Deck 6: Cash and Internal Control

Question 1

Cash equivalents are investments that are readily convertible to a known amount of cash,where readily means six months or less.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

In a sound internal control system,all cash receipts should be deposited intact in the bank on a daily basis.

Answer 3

True

Question 4

Coin and currency on hand and cash on deposit in the form of checking and savings accounts are the most obvious forms of cash.

Question 5

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

Question 6

Treasury notes with a maturity of six months or less that are issued by the federal government are cash equivalents.

Question 7

A bank does not have the legal right to demand that a customer notify it before making a withdrawal from a savings account.

Question 8

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

Question 9

When a bank pays interest or collects an amount owed to a company by one of the bank's customers,the bank issues a debit memorandum.

Question 10

For a buyer,a purchase order is not the basis for recording a purchase and an account payable.

Question 11

When a bank pays interest or collects an amount owed to a company by one of the bank's customers,the bank issues a credit memorandum.

Question 12

Checks received from customers are considered to be cash in the company's books.

Question 13

A bank informs a customer that a service charge has been assessed on its account by including a credit memorandum on the monthly bank statement.

Question 14

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

Question 15

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

Question 16

The key to the classification of an amount as cash is that it be readily available to pay debts.

Question 17

When reconciling a bank account,the company does not have to prepare an adjusting entry for outstanding checks.

Question 18

Petty cash typically is composed of coins and currency kept on hand in a business to make minor disbursements.

Question 19

A six-month bank certificate of deposit would be classified as a cash equivalent.

Question 20

The key to the classification of an amount as cash is that it be available to pay debts within a three-month period of time.

Question 21

Only one copy of the list of cash received should be prepared when an employee opens mail with customer payments to avoid complexity in the accounting system and maintain control.

Question 22

Independent verification can be effective in preventing collusion.

Question 23

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

Question 24

The use of customer statements as a control device will be effective only if the employees responsible for the custody of cash received through the mail,for record keeping,and for authorization of adjustments to customers' accounts are not allowed to prepare and mail statements to customers.

Question 25

A company's internal control system is designed by its external auditors.

Question 26

As part of good internal control,disbursements can be made either by check or cash.

Question 27

One concern of the internal auditor is the efficiency with which the organization is run.

Question 28

Accounting controls primarily concern safeguarding assets and ensuring the reliability of the financial statements.

Question 29

Audit committees are required to consist of only directors who are key officers of the company.

Question 30

The Sarbanes-Oxley Act requires that a company's internal audit staff issue a report on their assessment of the company's internal control.

Question 31

The only reason a company needs to create an internal control system is to deter intentional fraudulent acts.

Question 32

Most merchandisers receive checks and currency from customers in two ways: (1)cash received over the counter from cash sales and (2)cash received in the mail from credit sales.

Question 33

After it completes a bank reconciliation,a business must prepare a number of adjustments to its records.The additions and deductions from the Cash account on the books should be the basis for the adjustments.

Question 34

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 assets and records.

Question 35

A company prepares adjusting entries for debit memorandums but not for credit memorandums.

Question 36

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

Question 37

At the time a petty cash fund is replenished,an adjustment must be made to record its replenishment and to recognize the various expenses incurred.

Question 38

A company policy that requires all prospective employees to be interviewed by the personnel department is an example of an accounting control.

Question 39

Which of the following assets is considered the most liquid?

A)Cash
B)Accounts receivable
C)Merchandise inventory
D)Prepaid expenses

Question 40

A good system of internal control is important to make a company's accounting records completely foolproof.

Question 41

Deposits made by a company but not yet reflected on a bank statement are called

A)debit memoranda.
B)deposits in transit.
C)credit memoranda.
D)none of these are correct.

Question 42

Which of the following items is not included in cash?

A)A bank certificate of deposit for one year
B)A savings account at the bank
C)A checking account at the bank
D)All of these are included in cash.

Question 43

Effective cash management and control includes all of the following except

A)the use of a petty cash fund.
B)bank reconciliations.
C)short-term investments of excess cash.
D)purchase of stocks and bonds.

Question 44

Which of the following items would be subtracted from the balance per bank statement on a bank reconciliation?

A)Outstanding checks
B)Deposit in transit
C)Service charge assessed by the bank
D)Interest collected by the bank on a customer note

Question 45

Which of the following items would be added to the balance per books on a bank reconciliation?

A)Outstanding checks
B)Deposit in transit
C)Service charge assessed by the bank
D)Interest collected by the bank on a customer note

Question 46

Which of the following statements is true?

A)Good cash management practices dictate that a company should maintain as large a balance as possible in its Cash account.
B)Sound internal control practice dictates that all cash payments should be made by check.
C)The person handling the cash should also prepare the bank reconciliation.
D)Petty cash can be substituted for a checking account to expedite the payment of all disbursements.

Question 47

How are cash equivalents reported or disclosed in the financial statements?

A)They appear only on the statement of cash flows.
B)They are included with short-term investments under current assets on the balance sheet.
C)They are included with cash under current assets on the balance sheet.
D)They are disclosed only in a footnote to the balance sheet.

Question 48

Which of the following items would not be a reconciling item?

A)Canceled checks
B)NSF checks
C)Outstanding checks
D)Deposits in transit

Question 49

Which of the following would not appear on a bank statement for a checking account?

A)Service charges
B)Interest earned
C)Outstanding checks
D)Deposits

Question 50

Which of the following procedures is not part of preparing a bank reconciliation of a checking account?

A)Tracing deposits listed on the bank statement to the books to identify deposits in transit
B)Arranging canceled checks in numerical order and tracing them to the books to identify outstanding checks
C)Identifying items added on the bank statement which have not been recorded as cash receipts by the company
D)Preparing adjustments to reverse the transactions recorded for checks that are still outstanding

Question 51

Which of the following could never be considered to be cash equivalents?

A)Common stock issued by a corporation
B)Money market funds
C)Corporate commercial paper
D)U.S.Treasury bills

Question 52

Which of the following items would be subtracted from the balance per books on a bank reconciliation?

A)Outstanding checks
B)Deposit in transit
C)Service charge assessed by the bank
D)Interest collected by the bank on a customer note

Question 53

Which of the following items would be added to the balance per bank statement on a bank reconciliation?

A)Outstanding checks
B)Deposit in transit
C)Service charge assessed by the bank
D)Interest collected by the bank on a customer note

Question 54

Which of the following is not considered to be a cash equivalent?

A)Corporate commercial paper due in 90 days after purchase
B)U.S.Treasury bills with an original maturity of six months
C)A money market account with a stock brokerage firm
D)A certificate of deposit with a term of 75 days when acquired

Question 55

The accountant for Busch Corp.was preparing a bank reconciliation as of February 28,2017.The following items were identified: ?
$$\begin{array} { l r } \text { Busch's book balance } & \$ 15,000 \\\text { Outstanding checks } & 2,500 \\\text { Service charge } & 15 \\\text { Customer's NSF check returned by the bank } & 100\end{array}$$ What amount will Busch report as its adjusted cash balance at February 28,2017?

A)$12,385
B)$12,500
C)$14,885
D)$17,385

Question 56

Checks presented for payment and paid by the bank are known as

A)canceled checks.
B)certified checks.
C)NSF checks.
D)outstanding checks.

Question 57

Checks returned by a bank because customers did not have sufficient funds in their account are called

A)canceled checks.
B)certified checks.
C)NSF checks.
D)outstanding checks.

Question 58

Which of the following statements best describes the term "outstanding check?"

A)A check written by a company and presented to the bank for payment.
B)A check written by a company but not yet presented to the bank for payment.
C)A check written by a customer that has been presented to the bank for payment.
D)A check written by a customer that has not yet been presented to the bank for payment.

Question 59

The accountant for Fazzi Corp.was preparing a bank reconciliation as of April 30,2017.The following items were identified: ?
$$\begin{array} { l r } \text { Fazzi's book balance } & \$ 46,200 \\\text { Outstanding checks } & 1,100 \\\text { Interest earned on checking account } & 50 \\\text { Customer's NSF check returned by the bank } & 500\end{array}$$ In addition,Fazzi incorrectly recorded a customer's check in cash receipts as $150;the bank recorded the amount correctly as $510.What amount will Fazzi report as its adjusted cash balance at April 30,2017?

A)$44,650
B)$45,890
C)$46,110
D)$46,250

Question 60

Which of the following is not a cash equivalent?

A)30-day certificate of deposit
B)60-day commercial paper
C)90-day U.S.Treasury bill
D)180-day note issued by a local or state government

Question 61

If the balance on the bank statement does not equal the balance in the Cash account,then it can be assumed that

A)the company has no errors in its records concerning the Cash account.
B)the bank has made errors in preparing the statement.
C)the company has made errors in is records concerning the Cash account.
D)there will be items reconciling the difference.

Question 62

A credit memorandum appeared on Central Company's bank statement.How will Central treat this amount on its bank reconciliation?

A)Add it to the bank balance
B)Add it to the book balance
C)Deduct it from the bank balance
D)Deduct it from the book balance

Question 63

A debit memorandum appeared on Cinco Inc.'s May bank statement.How will Cinco treat this amount on its May bank reconciliation?

A)Add it to the bank balance
B)Add it the book balance
C)Deduct it from the bank balance
D)Deduct it from the book balance

Question 64

Which of the following statements regarding a credit memorandum is not true?

A)A credit memorandum is added to the balance per the company's books.
B)A credit memorandum could be issued for interest earned on checking account balances.
C)A credit memorandum is issued when the bank collects a note for the customer.
D)A credit memorandum is subtracted from the balance per the company's books.

Question 65

Which of the following is an example of a credit memorandum?

A)Service charge
B)Collection of a note receivable by the bank
C)Outstanding check
D)Company error in recording a $600 deposit as $500

Question 66

An outstanding check is a check that

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

Question 67

When preparing a bank reconciliation,bank service charges are

A)added to the company's book balance.
B)deducted from the company's book balance.
C)added to the bank statement balance.
D)deducted from the bank statement balance.

Question 68

Which of the following statements regarding a credit memorandum is true?

A)A credit memorandum is subtracted from the balance per the company's books.
B)A credit memorandum could be issued for bank service charges.
C)A credit memorandum is issued when a customer gives the company an NSF check.
D)A credit memorandum is added to the balance per the company's books.

Question 69

Realistic Sound's unadjusted bank balance amounted to $3,000.Outstanding checks amounted to $500 and deposits in transit totaled $300.Based on this information alone,Realistic's adjusted cash balance is

A)$3,200.
B)$3,300.
C)$2,800.
D)$2,700.

Question 70

When preparing a bank reconciliation,deposits in transit are

A)added to the bank statement balance.
B)deducted from the company's book balance.
C)added to the company's bank balance.
D)deducted from the bank statement balance.

Question 71

When preparing a bank reconciliation,outstanding checks are

A)deducted from the bank statement balance.
B)deducted from the company's book balance.
C)added to the bank statement balance.
D)added to the company's book balance.

Question 72

Which of the following items is a reconciling item on the bank side of a bank reconciliation?

A)Canceled checks
B)Outstanding checks
C)NSF checks
D)Service charge

Question 73

When preparing a bank reconciliation,deposits in transit should be

A)added to the unadjusted book balance.
B)subtracted from the unadjusted book balance.
C)added to the unadjusted bank balance.
D)subtracted from the unadjusted bank balance.

Question 74

Which of the following procedures is incorrect for setting up and maintaining a petty cash fund?

A)A check is prepared for a fixed amount;when the check is cashed,the money is entrusted to a petty cash custodian.
B)A journal entry is recorded to establish the fund and obtain the cash.
C)When appropriate documentation is presented,cash payments are made from the fund;the petty cash custodian retains the documentation.
D)When the petty cash fund is replenished,a journal entry is recorded to recognize an increase in the petty cash account.

Question 75

When preparing a bank reconciliation interest earned on a checking account is

A)added to the company's book balance.
B)deducted from the company's book balance.
C)added to the bank statement balance.
D)deducted from the bank statement balance.

Question 76

The set of items below was identified in preparing a bank reconciliation for Mars Corp.as of August 31,2017. ?
$$\begin{array} { l r } \text { Bank statement balance } & \$ 19,500 \\\text { Mars's book balance (before adjustments) } & ? \\\text { Outstanding checks } & 2,700 \\\text { Customer's NSF check } & 350 \\\text { Service charges } & 100 \\\text { Deposit in transit } & 1,000 \\\text { Interest earned on checking account } & 60\end{array}$$ Mars Corp.'s balance per books before the reconciliation is

A)$17,410.
B)$17,900.
C)$18,190.
D)$18,310.

Question 77

If a company erroneously records a $500 deposit as $400 in its books,which of the following must occur when reconciling the bank statement?

A)The company will have to increase the balance per the bank statement by $100.
B)The company will have to increase the balance per the books by $100.
C)The company will have to decrease the balance per bank statement by $100.
D)The company will have to decrease the balance per the books by $100.

Question 78

While reconciling the checking account,an accountant with Sonic Corporation noticed that an error had been made in recording a check received by the company.Sonic recorded the receipt as $729,and the correct amount of the check was $279.Which of the following reconciling adjustments is required?

A)Add $450 to the company's book balance
B)Deduct $450 from the company's book balance
C)Add $450 to the bank statement balance
D)Deduct $450 from the bank statement balance

Question 79

When preparing a bank reconciliation,NSF checks are

A)added to the company's book balance.
B)deducted from the company's book balance.
C)added to the bank statement balance.
D)deducted from the bank statement balance.

Question 80

Which of the following is an example of a debit memorandum?

A)Service charge
B)Interest earned on the account balance
C)Outstanding check
D)Company error in recording a $500 deposit as $600