Deck 7: Internal Control and Cash

Question 1

Sarbanes-Oxley requires companies to maintain strong and effective internal controls and thus deter fraud and prevent misleading financial statements.

Answer 1

False

Question 2

An example of good internal controls over cash payments is the taking of all cash discounts offered.

Answer 2

True

Question 3

There are three internal control objectives and they are to safeguard the company's reputation, ensure accurate financial reports, and ensure compliance with applicable laws.

Answer 3

False

Question 4

For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees.

Question 5

A voucher is a form on which is recorded pertinent data about a liability and the particulars of its payment.

Question 6

The Sarbanes-Oxley Act applies only to companies whose stock is traded on public exchanges.

Question 7

A backlog in recording transactions is an example of a warning sign from the accounting system.

Question 8

If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as an "other income" item on the income statement.

Question 9

The control environment in an internal control structure is the overall attitude of management and employees about the importance of internal control.

Question 10

Internal control is enhanced by separating the control of a transaction from the record-keeping function.

Question 11

When the voucher system is used, the amount due on each voucher represents the credit balance of an account payable if the voucher is in full payment to a creditor.

Question 12

A voucher is a written authorization to make a cash payment.

Question 13

Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the control procedure: separating operations, custody of assets, and accounting.

Question 14

Money orders are considered cash.

Question 15

The Sarbanes-Oxley Act requires that financial statements of all public companies report on management's conclusions about the effectiveness of the company's internal control procedures.

Question 16

Businesses who have several bank accounts, petty cash, and cash on hand, would maintain a separate ledger account for each type of cash.

Question 17

If the balance in Cash Short and Over at the end of a period is a credit, it indicates that cash shortages have exceeded cash overages for the period.

Question 18

A customer's check received in settlement of an account receivable is considered cash.

Question 19

Sarbanes-Oxley's purpose is to maintain public confidence and trust in the financial reporting of companies.

Question 20

A voucher system is an example of an internal control procedure over cash payments.

Question 21

In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal for an amount larger than the amount of the check is added to the balance per company's records.

Question 22

A check outstanding for two consecutive months will appear only on the first month's bank reconciliation.

Question 23

The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date.

Question 24

A business that requires all cash payments be made by check can not use a petty cash system.

Question 25

In preparing a bank reconciliation, the amount of a canceled check omitted from the journal is added to the balance per company's records.

Question 26

Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash.

Question 27

Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on the bank's records.

Question 28

If an adjustment for an NSF check is made in a company's bank reconciliation, then the company must have written a bad check during the month.

Question 29

A check for $342 was erroneously charged by the bank as $432. In order for the bank reconciliation to balance, you must add $90 to the bank statement balance.

Question 30

In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is added to the balance per company's records.

Question 31

All bank memos reported on the bank reconciliation require entries in the company's accounts.

Question 32

The main reason that the bank statement cash balance and the company's cash balance do not initially balance is due to timing differences.

Question 33

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

Question 34

The bank reconciles its statement to the company's records.

Question 35

In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank statement.

Question 36

In preparing a bank reconciliation, the amount indicated by a credit memo for a note receivable collected by the bank is added to the balance per company's records.

Question 37

The bank reconciliation is an important part of the system of internal controls.

Question 38

In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank statement.

Question 39

The bank often informs the company of bank service charges by including a credit memo with the monthly bank statement.

Question 40

After a bank reconciliation is completed, journal entries are prepared for items in the balance per company's records as well as items in the balance per bank statement.

Question 41

The objectives of internal control are to

A) control the internal organization of the accounting department personnel and equipment
B) provide reasonable assurance that assets are safeguarded and used for business purposes, business information is accurate, and laws and regulations are complied with
C) prevent fraud, and promote the social interest of the company
D) provide control over "internal-use only" reports and employee internal conduct

Question 42

An element of internal control is

A) risk assessment
B) journals
C) subsidiary ledgers
D) controlling accounts

Question 43

A firm's internal control environment is not influenced by

A) management's operating style
B) organizational structure
C) personnel policies
D) monitoring policies

Question 44

"To maintain public confidence and trust in the financial reporting of companies" is the purpose of

A) the FASB
B) the IRS
C) Sarbanes-Oxley
D) GAAP

Question 45

The sum of the money on hand and petty cash receipts in a petty cash fund will always be equal to the balance in the petty cash account.

Question 46

A compensating balance occurs when a bank may require a company to maintain a maximum cash balance.

Question 47

A petty cash fund is used to pay relatively large amounts.

Question 48

When a firm uses internal auditors, it is adhering to which of the following internal control elements?

A) risk assessment
B) monitoring
C) proofs and security measures
D) information and communication

Question 49

Which one of the following below is not an element of internal control?

A) risk assessment
B) monitoring
C) information and communication
D) cost-benefit considerations

Question 50

Cash equivalents include short-term investments that will be converted to cash within 120 days.

Question 51

In establishing a petty cash fund, a check is written for the amount of the fund and is recorded as a debit to Accounts Payable and a credit to Petty Cash.

Question 52

Internal control does not consist of policies and procedures that

A) protect assets from misuse
B) ensure employees and managers comply with laws and regulations
C) guarantee the company will earn a profit
D) ensure that business information is accurate

Question 53

Expenditures from a petty cash fund are documented by a petty cash receipt.

Question 54

Which one of the following is not a factor that influences a business's control environment?

A) management's philosophy and operating style
B) organizational structure
C) proofs and security measures
D) personnel policies

Question 55

When the petty cash fund is replenished, the petty cash account is credited for the total of all expenditures made since the fund was last replenished.

Question 56

Sarbanes-Oxley applies to

A) publicly held companies
B) not-for-profit organizations
C) privately held businesses
D) all of these

Question 57

Most companies who have several bank accounts, petty cash, and cash on hand, would list each separately on the balance sheet.

Question 58

Which one of the following reflects a weak internal control system?

A) all employees are well supervised
B) a single employee is responsible for comparing a receiving report to an invoice
C) all employees must take their vacations
D) a single employee is responsible for collecting and recording of cash

Question 59

The petty cash fund eliminates the need for a bank checking account.

Question 60

Money market accounts, commercial paper, and U. S. Treasury bills are examples of cash equivalents.

Question 61

A voucher is usually supported by

A) a supplier's invoice
B) a purchase order
C) a receiving report
D) all of these

Question 62

A bank statement

A) is a credit reference letter written by the company's bank
B) shows a company the financial position of the bank as of a certain date
C) is a bill from the bank for services rendered
D) shows the activity that increased or decreased the company's account balance

Question 63

Which of the following should not be considered cash by an accountant?

A) money orders
B) bank checking accounts
C) postage stamps
D) travelers' checks

Question 64

Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation, the item is

A) a deduction from the balance per company's records
B) an addition to the balance per bank statement
C) a deduction from the balance per bank statement
D) an addition to the balance per company's records

Question 65

Credit memos from the bank

A) decrease a bank customer's account
B) are used to show a bank service charge
C) show that a company has deposited a customer's NSF check
D) show the bank has collected a note receivable for the customer

Question 66

The debit balance in Cash Short and Over at the end of an accounting period is reported as

A) an expense on the income statement
B) income on the income statement
C) an asset on the balance sheet
D) a liability on the balance sheet

Question 67

Accompanying the bank statement was a debit memo for bank service charges. What entry is required in the company's accounts?

A) debit Miscellaneous Expense; credit Cash
B) debit Cash; credit Other Income
C) debit Cash; credit Accounts Payable
D) debit Accounts Payable; credit Cash

Question 68

Procedures designed to protect cash from theft and misuse from the time it is received until it can be deposited in a bank are called

A) accounting controls
B) cash controls
C) FASB controls
D) GAAP controls

Question 69

The portion of an invoice that is returned with payment is a

A) remittance advice
B) voucher
C) debit memo
D) credit memo

Question 70

Journal entries based on the bank reconciliation are required in the company's accounts for

A) outstanding checks
B) deposits in transit
C) bank errors
D) book errors

Question 71

A special form on which is recorded pertinent data about a liability and the particulars of its payment is called a(n)

A) invoice
B) voucher
C) debit memo
D) remittance advice

Question 72

A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. This item would be included on the bank reconciliation as a(n)

A) addition to the balance per the company's records
B) addition to the balance per the bank statement
C) deduction from the balance per the bank statement
D) deduction from the balance per the company's records

Question 73

The bank reconciliation

A) should be prepared by an employee who records cash transactions
B) is part of the internal control system
C) is for information purposes only
D) is sent to the bank for verification

Question 74

The cash account in the company's ledger is a(n)

A) asset with a normal debit balance
B) asset with a normal credit balance
C) liability with a normal debit balance
D) liability with a normal credit balance

Question 75

A necessary element of internal control is

A) database
B) systems design
C) systems analysis
D) information and communication

Question 76

EFT

A) means Efficient Funds Transfer
B) can process certain cash transactions at less cost than by using the mail
C) makes it easier to document purchase and sale transactions
D) means Effective Funds Transfer

Question 77

A bank reconciliation should be prepared periodically because

A) the company's records and the bank's records are in agreement
B) the bank has not recorded all of its transactions
C) any differences between the company's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected
D) the bank must make sure that its records are correct

Question 78

A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. What entry is required in the company's accounts?

A) debit Accounts Payable; credit Cash
B) debit Cash; credit Accounts Receivable
C) debit Cash; credit Accounts Payable
D) debit Accounts Receivable; credit Cash

Question 79

Consider the following information taken from the cash account. Assume cash payments were 80% of collections. $$\begin{array} { | c | l | } \hline \text { Cash } & \\\hline ? ? & \text { Beginning balance } \\\hline \$ 115,375 & \text { Collections } \\\hline ? ? & \text { Disbursements } \\\hline \$ 80,275 & \text { Ending balance } \\\hline\end{array}$$ How much was the beginning balance of the cash account?

A) $57,200
B) $92,300
C) $103,350
D) $35,100

Question 80

A debit or credit memo describing entries in the company's bank account may be enclosed with the bank statement. An example of a credit memo is

A) deposited checks returned for insufficient funds
B) a promissory note left for collection
C) a service charge
D) notification that a customer's check for $375 was recorded by the company as $735 on the deposit ticket