Deck 4: Internal Control and Cash

Question 1

A check written by a company but not yet presented to the bank for payment is called a check in transit.

Answer 1

False

Question 2

An accounting system must be computerized in order to ensure the company has proper internal control.

Answer 2

False

Question 3

The stronger the system of internal control, the higher the accuracy of the company's accounting records and financial reports.

Answer 3

True

Question 4

When reconciling a bank account, the company has to prepare an adjusting entry for outstanding checks.

Question 5

Money market accounts with original maturities of less than 90 days are cash equivalents.

Question 6

In a sound system of internal control, cash receipts should be deposited daily.

Question 7

No special internal control procedures are necessary with a petty cash fund because the amount is so small.

Question 8

On a bank reconciliation, interest earned for the month is added to the cash balance per the company records.

Question 9

The establishment of a petty cash fund has no effect on the company's total cash balance.

Question 10

The key to being classified as a cash equivalent is that the amount must be available to pay debts within a year's time or less.

Question 11

When reconciling a bank account, the company must prepare an adjusting entry for deposits in transit.

Question 12

On a bank reconciliation, bank service charges for the month are added to the cash balance per the company records.

Question 13

Petty Cash is NOT considered to be a cash equivalent.

Question 14

When a bank collects a note on behalf of a company, the bank is likely to issue a debit memo.

Question 15

A debit memo may be issued in the monthly bank statement in order for the bank to notify a company that a service charge has been assessed on the company's account.

Question 16

Cash equivalents typically appear in the long-term investments section of a balance sheet.

Question 17

On a bank reconciliation, outstanding checks are added to the cash balance per the bank statement.

Question 18

As a result of the bank reconciliation process, a company will prepare an adjusting entry for a debit memo but not for a credit memo.

Question 19

Collections of accounts receivable are considered to be cash equivalents.

Question 20

When a bank pays interest on a company's checking account balance, the bank will likely issue a credit memo.

Question 21

A good system of internal control requires that the physical custody of assets be separated from the accounting for those assets. This concept is known as safeguarding of assets and records.

Question 22

A(n)____________________ is the process used by an accountant to ensure consistency between the balance shown on the bank statement for a particular account and the balance shown on the accounting records.

Question 23

The accountant must make journal entries for all items in the bank section of the bank reconciliation.

Question 24

Items that are included on a bank statement and decrease the bank account balance are called ____________________.

Question 25

The sole purpose for creating an internal control system is to deter embezzlement.

Question 26

If a company records a $450 receipt as $540, this type of mistake is called a(n)____________________.

Question 27

A company's internal control system must be designed and maintained by its external auditors.

Question 28

A check written by a company but not yet presented to the bank for payment is called a(n)____________________.

Question 29

As part of a sound system of internal controls, all disbursements (with the exception of petty cash)should be made by check.

Question 30

Internal control over financial reporting is concerned with ensuring the reliability of the financial statements.

Question 31

If the bank credits a customer's account, then that customer's cash account balance increases.

Question 32

Items that are included on a bank statement and increase the bank account balance are called ____________________.

Question 33

The accountant must make journal entries for all items in the book section of the bank reconciliation.

Question 34

The best response to an employee caught stealing from the company is to say, "Don't ever let me catch you doing that again!"

Question 35

A check that "bounced" or was returned by the bank due to lack of funds is called a(n)____________________.

Question 36

An amount recorded as an increase in the company's cash account at the end of the period, but which has not yet been reflected on the bank statement is called a(n)____________________.

Question 37

If a company has an internal audit function, it does not need to have external auditors.

Question 38

If the bank debits its customer's checking account, then the customer's cash balance increases.

Question 39

If a company hires honest employees and its top management acts with integrity, no internal control procedures will be necessary.

Question 40

____________________ are those investments and deposits with financial institutions that are readily convertible into known amounts of cash and that have original maturities of three months or less.

Question 41

Business process risk assessment is designed to identify, analyze, and manage possible threats to the organization's success concerning ____________________ forces such as resource allocations.

Question 42

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.
a.One employee or department should verify the work of another.b.Specific approval is given by management for the performance of activities.c.Accounting and cash collections should be properly separated.d.Blank checks should be stored in a locked location.e.Initial entry into the accounting system should be from a consistent source with complete information.
Segregation of duties

Question 43

An internal control activity that separates responsibilities so that no one person handles all the tasks for a particular activity is referred to as ____________________.

Question 44

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)
a.Addition to bank balance
b.Subtraction from bank balance
c.Addition to company balance
d.Subtraction from company balance
e.Not included on the reconciliation
Bank service charge on the bank statement for new checks

Question 45

A cost-cutting measure used in many business organization is the use of a(n)____________________ fund, whereby a custodian handles disbursements and documentation for small expenditures.

Question 46

When there is proper segregation of duties, the likelihood of fraud is reduced so that an employee attempting to carry out a fraudulent scheme would have to work in ____________________ with another employee.

Question 47

Under the ____________________ Act, management of publicly-traded corporations has increased responsibility for a system of internal controls that ensures reliability of financial statements.

Question 48

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)
a.Addition to bank balance
b.Subtraction from bank balance
c.Addition to company balance
d.Subtraction from company balance
e.Not included on the reconciliation
Interest earned on the checking account for May

Question 49

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.
a.One employee or department should verify the work of another.b.Specific approval is given by management for the performance of activities.c.Accounting and cash collections should be properly separated.d.Blank checks should be stored in a locked location.e.Initial entry into the accounting system should be from a consistent source with complete information.
Adequate documents and records

Question 50

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)
a.Addition to bank balance
b.Subtraction from bank balance
c.Addition to company balance
d.Subtraction from company balance
e.Not included on the reconciliation
Customer's check was deposited on May 31 but is not included on the bank statement

Question 51

The elapsed time between the purchase of goods for resale and the collection of cash from customers is referred to as the ____________________ cycle.

Question 52

Whenever feasible, cash handling activities and cash record-keeping activities should be assigned to different employees, according to the internal control activity called ____________________.

Question 53

Strategic risk assessment is designed to identify, analyze, and manage possible threats to the organization's success concerning ____________________ forces such as competitors, customers, suppliers, and PEST factors.

Question 54

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.
a.One employee or department should verify the work of another.b.Specific approval is given by management for the performance of activities.c.Accounting and cash collections should be properly separated.d.Blank checks should be stored in a locked location.e.Initial entry into the accounting system should be from a consistent source with complete information.
Clearly defined authority and responsibility

Question 55

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)
a.Addition to bank balance
b.Subtraction from bank balance
c.Addition to company balance
d.Subtraction from company balance
e.Not included on the reconciliation
Customer's NSF check returned with the bank statement

Question 56

The practices of delaying payments to suppliers, speeding up collection from customers, and earning the greatest possible return on any excess cash are known as ____________________ principles.

Question 57

The foundation of the internal control system is the control _____________ - the collection of environmental factors that influence the effectiveness of control procedures.

Question 58

The account used to record the discrepancies that will occasionally occur between the amounts deposited and amounts shown on cash register tapes is called ____________________.

Question 59

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)
a.Addition to bank balance
b.Subtraction from bank balance
c.Addition to company balance
d.Subtraction from company balance
e.Not included on the reconciliation
Check written on the company's account in May that does not appear on the bank statement

Question 60

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)
a.Addition to bank balance
b.Subtraction from bank balance
c.Addition to company balance
d.Subtraction from company balance
e.Not included on the reconciliation
Check written on the company's account in May and paid by the bank is returned with the bank statement

Question 61

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
A mailroom employee opens the mail, counts the money received, and updates the accounting records for the amount received.

Question 62

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
The clerk in the accounting department records both purchases and payments of invoices.

Question 63

Match the following terms with their correct definitions.
a.Accounting system
e.Internal control system
b.Business process risks
f.Safeguarding
c.Control activities
g.Segregation of duties
d.Control environment
h.Strategic risks
Possible external threats to the organization's success in accomplishing its goals

Question 64

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
An accounting department employee records cash receipts from customers and prepares the bank deposit slips.

Question 65

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
Cash register tapes are recorded daily by an employee from the accounting department.

Question 66

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
Monthly statements are mailed to customers to indicate the current balance due.

Question 67

Match the following terms with their correct definition.
a.Bank reconciliation
d.Outstanding check
b.Deposit in transit
e.Service charges
c.Non-sufficient funds check
A bank reconciling item that must be subtracted from the unadjusted bank balance when preparing a bank reconciliation

Question 68

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
Mathematical extensions and footings on purchase invoices are verified before the invoices are paid.

Question 69

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
An employee from the accounting department compares the cash register tapes with the bank deposits.

Question 70

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
Although department supervisors can request a preferred supplier or vendor, the purchasing department has the responsibility for making the final decisions on a vendor.

Question 71

Match the following terms with their correct definition.
a.Bank reconciliation
d.Outstanding check
b.Deposit in transit
e.Service charges
c.Non-sufficient funds check
The process of ensuring that the company's accounting records are consistent with the bank's accounting records

Question 72

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.
a.One employee or department should verify the work of another.b.Specific approval is given by management for the performance of activities.c.Accounting and cash collections should be properly separated.d.Blank checks should be stored in a locked location.e.Initial entry into the accounting system should be from a consistent source with complete information.
Checks on recorded amounts

Question 73

Match the following terms with their correct definition.
a.Bank reconciliation
d.Outstanding check
b.Deposit in transit
e.Service charges
c.Non-sufficient funds check
Fees charged by the bank for checking accounting services

Question 74

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
All supporting documents attached to an invoice are canceled when the check is signed.

Question 75

Match the following terms with their correct definition.
a.Bank reconciliation
d.Outstanding check
b.Deposit in transit
e.Service charges
c.Non-sufficient funds check
A bank reconciling item that must be subtracted from the unadjusted book balance when preparing a bank reconciliation

Question 76

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.
a.One employee or department should verify the work of another.b.Specific approval is given by management for the performance of activities.c.Accounting and cash collections should be properly separated.d.Blank checks should be stored in a locked location.e.Initial entry into the accounting system should be from a consistent source with complete information.
Safeguards over assets and records

Question 77

Match the following terms with their correct definitions.
a.Accounting system
e.Internal control system
b.Business process risks
f.Safeguarding
c.Control activities
g.Segregation of duties
d.Control environment
h.Strategic risks
Policies and procedures established by top management to help ensure that the company's accounting system and financial statements are as accurate as possible

Question 78

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
The receiving department compares the quantity of merchandise received with the quantity ordered.

Question 79

Match the following terms with their correct definition.
a.Bank reconciliation
d.Outstanding check
b.Deposit in transit
e.Service charges
c.Non-sufficient funds check
An amount received and recorded by the business but not yet recorded by the bank

Question 80

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
a.Adheres to sound internal controls
b.Violates sound internal controls
c.Neither strengthens nor violates internal control
Checks are signed by the clerk in the accounting department.