Deck 7: Internal Control and Cash

Question 1

The Public Company Oversight Board oversees the work of auditors of public companies.

Answer 1

True

Question 2

Under the Sarbanes-Oxley Act,the outside auditor must issue an internal control report.

Answer 2

False

Question 3

Under the Sarbanes-Oxley Act,accounting firms are prohibited from both auditing a client and providing certain consulting services for the same client.

Answer 3

True

Question 4

Internal auditors evaluate company controls to ensure the accuracy of financial statements.

Question 5

Separation of duties limits fraud and promotes the accuracy of the account records.

Question 6

The control environment is one of the five components by which a company can achieve its internal control objectives.

Question 7

Risk assessment is the "tone at the top" of a business,starting with the owner and the top managers.

Question 8

Under the Sarbanes-Oxley Act,violators may be sentenced to prison for securities fraud.

Question 9

Which of the following statements about internal control is FALSE?

A) Internal auditors insure that employees follow company policies.
B) The treasurer is the officer ultimately responsible for writing of checks.
C) External auditors are employees of the company.
D) The control environment is known as the "tone at the top."

Question 10

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

A) The stock market crash of 2002
B) The savings and loan bailout
C) The accounting scandals of WorldCom and Enron
D) The mounting government deficit

Question 11

Which of the following is TRUE of internal control?

A) A company's outside auditor is responsible for the company's internal control system.
B) One of the major purposes of internal control is to ensure accurate, reliable accounting records.
C) Internal control procedures tend to diminish the importance of operational efficiency.
D) Internal controls are only necessary for large businesses.

Question 12

Keeping office supplies under lock and key is representative of:

A) safeguarding assets.
B) following company policies.
C) promoting operations efficiency.
D) ensuring accurate, reliable accounting records.

Question 13

External auditors monitor company controls to safeguard assets and ensure that employees are following company policies.

Question 14

Reducing expense to increase operating profit is representative of:

A) safeguarding assets.
B) following company policies.
C) promoting operational efficiency.
D) ensuring accurate, reliable accounting records.

Question 15

Which is NOT a provision of Sarbanes-Oxley?

A) Accounting firms are allowed to provide both auditing services and a full range of consulting services to their public company clients.
B) Those who commit securities fraud may be sentenced to 25 years in prison.
C) Public companies must issue an internal control report evaluated by an outside auditor.
D) Auditors of public companies are under the scrutiny of the Public Company Accounting Oversight Board.

Question 16

Internal control is the organizational plan and all the related measures adopted by an entity to safeguard assets,encourage employees to follow company policy,promote operational efficiency,and ensure accurate and reliable accounting records.

Question 17

Mandatory vacations and job rotation improve internal control.

Question 18

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

A) To encourage employees to follow company policy
B) To safeguard the company's assets
C) To ensure accurate, reliable accounting records
D) To guarantee that a business makes a profit

Question 19

Which of the following is NOT one of the benefits provided by internal control?

A) To reduce waste
B) To insure that better business decisions are made
C) To offer protection against theft
D) To reduce inefficiency

Question 20

Which of the following is a requirement of the Sarbanes-Oxley Act?

A) The outside auditor must issue an internal control report for each public company.
B) The Public Company Oversight Board must conduct audits of public companies.
C) Accounting firms may not both audit a public client and provide certain consulting services for the same client.
D) The Public Company Oversight Board must create new accounting standards.

Question 21

Before any internal control procedure is initiated,a question which should be addressed by the company is:

A) Will this stop all theft?
B) Is this the best security money can buy?
C) How much benefit will be derived from the cost of the procedure?
D) Will this prevent all accounting errors?

Question 22

In the following situation,which internal control procedure needs strengthening?

- The controller's duties include approving bank reconciliations,approving general journal entries,hiring administrative staff,and approving various types of administrative expenses.She needs new computer equipment for the accounting office,but there are no guidelines specifying whether she can approve purchases of office equipment.

A) Assignment of responsibilities
B) Competent, reliable, and ethical personnel
C) Separation of duties
D) Documents

Question 23

In a large company,the person who is responsible for writing checks is the:

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

Question 24

Which of the following describes the internal control component risk assessment?

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

Question 25

Which of the following describes the internal control component monitoring of controls?

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

Question 26

Which of the following describes the internal control procedure assignment of responsibilities?

A) To validate their accounting records, a company should have an audit by an external accountant.
B) The company should separate the custody of assets from accounting.
C) The external auditors will monitor internal controls.
D) Have clearly assigned responsibilities for each position.

Question 27

In the following situation,which internal control procedure needs strengthening?

- Hofstra Services hired a new accounting manager.He signed a contract for a new accounting information system,but his position did not specify whether he was authorized to do so or not.

A) Assignment of responsibilities
B) Competent, reliable, and ethical personnel
C) Separation of duties
D) Documents

Question 28

In the following situation,which internal control procedure needs strengthening?

- At Hofstra Services,the operations accountant is responsible for safeguarding and maintaining the pipe inventory and also to record inventory transactions into the journal.A separate accounting clerk keeps records of the cash receipts and payments.The treasurer signs checks and approves contracts.

A) Assignment of responsibilities
B) Competent, reliable, and ethical personnel
C) Separation of duties
D) Documents

Question 29

Which of the following describes the control environment?

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

Question 30

Which of the following is NOT a key element of good internal control?

A) Having competent, reliable and ethical personnel
B) Having periodic audits
C) Having a good working environment for employees
D) Having separation of duties

Question 31

Which of the following describes the internal control procedure separation of duties?

A) Cashiers must not have access to accounting records.
B) External auditors will monitor internal controls.
C) The information system is critical.
D) Prenumber invoices and other documents.

Question 32

In the following situation,which internal control procedure needs strengthening?

- Hofstra Services hired a new accountant to be responsible for the petty cash fund and the cash receipts.The newly hired employee has an accounting degree and a criminal record.

A) Assignment of responsibilities
B) Competent, reliable, and ethical personnel
C) Separation of duties
D) Documents

Question 33

A pharmaceutical company testing drugs to determine possible side effects is a part of:

A) monitoring controls.
B) information systems.
C) control procedures.
D) risk assessment.

Question 34

Which of the following describes the internal control procedure documents?

A) Mandatory vacations will improve internal control.
B) Separate the custody of assets from accounting.
C) Prenumber invoices and other documents.
D) A company should purchase a fireproof vault.

Question 35

In the following situation,which internal control procedure needs strengthening?

- At Hofstra Services,the junior accountant collects checks and cash from customers and records the transactions into the Journal.The controller approves the journal entries and bank reconciliations.The treasurer signs checks and approves contracts.

A) Assignment of responsibilities
B) Competent, reliable, and ethical personnel
C) Separation of duties
D) Documents

Question 36

Internal and external auditors are part of which of the following components of internal control?

A) Monitoring controls
B) Information systems
C) Control procedures
D) Control environment

Question 37

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) Only authorized users have access to various parts of the information system.
D) The information system is the "tone at the top" of the business.

Question 38

In the following situation,which internal control procedure needs strengthening?

- At Hofstra Services,the accounting clerk fills out unnumbered purchase order forms for purchases of supplies.An operations engineer completes the form with a detailed description of the supplies being ordered,and the operations manager approves the purchase and passes the purchase order back to the accountant for processing.

A) Assignment of responsibilities
B) Competent, reliable, and ethical personnel
C) Separation of duties
D) Documents

Question 39

In the following situation,which internal control procedure needs strengthening?

- Hofstra Services hired a new clerk to keep custody of and maintain all the equipment in the equipment yard.That employee has not yet been adequately trained on the maintenance needs of the equipment.

A) Assignment of responsibilities
B) Competent, reliable, and ethical personnel
C) Separation of duties
D) Documents

Question 40

Which of the following describes the internal control procedure competent,reliable and ethical personnel?

A) The information system is critical.
B) A company must train and supervise high-quality employees.
C) External auditors monitor internal controls.
D) A company purchases burglar alarms.

Question 41

When designing a system of internal control,every procedure should be implemented strictly and properly,regardless of the cost.

Question 42

Which of the following is a security procedure designed for e-commerce which rearranges text messages by a mathematical process?

A) Trojans
B) Firewalls
C) Encryption
D) Phishing

Question 43

Which of the following is the most basic internal control for cash?

A) Keeping money in a bank account
B) Checking for counterfeit bills
C) Counting cash receipts twice
D) Internal audit of cash procedures

Question 44

When a check is issued,the party being paid the cash is referred to as the:

A) payee.
B) maker.
C) bank signatory.
D) depositor.

Question 45

Cash is the most liquid of all company assets.

Question 46

If a system of internal controls is too strict or complex,it may harm efficiency and not be cost-effective.

Question 47

An outstanding check is a check issued by the company and recorded on its books,but not yet paid by its bank.

Question 48

Which of the following is a common tactic to overcome internal controls?

A) Encryption
B) Firewalls
C) Collusion
D) Separation of duties

Question 49

Which of the following is a security procedure designed for e-commerce?

A) Burglar alarms
B) Firewalls
C) Fireproof vaults
D) Secure inventory storage

Question 50

Which of the following is retained by the customer as proof of a deposit transaction?

A) A deposit receipt
B) A cancelled check
C) A bank reconciliation
D) A signature card

Question 51

Which of the following describes collusion?

A) When bogus websites acquire passwords and account numbers fraudulently
B) When two or more people cooperate together to defraud a company
C) When one employee steals from a company
D) When a company defrauds its suppliers by making false claims

Question 52

Journal entries must be made to record the reconciling items on the bank side of the reconciliation.

Question 53

A malicious program that enters program code or destroys data without authorization is an example of:

A) a password.
B) phishing.
C) encryption.
D) a virus.

Question 54

Which of the following is NOT a problem that must be addressed in the internal controls for commerce?

A) Trojans
B) Stolen credit-card numbers
C) Phishing expeditions
D) Separation of duties

Question 55

A strong computer firewall is an essential element of good internal controls for e-commerce.

Question 56

The cash balance in a company's general ledger and the bank's balance on the bank statement will generally be different because of the time lag in recording transactions.

Question 57

When a check is issued,the party who is paying the cash is referred to as the:

A) payee.
B) maker.
C) bank signatory.
D) depositor.

Question 58

Which of the following must be signed by the person authorized to write checks drawn on a checking account at a bank?

A) A signature card
B) A bank statement
C) A deposit ticket
D) A bank reconciliation

Question 59

If a system of internal controls is properly designed and structured,it cannot be overcome or broken into.

Question 60

On a bank reconciliation,deposits in transit are subtracted on the book side of the reconciliation.

Question 61

Journal entries that are necessitated by reconciling items on the book side of the reconciliation all include either a debit to Cash or a credit to Cash.

Question 62

The bank charged a service fee of $20.How would this information be included on the bank reconciliation?

A) A deduction on the bank side
B) An addition on the book side
C) A deduction on the book side
D) An addition on the bank side

Question 63

Which of the following items found on a bank reconciliation does NOT require an adjusting entry?

A) Interest earned
B) A bank service charge
C) A note collected by the bank
D) Deposits in transit

Question 64

Which of the following items will NOT appear on the book side of the reconciliation?

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

Question 65

If the bank reconciliation includes a deposit in transit,a journal entry is required which includes a debit to cash.

Question 66

If the bank reconciliation includes outstanding checks,no journal entries are required.

Question 67

Check Number 367 for $33.52 was incorrectly entered as $33.25.Which adjustment needs to be made?

A) Decrease the book balance.
B) Decrease the bank statement balance.
C) Increase the book balance.
D) Increase the bank statement balance.

Question 68

If the bank reconciliation includes interest revenue,a journal entry is required which debits Cash and credits Interest revenue.

Question 69

The bank collected a note receivable of $1,000.How would this information be included on the bank reconciliation?

A) An addition on the bank side
B) A deduction on the book side
C) An addition on the book side
D) A deduction on the bank side

Question 70

In a bank reconciliation,outstanding checks will be shown on the bank side of the reconciliation.

Question 71

In a bank reconciliation,an NSF check will be shown on the bank side of the reconciliation.

Question 72

The bank recorded a $2,000 deposit as $200.How would this information be included on the bank reconciliation?

A) A deduction on the bank side
B) A deduction on the book side
C) An addition on the book side
D) An addition on the bank side

Question 73

A check of $75 deposited by a company was returned to the bank for nonsufficient funds.How would this information be included on the bank reconciliation?

A) A deduction on the bank side
B) An addition on the bank side
C) An addition on the book side
D) A deduction on the book side

Question 74

A check was written by a business for $205,but was recorded in the cash payments journal as $502.How would this error be included on the bank reconciliation?

A) A deduction on the bank side
B) An addition on the book side
C) An addition on the bank side
D) A deduction on the book side

Question 75

Which of the following is a benefit of online banking?

A) The business can reconcile to the bank's balance at any time.
B) The bank reconciliation is not necessary.
C) The business can reduce their internal controls over cash receipts.
D) A company's book balance will always equal the bank's balance.

Question 76

If the bank reconciliation includes a book error,no journal entries are required.

Question 77

If the bank reconciliation includes a bank service charge,a journal entry is required which debits Cash and credits Miscellaneous expense.

Question 78

Check Number 6135 for $576 was incorrectly entered as $657.Which adjustment needs to be made?

A) Decrease the book balance.
B) Decrease the bank statement balance.
C) Increase the book balance.
D) Increase the bank statement balance.

Question 79

In a bank reconciliation,a deposit in transit will be shown on the bank side of the reconciliation.

Question 80

In a bank reconciliation,a book error will be shown on the bank side of the reconciliation.