Journal entries are required by the depositor for all of the following except

A)collection of a note receivable.
B)bank errors.
C)bank service charges.
D)an NSF check.

Question 41

Firms use physical controls primarily to safeguard their assets.

Question 42

Cash equivalents are highly-liquid investments that can be converted into specific amounts of cash.

Question 43

Which of the following assets is most susceptible to misappropriation?

A)Cash
B)Accounts receivable
C)Short-term investments
D)Inventory

Question 44

Physical controls to safeguard assets do not include

A)cashier department supervisors.
B)vaults.
C)employee identification badges.
D)cash registers.

Question 45

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 46

Entries are made to the Petty Cash account when

A)establishing the fund.
B)making payments out of the fund.
C)recording shortages in the fund.
D)replenishing the fund.

Question 47

If the month-end bank statement shows a balance of $54,000, outstanding checks are $15,000, a deposit of $6,000 was in transit at month end, and a check for $900 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is

A)$44,100.
B)$45,000.
C)$45,900.
D)$62,100.

Question 48

Electric Sunset Company gathered the following reconciling information in preparing its July bank reconciliation: The adjusted cash balance per books on July 31 is

A)$17,640.
B)$18,840.
C)$25,640.
D)$26,840.

Question 49

If a check correctly written and paid by the bank for $584 is incorrectly recorded on the company's books for $548, the appropriate treatment on the bank reconciliation would be to

A)deduct $36 from the book's balance.
B)add $36 to the book's balance.
C)deduct $36 from the bank's balance.
D)deduct $584 from the book's balance.

Question 50

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

A)1 month or less when purchased.
B)3 months or less when purchased.
C)6 months or less when purchased.
D)1 year or less when purchased.

Question 51

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

Question 52

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

Question 53

Having one person post entries to the accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of

A)inadequate internal control.
B)duplication of effort.
C)external verification.
D)segregation of duties.

Question 54

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

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

Question 55

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 56

A $100 petty cash fund has cash of $12 and receipts of $85.The journal entry to replenish the account would include a credit to

A)Cash for $88.
B)Petty Cash for $88.
C)Cash Over and Short for $2.
D)Cash for $85.

Question 57

In preparing its bank reconciliation for the month of April 2021, Delano, Inc.has available the following information. What should be the adjusted cash balance at April 30, 2021?

A)$77,260.
B)$77,600.
C)$78,020.
D)$78,200.

Question 58

Unicycle Company developed the following reconciling information in preparing its September bank reconciliation: Determine the cash balance per books (before adjustments) for Unicycle Company.

A)$2,450.
B)$7,550.
C)$9,550.
D)$17,000.

Question 59

In the month of May, Kijak Company Inc.wrote checks in the amount of $84,000.In June, checks in the amount of $114,000 were written.In May, $75,000 of these checks were
Presented to the bank for payment, and $99,000 in June.What is the amount of
Outstanding checks at the end of May?

A)$9,000
B)$15,000
C)$24,000
D)$30,000

Question 60

The principles of internal control activities are used

A)in the U.S.but not globally.
B)internationally but not in the U.S.
C)in the U.S.and Canada but not globally.
D)globally.
IFRS

Question 61

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

Question 62

A system of internal control consists of the plan of organization and all of the related methods and measures adopted within a business to (a) safeguard its assets, and (b) enhance the accuracy and reliability of its accounting records.

Question 63

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

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

Question 64

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 65

Allowing only the treasurer to sign checks is an example of

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

Question 66

A $100 petty cash fund has cash of $16 and receipts of $82.The journal entry to replenish the account would include a

A)debit to Cash for $82.
B)credit to Petty Cash for $84.
C)debit to Cash Over and Short for $2.
D)credit to Cash for $82.

Question 67

The cash account shows a balance of $90,000 before reconciliation.The bank statement does not include a deposit of $5,000 made on the last day of the month.The bank statement shows a collection by the bank of $2,400 and a customer's check for $640 was returned because it was NSF.A customer's check for $900 was recorded on the books as $1,080, and a check written for $138 was recorded as $192.The correct balance in the cash account was

A)$91,580.
B)$91,634.
C)$92,400.
D)$96,634.

Question 68

Bank errors

A)occur because of time lags.
B)must be corrected by debits.
C)are infrequent in occurrence.
D)are corrected by making an adjusting entry on the depositor's books.

Question 69

In the month of May, Kijak Company Inc.wrote checks in the amount of $56,000.In June, checks in the amount of $76,000 were written.In May, $50,000 of these checks were presented to the bank for payment, and $66,000 in June.What is the amount of outstanding checks at the end of June?

A)$6,000
B)$10,000
C)$16,000
D)$20,000

Question 70

Sarbanes Oxley applies to

A)U.S companies but not international companies.
B)international companies but not U.S.companies.
C)U.S.and Canadian companies but not other international companies.
D)U.S and international companies.
IFRS

Question 71

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

Question 72

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

Question 73

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 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

Blank checks

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

Question 76

A $100 petty cash fund has cash of $17 and receipts of $86.The journal entry to replenish the account would include a

A)debit to Cash for $86.
B)credit to Petty Cash for $86.
C)credit to Cash Over and Short for $3.
D)credit to Cash for $86.

Question 77

The cash account shows a balance of $40,000 before reconciliation.The bank statement does not include a deposit of $9,200 made on the last day of the month.The bank
Statement shows a collection by the bank of $3,960 and a customer's check for $1,300 was returned because it was NSF.A customer's check for $1,380 was recorded on the books as $1,920, and a check written for $318 was recorded as $390.The correct balance in the cash account was

A)$42,048.
B)$42,192.
C)$43,128.
D)$51,392.

Question 78

An adjusting entry is not required for

A)outstanding checks.
B)collection of a note by the bank.
C)NSF checks.
D)bank service charges.

Question 79

Cash equivalents could include each of the following except

A)bank certificates of deposit.
B)money market funds.
C)petty cash.
D)U.S.Treasury bills.

Question 80

The fraud triangle applies to

A)U.S companies but not international companies.
B)international companies but not U.S.companies.
C)U.S.and Canadian companies but not other international companies.
D)U.S and international companies.
IFRS