Deck 8: Sarbanes-Oxley, Internal Control, and Cash

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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 5

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 6

When a clerk enters a sale and the customer can see the amount displayed and is given a cash receipt, this is an example of a preventive control.

Question 7

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 8

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

Question 9

Sarbanes-Oxley's purpose is to improve financial reporting.

Question 10

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 11

The Sarbanes-Oxley Act of 2002 was passed by Congress due to the public outcry after the financial scandals of the early 2000s.

Question 12

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

Question 13

The control environment in an internal control structure is the attitude and awareness of internal control by all employees.

Question 14

There are two internal control objectives and they are to ensure accurate financial reports, and ensure compliance with applicable laws.

Question 15

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

Question 16

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

Question 17

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

Question 18

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 19

Money orders are considered cash.

Question 20

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

Question 21

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 22

A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice being paid.

Question 23

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 24

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

Question 25

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

Question 26

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 27

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

Question 28

A payment system that uses computerized electronic impulses to effect a cash transaction is called electronic funds transfer (EFT).

Question 29

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 30

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

Question 31

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

Question 32

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 33

The main reason that the bank statement cash balance and the company's cash balance do initially balance is due to timing differences.

Question 34

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

Question 35

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 36

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

Question 37

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

Question 38

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 39

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

Question 40

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

Question 41

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 42

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

A) risk assessment
B) monitoring
C) proofs and security measures
D) separating responsibilities for related operations

Question 43

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

Question 44

A business that requires all cash payments be made by check can use a petty cash system.

Question 45

Which one of the following below 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 measurers
D) personnel policies

Question 46

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 47

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

Question 48

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

Question 49

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

Question 50

The objectives of internal control are to

A) control the internal organization of the accounting department personnel and equipment
B) provide reasonable assurance that operations are managed to achieve goals, financial reports are 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 51

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 52

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

Question 53

Internal control does not consist of policies and procedures that

A) protect assets from misuse
B) aid management in directing operations toward achieving business goals
C) guarantee the company will not go bankrupt
D) ensure that business information is accurate

Question 54

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 55

Money market accounts, commercial paper, and United States Treasury Notes are examples of cash equivalents.

Question 56

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

Question 57

Which one of the following below 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 58

The doomsday ratio includes both cash and cash equivalents in the numerator.

Question 59

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

Question 60

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

Question 61

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 62

In management's internal control report that is now required of all public companies, which of the following does not have a direct effect on a company's internal control system?

A) internal auditors
B) independent accountants
C) Board of Director's audit committee
D) Board of Trustees

Question 63

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 64

An element of internal control is

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

Question 65

The notification accompanying a check that indicates the specific invoice being paid is called a

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

Question 66

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

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

Question 67

An example of a preventive control is

A) a single person handles the responsibilities for operations, custody of assets, and accounting
B) separation of the Purchasing Department and Accounting Department personnel
C) bonding employees who handle cash
D) accepting payment in currency only

Question 68

A voucher

A) is received from customers to explain the purpose of a payment
B) is normally prepared in the Accounting Department
C) system is used to control cash receipts
D) system is an internal control procedure to verify that the assets in the ledger are the ones the company owns

Question 69

On the bank's accounting records, customers' accounts are normally shown as

A) debit balances
B) expenses
C) an asset
D) a liability

Question 70

A necessary element of internal control is

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

Question 71

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 72

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 73

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 74

A bank statement

A) is a credit reference letter written by the company's bank.
B) lets a company know 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 75

A voucher is usually supported by

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

Question 76

Which of the following is not an internal control activity for cash?

A) The number of persons who have access to cash should be limited.
B) All cash receipts should be recorded promptly.
C) The functions of record keeping and maintaining custody of cash should be combined.
D) Surprise audits of cash on hand should be made occasionally.

Question 77

The term cash includes

A) coins, currency (paper money), checks
B) money orders, and money on deposit that is available for unrestricted withdrawal
C) short-term receivables
D) both a and b

Question 78

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 79

The reconciliation of the cash register tape with the cash in the register is an example of

A) other controls.
B) independent internal verification.
C) establishment of responsibility.
D) segregation of duties.

Question 80

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) preventive controls
D) detective controls