Deck 6: Internal Control and Accounting for Cash

Question 1

The April 30 bank statement for Trimble Corporation shows an ending balance of $34,351.The unadjusted cash account balance was $28,250.The accountant for Trimble gathered the following information:
(1)There was a deposit in transit for $4,240.
(2)The bank statement reports a service charge of $39.
(3)A credit memo included in the bank statement shows interest earned of $95.
(4)Outstanding checks totaled $10,935.
(5)The bank statement included a $650 NSF check deposited in April.
What is the true cash balance as of April 30?

A) $27,656
B) $27,006
C) $31,801
D) $31,896

Answer 1

$27,656

Question 2

Which of the following is an internal control procedure used to safeguard a company's assets?

A) Depositing cash receipts in a bank on a timely basis
B) Segregation of duties
C) Preparing a bank reconciliation
D) All of these answer choices are correct

Answer 2

All of these answer choices are correct

Question 3

[The following information applies to the questions displayed below.]
A review of the bank statement and accounting records of Blake Company revealed the following items:
$\begin{array}{|c|l|}\hline \text { Item No. } & \text { Description } \\\hline \text { 1) } & \text { Three outstanding checks } \\\hline \text { 2) } & \text { A debit memo showing a bank service charge } \\\hline \text { 3) } & \text { A deposit in transit } \\\hline \text { 4) } & \text { An NSF check written by one of Blake's customers } \\\hline \text { 5) } & \text { A certified check written by Blake that remains outstanding } \\\hline \text { 6) } & \text { A credit memo reflecting interest revenue earned by Blake } \\\hline\end{array}$

-Which of the item(s)would be added to the unadjusted bank balance to determine the true cash balance?

A) Item numbers 2 and 3
B) Item number 2
C) Item numbers 3, 4, and 6
D) Item number 3

Answer 3

Item number 3

Question 4

At March 31,Cummins Co.had an unadjusted balance in its cash account of $10,400.At the end of March,the company determined that it had outstanding checks of $900,deposits in transit of $600,a bank service charge of $20,and an NSF check from a customer for $200.What is the true cash balance at March 31?

A) $10,100
B) $10,180
C) $10,380
D) $9,880

Question 5

Which of the following statements accurately describes a fidelity bond?

A) Procedures to provide reasonable assurance that the objectives of a company are accomplished.
B) Proper procedures for processing transactions.
C) Insurance that the company buys to protect itself from loss due to employee dishonesty.
D) Guidelines or policies that limit the actions of different levels of management.

Question 6

Which of the following is not a common internal control procedure over cash payments?

A) A receipt should be provided to each cash customer
B) Checks should be properly authorized with approval signatures
C) All checks should be prenumbered
D) Voided checks should be defaced and retained

Question 7

Which of the following is not one of the nine features of an internal control system?

A) Establishment of clear lines of authority
B) Having employees covered by a fidelity bond
C) Requiring regular vacations for certain employees
D) Customer service comment cards

Question 8

Which of the following is not an example of a common control activity?

A) Required absences
B) Collusion
C) Procedures manual
D) Use of prenumbered documents

Question 9

Chester Company has established internal control policies and procedures in order to achieve the following objectives:
1)Effective evaluation of management performance.
2)Assure that the accounting records contain reliable information.
3)Safeguard the company's assets.
"4)Assure that employees comply with company policy.
Which of these objectives are achieved by accounting controls?"

A) Objectives 1 and 2
B) Objectives 2 and 3
C) Objectives 3 and 4
D) All four objectives

Question 10

Which of the following is not a typical document associated with a bank checking account?

A) Signature card
B) Bank statement
C) Cash register tape
D) Deposit ticket

Question 11

[The following information applies to the questions displayed below.]
A review of the bank statement and accounting records of Blake Company revealed the following items:
$\begin{array}{|c|l|}\hline \text { Item No. } & \text { Description } \\\hline \text { 1) } & \text { Three outstanding checks } \\\hline \text { 2) } & \text { A debit memo showing a bank service charge } \\\hline \text { 3) } & \text { A deposit in transit } \\\hline \text { 4) } & \text { An NSF check written by one of Blake's customers } \\\hline \text { 5) } & \text { A certified check written by Blake that remains outstanding } \\\hline \text { 6) } & \text { A credit memo reflecting interest revenue earned by Blake } \\\hline\end{array}$

-Which of the item(s)would be subtracted from the company's unadjusted book balance to determine the true cash balance?

A) Item numbers 2 and 4
B) Item numbers 2, 4, and 5
C) Item numbers 1 and 4
D) Item numbers 1, 2, 4, and 5

Question 12

Which internal control procedure is a deterrent to corruption?

A) Segregation of duties
B) Physical controls
C) Fidelity bonding
D) Use of prenumbered documents

Question 13

[The following information applies to the questions displayed below.]
A review of the bank statement and accounting records of Blake Company revealed the following items:
$\begin{array}{|c|l|}\hline \text { Item No. } & \text { Description } \\\hline \text { 1) } & \text { Three outstanding checks } \\\hline \text { 2) } & \text { A debit memo showing a bank service charge } \\\hline \text { 3) } & \text { A deposit in transit } \\\hline \text { 4) } & \text { An NSF check written by one of Blake's customers } \\\hline \text { 5) } & \text { A certified check written by Blake that remains outstanding } \\\hline \text { 6) } & \text { A credit memo reflecting interest revenue earned by Blake } \\\hline\end{array}$

-Which of the following describes an activity that increases a company's bank account balance?

A) Credit memo
B) Debit memo
C) Balance sheet
D) Certified check

Question 14

The accountant for Ye Olde Bookstore balanced out the cash register for the day.The company began the day with $125 and ended the day with $1,150.25 in the cash drawer.That day's cash register tape shows $1,031.50 in cash sales.What is the effect on the financial statements of recording the day's sales and any related overage or shortage?

A) Option A
B) Option B
C) Option C
D) Option D

Question 15

Which of the following internal control procedures should be implemented to control cash?

A) Disbursements by prenumbered checks
B) Depositing cash receipts in the bank on a timely basis
C) Providing copies of written receipts to customers
D) All of these answer choices are correct

Question 16

Which of the following is an administrative control?

A) Performance evaluation
B) Accuracy of the recording procedures
C) Keeping cash in a safe
D) Maintenance of accurate inventory records

Question 17

Which of the following statements concerning internal controls is true?

A) Internal administrative controls are designed to limit the amount of funds spent on investments.
B) Strong internal controls provide reasonable assurance that the objectives of a company will be accomplished.
C) Internal accounting controls are limited to the policies and procedures used to protect the company from embezzlement.
D) The control procedure, segregation of duties, prohibits the employment of a husband and wife or other closely related parties within the same company.

Question 18

Which of the following is not a motive for the embezzlement of cash by employees?

A) Cash is the common unit of measurement
B) Ownership of cash is difficult to prove
C) Cash has universal appeal
D) Small quantities of high-denomination currency can represent significant value

Question 19

Which of the following is not a common feature of an internal control system?

A) Segregating duties
B) Performance evaluation
C) Bonding employees
D) Implementing the most effective marketing plan

Question 20

Which of the following is not a common internal control procedure that would be implemented with regards to cash receipts?

A) Preparing a record of all cash collections immediately upon receipt
B) Providing copies of written receipts to customers
C) Depositing cash receipts in a bank on a timely basis
D) Marking supporting documents Paid when checks are signed

Question 21

Owen Company's unadjusted book balance at June 30 is $9,700.The company's bank statement reveals bank service charges of $45.Two credit memos are included in the bank statement: one for $900,which represents a collection that the bank made for Owen,and one for $50,which represents the amount of interest that Owen had earned on its interest-bearing account in June.What is the true cash balance?

A) $9,700
B) $10,695
C) $10,550
D) $10,605

Question 22

In the reconciliation of the June bank statement,a deposit made on June 30 did not appear on the June bank statement.How is this deposit in transit shown on the bank reconciliation?

A) Subtracted from the unadjusted book balance.
B) Added to the unadjusted book balance.
C) Subtracted from the unadjusted bank balance.
D) Added to the unadjusted bank balance.

Question 23

How is a customer's NSF check reflected on a bank reconciliation?

A) Subtracted from the unadjusted book balance to get the true cash balance
B) Added to the unadjusted bank balance to get the true cash balance
C) Subtracted from the unadjusted bank balance to get the true cash balance
D) Added to the unadjusted book balance to get the true cash balance

Question 24

What is an outstanding check?

A) A check that has been issued by the company but has not been presented to the bank for payment.
B) A check that is guaranteed for payment by the bank.
C) A check that has been presented to the bank for payment but has not been reported on the bank statement.
D) A check that was written for an amount that is greater than the balance in the account holder's bank account.

Question 25

[The following information applies to the questions displayed below.]
The bank statement for Tetra Company contained the following items: a bank service charge of $10; a credit memo for interest earned, $15; and a $50 NSF check from a customer. The company had outstanding checks of $100 and a deposit in transit of $300.

-Assuming that the unadjusted bank balance was $500,what is the unadjusted book balance?

A) $745
B) $455
C) $700
D) $800

Question 26

While performing its monthly bank reconciliation,the bookkeeper for Grace Corporation noted that a deposit of $990 (received from a customer on account)was recorded in the company books as $900.Which of the following shows the effect of correcting the error on the financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 27

Which of the following describes an activity that reduces a company's bank account balance?

A) A deposit in transit
B) A debit memo
C) A credit memo
D) A reconciling entry

Question 28

While performing the monthly bank reconciliation,Avon Company adjusted for a bank service charge of $20.Which of the following correctly shows how the adjustment for the bank service charge affects the financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 29

While performing its monthly bank reconciliation,the bookkeeper for Mosaic Company discovered that a check written for $421 for advertising expense was recorded in the firm's books as $241.Which of the following shows the effect of correcting the error on the financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 30

How are cash overages reported on the financial statements?

A) Petty Cash Payable
B) Petty Cash Receivable
C) Petty Cash Expense
D) Miscellaneous revenue

Question 31

On September 30 the bank statement of Fine Company showed a balance of $7,800.The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records:
(1)Deposits in transit amounted to $3,150
(2)Outstanding checks amounted to $6,200
(3)A $550 check was incorrectly drawn on Fine's account
(4)NSF checks returned by the bank were $750
(5)The bank service charge was $29
(6)Credit memo for $75 for the collection of one of the company's account receivable
What is the true cash balance?

A) $5,346
B) $5,300
C) $4,596
D) $7,096

Question 32

Rainey Company's true cash balance at October 31 is $5,710.The following information is available for the bank reconciliation:
(1)Outstanding checks,$600
(2)Deposits in transit,$450
(3)Bank service charges,$90
(4)The bank had collected an account receivable for Rainey Company,$1,000
(5)The bank statement included an NSF check written by one of Ramsey's customers for $600.
What was the unadjusted book balance at October 31?

A) $5,870
B) $5,400
C) $6,400
D) $5,490

Question 33

Which of the following occurs when a company replenishes its petty cash fund?

A) Cash decreases
B) Petty cash decreases
C) Expenses decrease
D) Cash increases

Question 34

The owner of Barnes Company established a petty cash fund amounting to $400.What is the effect on the financial statements of recording this transaction?

A) Option A
B) Option B
C) Option C
D) Option D

Question 35

Jasper Company accepted a check from Harp Company as payment for services rendered.Jasper's bank statement revealed that the Harp check was an NSF check.What effect will recording the NSF check have on the accounting equation of Jasper Company?
$\begin{array}{|c|c|c|}\hline & \text { Total Assets } & \text { Total Equity } \\\hline \text { A } & \text { Decrease } & \text { Decrease } \\\hline \text { B. } & \text { No effect } & \text { Decrease } \\\hline \text { C. } & \text { Decrease } & \text { No effect } \\\hline \text { D. } & \text { No effect } & \text { No effect } \\\hline\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 36

How will a certified check be shown on a company's bank reconciliation?

A) As a deduction to the company's unadjusted book balance.
B) As an increase to the bank's unadjusted bank balance.
C) As a deduction to the bank's unadjusted bank balance.
D) There is no adjustment when preparing the bank reconciliation.

Question 37

While preparing its bank reconciliation,Maynard Company determined that its bank had collected a $650 account receivable for the company and deducted a $25 collection fee.Which of the following shows the effect of this transaction on the financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 38

[The following information applies to the questions displayed below.]
The bank statement for Tetra Company contained the following items: a bank service charge of $10; a credit memo for interest earned, $15; and a $50 NSF check from a customer. The company had outstanding checks of $100 and a deposit in transit of $300.

-Which of the following will be caused by recording the customer's NSF check?

A) Accounts receivable increases.
B) Cash decreases.
C) stockholders' equity decreases.
D) Accounts receivable increases and cash decreases.

Question 39

Keatts Company's bank statement included an NSF check written by one of its customers.What effect will recognizing the NSF check have on the company's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 40

Duke Company's unadjusted bank balance at March 31 is $2,300.The bank reconciliation revealed outstanding checks amounting to $500 and deposits in transit of $400.What is the true cash balance?

A) $2,200
B) $2,000
C) $2,700
D) $2,400

Question 41

Which of the following statements is true with regards to financial statement audits?

A) The auditors guarantee that the financial statements are accurate and correct.
B) Financial audits are directed toward the discovery of fraud.
C) Auditors provide reasonable assurance that statements are free from material misstatements, whether caused by errors or fraud.
D) Auditors will not disclose information that they have acquired as a result of their accountant-client relationship.

Question 42

For financial reporting purposes,cash generally includes currency and other items that are payable on demand,such as checks,money orders,bank drafts,and certain savings accounts.

Question 43

Blake Company established a petty cash fund in the amount of $400.At the end of the accounting period,the petty cash box contained receipts for expenditures amounting to $180 and $215 in cash.If the company records both the disbursements and replenishments to the fund,what effect will replenishing the fund have on total assets and expenses?
$\begin{array}{lcccc} &{\text { Total Assets }} &{\text { Expenses }} \\\text { A } & -\$ 180 & +\$ 185 \\\text { B. } & -\$ 185 & +\$ 185 \\\text { C. } & -\$ 185 & +\$ 180 \\\text { D. } & -\$ 180 & +\$ 180\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 44

Which of the following procedures are typically used when a petty cash fund is established?

A) Assigning a petty cash custodian
B) Use of petty cash vouchers
C) Physical control over the petty cash fund
D) All of these procedures are used when a petty cash fund is established

Question 45

Peterson Company's petty cash fund was established on January 1 with $500.On January 31,a count of the fund revealed: $105 in cash remaining and vouchers for miscellaneous expenses totaling $400.If the company records both the disbursements and the replenishments to the fund,what is the overall effect on Peterson's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 46

Which of the following statements regarding the Securities and Exchange Commission (SEC)is not true?

A) SEC rules frequently require disclosures in addition to those required by GAAP.
B) The SEC has the authority to establish and enforce accounting rules for public companies.
C) The SEC is a private professional organization.
D) Public companies must register with the SEC.

Question 47

A bank statement debit memo describes a transaction that increases a customer's account balance.

Question 48

A well-designed system of internal controls will eliminate all fraud.

Question 49

Internal controls designed to evaluate performance and the degree of compliance with company policies and public laws are classified as administrative controls.

Question 50

Segregation of duties in an organization should be required to reduce the likelihood of theft.

Question 51

A savings account or certificate of deposit that imposes a substantial penalty for early withdrawals should not be classified as Cash on the balance sheet.

Question 52

Which of the following statements about the materiality concept is not true?

A) Materiality is different for each company.
B) A material error would change the opinion of the average prudent investor.
C) Any error greater than $5,000 is considered material in a financial statement audit.
D) Material misstatements should not exist in order for a company to receive an unqualified audit opinion.

Question 53

What is the most favorable audit opinion that a company can receive on its financial statements?

A) Adverse opinion
B) Unqualified opinion
C) Disclaimer of opinion
D) Qualified opinion

Question 54

Which of the following is not a primary role of an independent auditor?

A) Assume legal and professional responsibilities to the public.
B) Advise client on tax strategies.
C) Determine whether a company's financial statements are materially correct.
D) All of these answer choices are correct.

Question 55

If the financial statements cannot be relied upon because they contain one or more material departures from GAAP,what type of opinion will the auditor issue?

A) Qualified opinion
B) Disclaimer of opinion
C) Adverse opinion
D) Unqualified opinion

Question 56

Gross Company established a $250 petty cash fund on January 1.On March 1,the fund contained $160 in receipts for miscellaneous expenses and $85 in cash.If the company records both the disbursements and replenishments to the fund,what effect will it have on the elements of the financial statements?

A) No effect on total assets
B) Decrease stockholders' equity by $160
C) Increase stockholders' equity by $165
D) Decrease total assets by $165

Question 57

To ensure proper segregation of duties,after the check is signed,an employee should record the check in the accounting records and review the appropriate supporting documents.

Question 58

On April 30,Midwest Company established a petty cash fund of $1,000.On May 1,a disbursement of $355 was made from the fund for payment of delivery expense.What is the effect of the May 1 disbursement on the financial statements?

A) Delivery expense increases and cash decreases by $355
B) Petty cash increases and cash decreases by $355
C) Delivery expense increases and petty cash decreases by $355
D) The disbursement has no effect on the financial statements

Question 59

Even a good system of internal controls can be circumvented by collusion among employees.

Question 60

Requiring segregation of duties in a business eliminates the need for the work of one employee to serve as a check on the work of other employees.

Question 61

A business learns about customers' NSF checks through debit memos that are included with the bank statement.

Question 62

An error is considered material if it would trigger an IRS audit.

Question 63

Establishment of a petty cash fund is an asset exchange transaction.

Question 64

A bank reconciliation normally begins with the ending cash balance shown on the bank statement and reconciles it to the unadjusted cash account balance on the company's books.

Question 65

The primary focus of financial statement audits is the discovery of fraud.

Question 66

The Securities and Exchange Commission is authorized to establish and enforce the accounting rules for public companies.

Question 67

The true cash balance can only be determined if both the unadjusted bank balance and the unadjusted book balance are known.

Question 68

Preparing a bank reconciliation is a control activity.

Question 69

A cash shortage is treated as an expense.

Question 70

Typical adjustments to the unadjusted book balance on a bank reconciliation include bank service charges,customer NSF checks,and certified checks.

Question 71

At the time petty cash funds are disbursed,there is no effect on the financial statements.

Question 72

After the adjustments identified on the bank reconciliation have been recorded,the ending cash (book)balance reflected in the company's records will equal the true cash balance.

Question 73

The purpose of a petty cash fund is to eliminate the need for control over a business's small cash disbursements.

Question 74

Most audits result in unqualified audit opinions.

Question 75

Typical adjustments to the unadjusted bank balance on a bank reconciliation include deposits in transit and outstanding checks.

Question 76

For a petty cash fund to be most useful to a business,one of the employees of the business should be designated as responsible for the fund.