Question 1

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
-Mathematical extensions and footings on purchase invoices are verified before the invoices are paid.

Accepted Answer

A) adheres to sound internal controls 
B) violates sound internal controls 
C) neither strengthens nor violates internal control

Question 2

Figure A
A treasurer preparing the October bank reconciliation identified the following items:
 $\begin{array}{lr}
\text { Cash balance per the company's records } & \$ 32,800 \
\text { Deposits in transit } & 4,300 \
\text { Outstanding cheques } & 2,200 \
\text { Interest earned on the chequing account } & 100 \
\text { NSF cheque from customer } & 400
\end{array}$ 
-Refer to Figure A.What is the company's adjusted cash balance at October 31?

Accepted Answer

A)  $32,500 
B)  $32,800 
C)  $34,600 
D)  $34,900

Question 3

Whenever feasible,cash handling activities and cash record-keeping activities should be assigned to different employees,according to the internal control activity called ____________________.

Accepted Answer

The answer of Whenever feasible,cash handling activities and cash record-keeping...

Question 4

Dance Town Academy
The items listed below were identified while preparing a bank reconciliation for the company's chequing account as of March 31.
 $\begin{array}{lr}
\text { Cash balance according to the general ledger } &?\
\text { Bank statement balance } & \$ 18,500 \
\text { Outstanding cheques } & 2,700\ 
\text { Customer's bounced cheque } & 350 \
\text { Bank service charges } & 100 \
\text { Deposits in transit } & 1,000 \
\text { Interest earned on the chequing account } & 60
\end{array}$
-Refer to the figure Dance Town Academy.How will the customer's NSF cheques be handled on a bank reconciliation?

Accepted Answer

A)  They will be added to the balance from the company records. 
B)  They will be subtracted from the balance from the company records. 
C)  They will be added to the bank statement balance. 
D)  They will be subtracted from the bank statement balance.

Question 5

Petty cash is NOT considered a cash equivalent.

Accepted Answer

A) True 
 B)False

Question 6

Figure D
In anticipation of preparing the July bank reconciliation, the accountant gathered the following information:
 $\begin{array}{llr}
  \text {  Bank statement balance} &\$4,300\
 \text { Deposit in transit } &500\
 \text {
Outstanding cheques  } &300\
 \text { Bank service charges } &10\
 \text {Customer's NSF cheque returned by the bank  } &50\
\end{array}$

-Refer to Figure D.What is the company's adjusted cash balance at July 31?

Accepted Answer

A)  $4,050 
B)  $4,140 
C)  $4,300 
D)  $4,500

Question 7

Dance Town Academy
The items listed below were identified while preparing a bank reconciliation for the company's chequing account as of March 31.
 $\begin{array}{lr}
\text { Cash balance according to the general ledger } &?\
\text { Bank statement balance } & \$ 18,500 \
\text { Outstanding cheques } & 2,700\ 
\text { Customer's bounced cheque } & 350 \
\text { Bank service charges } & 100 \
\text { Deposits in transit } & 1,000 \
\text { Interest earned on the chequing account } & 60
\end{array}$
-Refer to the figure Dance Town Academy.How will the bank services charges be handled on a bank reconciliation?

Accepted Answer

A)  They will be added to the balance from the company records. 
B)  They will be subtracted from the balance from the company records. 
C)  They will be added to the bank statement balance. 
D)  They will be subtracted from the bank statement balance They will be

Question 8

Items that are included on a bank statement and decrease the bank account balance are called ____________________.

Accepted Answer

The answer of Items that are included on a bank...

Question 9

Delco Construction
The following items relate to the company's March bank reconciliation:
 $\begin{array}{llr}
  \text {  Bank statement balance} &\$29,600\
 \text { Unadjusted cash balance according to company records } &?\
 \text { Deposit in transit } &2,200\
 \text {  Outstanding cheques} &3,100\
 \text { Bank service charges } &200\
 \text { Interest earned on the bank account } &100\
 \text { Customer's NSF cheque returned by the bank } &300\
\end{array}$

-Refer to the figure Delco Construction.What is the net amount of the adjustments to the company's cash balance as a result of the bank reconciliation?

Accepted Answer

A)  $400 increase 
B)  $400 decrease 
C)  $900 increase 
D)  $900 decrease

Question 10

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.
-adequate documents and records

Accepted Answer

A) One employee or department should verify the work of another. 
B) Specific approval is given by management for the performance of activities. 
C) Accounting and cash collections should be properly separated. 
D) Blank cheques should be stored in a locked location. 
E) Initial entry into the accounting system should be from a consistent source with complete information.

Question 11

A debit memo appears on the May bank statement.How should this amount be treated on the May bank reconciliation?

Accepted Answer

A)  It should be added to the company's balance. 
B)  It should be added to the bank balance. 
C)  It should be deducted from the company's balance. 
D)  It should be deducted from the bank balance.

Question 12

Which of the following is a debit memo?

Accepted Answer

A)  notice of a bank service charge 
B)  notice of interest earned on a chequing account 
C)  an outstanding cheque 
D)  a company's transposition error in recording a deposit

Question 13

A company's records indicate the balance in its chequing account at the end of the month is $5,671.Comparing the company's records with the monthly bank statement reveals several additional cash transactions,such as a bank service charge of $75,a $4,000 note receivable collected by the bank plus interest earned of $100,and an NSF cheque for $350.Determine the company's adjusted cash balance and prepare the journal entries necessary to adjust the account balance.

Accepted Answer

The answer of A company's records indicate the balance in...

Question 14

What is the main focus of strategic risk assessment?

Accepted Answer

A)  possible external threats to the company's success in accomplishing its objectives 
B)  allocation of the company's resources to accomplish its internal processes 
C)  safeguarding of the company's computerized assets and records 
D)  achieving operating efficiencies in the areas of production and human resources

Question 15

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)
-An accounting department employee records cash receipts from customers and prepares the bank deposit slips.

Accepted Answer

A) adheres to sound internal controls 
B) violates sound internal controls 
C) neither strengthens nor violates internal control

Question 16

Match the following terms with their correct definition.
-a bank reconciling item that must be subtracted from the unadjusted bank balance when preparing a bank reconciliation

Accepted Answer

A) bank reconciliation 
B) deposit in transit 
C) nonsufficient funds cheque 
D) outstanding cheque 
E) service charges

Question 17

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)
-interest earned on the chequing account for May

Accepted Answer

A) addition to bank balance 
B) subtraction from bank balance 
C) addition to company balance 
D) subtraction from company balance 
E) not included on the reconciliation

Question 18

The stronger the system of internal control,the higher the accuracy of the company's accounting records and financial reports.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT a generally recognized internal control activity?

Accepted Answer

A)  separation of the custody and recordkeeping responsibilities for any business activity 
B)  internal review of business transactions by the board of directors 
C)  internal review of business transactions by the internal auditors 
D)  independent verification of the work of one employee by another employee

Question 20

A company erroneously records a $50 cheque received from a customer as $500 in its records.What must it now do when reconciling its bank statement?

Accepted Answer

A)  It must increase the balance per its records by $500. 
B)  It must increase the balance per its records by $450. 
C)  It must decrease the balance per its records by $500. 
D)  It must decrease the balance per its records by $450.

Exam 2: Internal Control and Cash