Deck 7: Internal Control and Cash

Question 1

of the following are purposes of internal control?

A) One of the purposes of internal control is to encourage employees to follow company policy.
B) One of the purposes of internal control is to safeguard the company's assets.
C) One of the purposes of internal control is to ensure accurate, reliable accounting records.
D) All of the statements above are true.

Answer 1

All of the statements above are true.

Question 2

of the following is NOT one of the shields provided by internal control?

A) Internal control shields against waste.
B) Internal control shields against Sarbanes-Oxley requirements.
C) Internal control shields against theft.
D) Internal control shields against inefficiency.

Answer 2

Internal control shields against Sarbanes-Oxley requirements.

Question 3

the Sarbanes-Oxley Act, accounting firms may not both audit a client and also provide certain consulting services for the same client.

Answer 3

True

Question 4

the Sarbanes-Oxley Act, violators could be sentenced to 50 years in jail for securities fraud.

Question 5

treasurer is the chief accounting officer of a company.

Question 6

Sarbanes-Oxley was passed in response to which of the following?

A) The .com implosion
B) The savings and loan bailout
C) The implosion of WorldCom and Enron
D) None of the above

Question 7

law, the provisions of Sarbanes-Oxley apply to:

A) all companies.
B) private companies.
C) public companies.
D) public companies with sales greater than one billion dollars.

Question 8

Which of the following would be a legal consequence of violating the Sarbanes-Oxley Act?

A) A company's internal control system could be dismantled and replaced by the Public Company Oversight Board.
B) Internal control staff convicted of lack of independence could be sentenced to 25 years in prison.
C) The Public Company Oversight Board could require that the external auditor replace the internal control staff of a company for 3 to 5 years.
D) An executive of the company that is convicted of making false sworn statements could be sentenced to 20 years in prison.

Question 9

Which of the following describes the treasurer of a large company?

A) The treasurer is the chief accounting officer.
B) The treasurer reports to the audit committee.
C) The treasurer is responsible for cash management.
D) The treasurer reports to the vice-president of production.

Question 10

Which of the following describes the controller of a large company?

A) The controller is the chief accounting officer.
B) The controller reports to the vice-president of production.
C) The controller is responsible for cash management.
D) The controller reports to the audit committee.

Question 11

Which of the following are internal control procedures commonly used by companies to protect their assets?

A) The purchase of fidelity bonds on cashiers
B) Mandatory vacations for employees
C) Both A and B
D) Neither A nor B

Question 12

A security guard at a Wal-Mart costs about $28,000 a year. On average, each guard prevents about $50,000 of theft. Which of the following internal control concepts does this illustrate?

A) Proper authorization
B) Competent, reliable, and ethical personnel
C) Separation of duties
D) Cost/benefit relationship

Question 13

Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.

Question 14

Internal auditors are completely independent of the business.

Question 15

Internal and external auditors are part of:

A) evaluate and test controls.
B) information systems.
C) control procedures.
D) environment control.

Question 16

any internal control procedure is initiated, the overriding concern is:

A) stopping all theft.
B) having the best security money can buy.
C) how much benefit will be derived from the cost.
D) not listed in any of the above.

Question 17

The cornerstone of internal control procedures is:

A) having competent, reliable and ethical personnel.
B) having periodic audits.
C) having inventory control.
D) having separation of duties.

Question 18

In a large company, the person who writes the checks is the:

A) CEO.
B) CFO.
C) controller.
D) treasurer.

Question 19

Which of the following is NOT one of the components of internal control?

A) Control procedures
B) Risk assessment
C) Theft management
D) Control environment

Question 20

Which of the following describes the internal control component "control procedures"?

A) A company must identify its risks.
B) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
C) Control procedures are the "tone at the top" of the business.
D) Control procedures are designed to ensure that the business's goals are achieved.

Question 21

At the West Texas Clothing Store, a sales employee assists customers with finding the items the client wishes to purchase, ringing up the purchase and collecting the cash. At the end of the day, this employee counts the cash and fills out a cash-count form. Which internal control procedure is being violated by West Texas Clothing Store?

A) Competent, reliable, and ethical personnel should be hired.
B) Job rotation improves internal control.
C) To validate their accounting records, a company should have an audit by an external accountant.
D) Separation of duties is necessary.

Question 22

At the Hollywood Theatre, pre-numbered tickets are stored in the ticket booth so that the ticket sales personnel can replace the ticket machine when it runs out. Which internal control procedure is being demonstrated correctly by Hollywood Theatre?

A) Proper authorization is essential.
B) Documents should be pre-numbered.
C) The information system is critical.
D) External auditors will monitor internal controls.

Question 23

At the West Texas Clothing Store, the same employee that sold merchandise rings up returned merchandise and refunds the cash. Which internal control procedure is being violated by West Texas Clothing Store?

A) The "tone at the top" requires that the owner and managers set a good example.
B) A company must identify its risks.
C) External auditors will monitor internal controls.
D) All transactions must be properly authorized.

Question 24

Which of the following describes the internal control component "information system"?

A) Internal auditors monitor company controls to safeguard assets and external auditors monitor the controls to ensure that the accounting records are accurate.
B) Control procedures are designed to ensure that the business's goals are achieved.
C) The information system is critical because the owner of a business needs accurate information to keep track of assets and measure profits and losses.
D) The information system is the "tone at the top" of the business.

Question 25

Which of the following is a common internal control used by businesses?

A) Computer viruses
B) Job rotation
C) Fireproof vaults
D) Both B and C

Question 26

Which of the following motivates most companies to use a lock-box system?

A) The lock-box system puts a company's cash to work immediately.
B) Internal control is tight because company personnel never touch incoming cash.
C) Both A and B are true.
D) Neither A nor B are true.

Question 27

The Allnight Convenience store has problems attracting employees to work the midnight shift. New employees for this shift are paid a twenty percent premium for working that shift. Which internal control procedure is being violated by The Allnight Convenience store?

A) To validate their accounting records, a company should have an audit by an external accountant.
B) External auditors will monitor internal controls.
C) External auditors will monitor internal controls
D) None are being violated.

Question 28

web site such as AOL4Free.com is an example of:

A) a Trojan.
B) phishing.
C) encryption.
D) a firewall.

Question 29

is not a risk that needs to be considered in doing e-commerce?

A) phishing expeditions
B) hacking into and stealing passwords/account numbers
C) computer viruses
D) all are risks of e-commerce

Question 30

of the following is possible due to online banking?

A) The depositor can reconcile to the bank's balance at any time.
B) The bank reconciliation is not necessary.
C) The depositor can request a paper bank reconciliation at any time.
D) A company's book balance will always equal the bank's balance.

Question 31

Which of the following is true of an Electronic Data Interchange payment?

A) The payment bypasses people and documents altogether.
B) The payment requires a small amount of paperwork.
C) The payment requires a small amount of human involvement.
D) No internal controls are necessary.

Question 32

of the following are reasons for very strict internal control of cash?

A) Cash is the most liquid asset because it is the medium of exchange.
B) Cash is relatively easy to steal.
C) Cash is easy to conceal.
D) All of the above are true.

Question 33

of the following are the three parties to a check?

A) The bank, the maker, and the payor
B) The maker, the payee, and the bank
C) The signer, the depositor, and the endorser
D) The bank, the payee, and the IRS

Question 34

bank statement is a document explaining the reasons for the difference between a depositor's cash records and the depositor's cash balance in its bank account.

Question 35

of the following items will NOT appear on the books side of the reconciliation?

A) The bank collected a note receivable of $1,000.
B) A nonsufficient funds check of $75 returned to the bank.
C) The bank recorded a $2,000 deposit as $200.
D) The bank charged a service fee of $20.

Question 36

Which of the following statements is TRUE if a company's cash balance does NOT equal the balance on its bank statement?

A) The bank has made a mistake.
B) The company's bank usually does not equal the balance on its bank statement.
C) The company's accountant has made a mistake.
D) Both the accountant and the bank have made mistakes.

Question 37

In reconciling a bank statement, the bank balance is $1000 and the checkbook balance is $1205. What is a probable reason why the checkbook balance is larger than the bank balance?

A) Bank has not cleared certain checks
B) Bank has made a posting error
C) Deposit in transit has not been recorded
D) None would be a probable reason

Question 38

point-of-sale terminal (cash register) is an important part of the internal control over cash receipts over the counter.

Question 39

mailroom's comparison of the bank deposit amount to the debit made to cash by the accounting department is an important part of the internal control of cash receipts by mail.

Question 40

of the following demonstrates internal control over cash receipts?

A) A mailroom employee deposits all customer checks at the bank.
B) A mailroom employee sends remittance advices to the treasurer.
C) A mailroom employee sends all customer checks to the treasurer who has the cashier make the bank deposit.
D) All of the above demonstrate internal control over cash receipts.

Question 41

dealing with cash receipts, the amount debited to cash should equal:

A) the amount of the deposit.
B) the amount of total sales.
C) the amount of cash sales.
D) some other amount.

Question 42

is the cash account included on the balance sheet?

A) As current revenue
B) As a current expense
C) As a current asset
D) As a current liability

Question 43

of the following is a step in the daily control over cash receipts over the counter?

A) The cash drawer opens when the clerk enters a transaction.
B) At the end of the day, a manager proves the cash by comparing the cash in drawer against the machine's record of sales.
C) A receipt is issued for each transaction.
D) All of the above are steps in the daily control over cash receipts over the counter.

Question 44

lock-box system is a system of internal control over cash payments.

Question 45

of the following is a voucher?

A) An approval for the cash payment of an expenditure
B) A check
C) A receipt for a cash payment
D) None of the above

Question 46

of the following documents should be examined by the controller or treasurer before signing a check?

A) The invoice
B) The purchase order
C) The receiving report
D) Good internal control would require that all of these documents be examined.

Question 47

check for payment must be signed by:

A) the treasurer.
B) the CFO.
C) an authorized official.
D) the controller.

Question 48

of the following should the purchasing agent not be able to do?

A) Sign the voucher for payment
B) Receive goods
C) Purchase the goods
D) Both A and B

Question 49

of the following is a fund containing a small amount of cash that is used to pay for minor expenditures?

A) A cash payments fund
B) A petty cash fund
C) An expenditure fund
D) An expense fund

Question 50

of the following is the entry to establish a petty cash account?

A) Miscellaneous expense
Cash in bank
B) Miscellaneous expense
Petty cash
C) Petty cash
Cash in bank
D) Cash in bank
Petty cash

Question 51

Which of the following would be true if the petty cash fund is NOT replenished on the balance sheet date?

A) Assets will be overstated.
B) Income will be overstated.
C) Both A and B would be true.
D) Neither A nor B would be true.

Question 52

Which of the following is NOT a control over petty cash?

A) A specific amount of cash must be kept on hand.
B) All petty cash payments must be supported by a petty cash ticket.
C) Several employees must be designated as petty cash custodian.
D) All of the above are controls over petty cash.

Question 53

The person in charge of the petty cash fund is called the:

A) treasurer.
B) fund custodian.
C) payables clerk.
D) receivables clerk.

Question 54

Which of the following signatures (or initials) should appear on a completed petty cash ticket?

A) The signatures of the petty cash fund custodian and the recipient of cash
B) Only the signature of the petty cash fund custodian
C) Only the signature of the recipient of cash
D) The signatures of the petty cash fund custodian and the controller

Question 55

A petty cash fund was established with a $300 balance. It currently has cash of $78 and petty cash tickets totaling $222. Which of the following would be included in the entry to replenish the fund?

A) A credit to petty cash for $222
B) A debit to petty cash for $78
C) A credit to cash in bank for $300
D) Debits to various expenses for $222

Question 56

Why are certified public accountants expected to maintain higher standards than society in general?

A) They are required to do so by federal law.
B) Their ability to attract business depends entirely upon their reputation.
C) They are only required to do so if they are auditing publicly held companies.
D) They are not employees.