Question 1

Which of the following statements concerning electronic funds transfers is not correct?

Accepted Answer

A)   Businesses sometimes receive payments from customers via EFT.
B)   An EFT occurs when a customer electronically transfers funds from his or her bank account to the company's bank account.
C)   Because electronic funds transfers are deposited directly into the company's bank account, they require additional internal control procedures.
D)   To process an EFT, the accounting department merely records journal entries to debit Cash and credit Account Receivable from each customer. C

Question 2

Why was the Sarbanes-Oxley Act (SOX)enacted?

Accepted Answer

A)   To bring GAAP closer to global financial reporting standards
B)   The lack of significant corporate frauds during the late 1990s and early 2000s warranted less monitoring for external stakeholders
C)   To improve the financial reporting and restore investor confidence
D)   Accounting rules had become so complex that investors could no longer understand them C

Question 3

Choose the appropriate letter to match the term and the definition.There are more definitions than terms.
1.____ Bank Reconciliation
2.____ Cash
3.____ Cash Equivalents
4.____ NSF (Not Sufficient Funds)Check
5.____ Restricted Cash
Definition
A.A process for approving and documenting all purchases and payments on account.
B.A process that controls the amount paid to others by limiting the total amount of money available for making payments to others.
C.A set of regulations passed by Congress in 2002 in an attempt to improve financial reporting and restore investor confidence.
D.Actions taken to promote efficient and effective operations,protect assets,enhance accounting information,and adhere to laws and regulations.
E.An attempt to deceive others for personal gain.
F.An internal control designed into the accounting system to prevent an employee from making a mistake or committing a dishonest act as part of one assigned duty and then also covering it up through another assigned duty.
G.An internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual.
H.Another name for bounced checks.They arise when the check writer (your customer)does not have sufficient funds to cover the amount of the check.
I.Money or any instrument that banks will accept for deposit and immediately credit to a company's account.
J.Not available for general use but rather restricted for a specific purpose.
K.Short-term,highly liquid investments purchased within three months of maturity.
L.Terms of a loan agreement that if broken,entitle the lender to renegotiate loan terms or force repayment.

Accepted Answer

1.G
2.I
3.K
4.H
5.J

Question 4

A small company would have the most difficulty in implementing which of the following internal control principles?

Accepted Answer

A)   Segregating duties
B)   Restricting access to cash or information
C)   Establishing responsibilities
D)   Documenting procedures

Question 5

Identify the purpose of a voucher system and describe a voucher.

Accepted Answer

The answer of Identify the purpose of a voucher system...

Question 6

At the end of the day,the cash register's record shows $957,but the count of cash in the register is $965.Prepare the journal entry to record the day's cash sales.

Accepted Answer

The answer of At the end of the day,the cash...

Question 7

A check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period.In preparing the bank reconciliation for this period,the amount of this check should be

Accepted Answer

A)   added to the bank balance of cash.
B)   ignored in preparing this period's bank reconciliation.
C)   deducted from the bank balance of cash.
D)   deducted from the company's balance of cash.

Question 8

Physically locking up assets and electronically securing other assets and information is required by the internal control principle of:

Accepted Answer

A)   restricting access.
B)   establishing responsibilities.
C)   segregation of duties.
D)   documenting procedures.

Question 9

Fraud is best defined as:

Accepted Answer

A)   personal gain.
B)   misrepresenting oneself as another.
C)   deceitful actions of SOX.
D)   financial statement errors.

Question 10

Which element is not part of the fraud triangle?

Accepted Answer

A)   Sustainability
B)   Incentive
C)   Rationalization
D)   Opportunity

Question 11

In comparing the canceled checks on the bank statement with the entries in the accounting records,it is found that check number 2889 for December's utilities was correctly written and drawn for $790 but was erroneously entered into the accounting records as $970.The journal entry to adjust the books for the bank reconciliation would include a debit to:

Accepted Answer

A)   Utility Expense and a credit to Cash for $180.
B)   Cash and a credit to Utility Expense for $180.
C)   Utility Expense and a credit to Cash for $790.
D)   Cash and a credit to Utility Expense for $790.

Question 12

For each of the following events,match the event with the section of the bank reconciliation in which it is listed,if at all,and indicate the operation performed.

Accepted Answer

The answer of For each of the following events,match the...

Question 13

From the creditor's perspective,what is the purpose of loan covenants?

Accepted Answer

A)   To assist government agencies in examining financial statements
B)   To help to ensure a company will be able to repay the loan
C)   To aid in forecasting future revenues and expenses
D)   To help to determine the amount of money lent to a company

Question 14

Internal controls include the policies and procedures a company implements to promote efficient and effective operations,protect assets,enhance accounting information,and adhere to laws and regulations.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not a commonly used internal control?

Accepted Answer

A)   Mandatory vacations
B)   Anonymous hotlines
C)   Bonding employees
D)   Consolidating duties

Question 16

Most companies pay salaries and wages to employees through EFTs,which are known by
Employees as:

Accepted Answer

A)   direct deposits.
B)   vouchers.
C)   remittance advices.
D)   checks.

Question 17

Which of the following is not one of the control components that are part of the framework used when analyzing an internal control system?

Accepted Answer

A)   risk assessment
B)   control activities
C)   information and communication
D)   reconciliations

Question 18

Which principle of internal control states that you should not make one employee responsible for all parts of a transaction?

Accepted Answer

A)   Responsibility centers
B)   Separation of duties
C)   Restrict access
D)   Procedure documentation

Question 19

Flynn Company's monthly bank statement showed the ending balance of cash of $18,500.The bank reconciliation for the period showed an adjustment for a deposit in transit of $1,500, outstanding checks of $2,000, a NSF check of $700, bank service charges of $30 and the EFT from a customer in payment of the customer's account of $1,500.
-Use the information above to answer the following question.What was the cash balance on the company's books (before the adjustments for items on the bank reconciliation)?

Accepted Answer

A)   $18,000
B)   $17,230
C)   $19,000
D)   $20,270

Question 20

The principles of internal control include which of the following?

Accepted Answer

A)   Use only computerized systems
B)   Establish responsibility
C)   Maintain perpetual inventory records
D)   Eliminate fraud

Exam 5: Fraud, Internal Control, and Cash