Deck 5: Internal Control and Cash

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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.

Answer 3

True

Question 4

The Sarbanes-Oxley Act of 2002 requires companies to maintain strong and effective internal controls over recording transactions and preparing financial statements.

Question 5

The Sarbanes-Oxley Act requires companies and their independent accountants to report on the effectiveness of the company's internal controls.

Question 6

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

Question 7

All organizations face risks, and the assessment of these risks is necessary so that the objectives of internal control can be achieved.

Question 8

The internal control environment is enhanced by the hiring and retention of competent, honest employees.

Question 9

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

Question 10

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

Question 11

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

Question 12

Information and communication are essential elements of an organization's internal control.

Question 13

Employee fraud is the intentional act of deceiving an employer for personal gain.

Question 14

If a business has several bank accounts, it will have a separate record for each of them.

Question 15

The Sarbanes-Oxley Act of 2002 applies to all publicly held companies.

Question 16

Money orders are considered cash.

Question 17

Internal control is enhanced by combining the control of a transaction with the record-keeping function.

Question 18

Adding a review of operations by an internal audit staff weakens internal control.

Question 19

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 20

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

Question 21

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

Question 22

The depositor reconciles the bank's statement to the depositor's records.

Question 23

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

Question 24

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

Question 25

The bank section begins with the cash balance according to the bank statement and ends with the adjusted balance.

Question 26

The data needed to adjust a depositor's books are shown in the "adjustments to the depositor's records" section of a bank reconciliation.

Question 27

In preparing a bank reconciliation, the amount of a canceled check omitted from the depositor's records is deducted from the cash balance per books.

Question 28

The amount of the "adjusted balance" appearing on a bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date after all adjusting entries have been entered.

Question 29

In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is added to the cash balance per books.

Question 30

In a computerized system, paid vouchers are transferred to a paid voucher file.

Question 31

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

Question 32

A credit memorandum received with a bank statement means the company's bank account has been increased.

Question 33

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

Question 34

Bank customers are considered owners of the bank, so the bank shows their accounts as an asset on the bank's records.

Question 35

The bank informs the depositor of bank service charges by including a credit memorandum with a monthly bank statement.

Question 36

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

Question 37

A voucher is the notification accompanying the check issued to a creditor that indicates the specific invoice being paid.

Question 38

Outstanding checks are checks that have been issued but have not cleared by the bank.

Question 39

A check for $456 was erroneously charged by the bank as $654.In order for the bank reconciliation to balance, you must subtract $198 from the bank statement balance.

Question 40

All bank memorandums reported on the bank reconciliation require entries in the depositor's accounts.

Question 41

Money market funds, commercial paper, and U.S.Treasury Bills are examples of cash equivalents.

Question 42

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

Question 43

Which of the following warning signs could mean receipts are being pocketed before being deposited?

A) Missing documents or gaps in transaction numbers
B) An unusual increase in customer refunds
C) A sudden increase in cash payments
D) A difference between daily bank and cash balance

Question 44

Which of the following scenarios reduces the risk of an employee fraud?

A) An accountant being responsible for approving payments to a vendor
B) The bank reconciliation being prepared by an accountant
C) A sales clerk having access to the cash register
D) Remittance advices being sent directly to the cashier

Question 45

The Sarbanes-Oxley Act of 2002 requires companies and their independent accountants to:

A) report on the effectiveness of the company's internal controls.
B) report on any fraud and theft detected in the company.
C) report on the state of the economy and likelihood of fraud.
D) report on the financial activities of the company.

Question 46

The framework that has become widely accepted as the standard by which companies design, analyze, and evaluate internal controls is the:

A) Internal Control - Integrated Framework by the Committee of Sponsoring Organizations.
B) Internal Control - Integrated Framework by the Congress of Special Offerings.
C) Internal Control Localized Structure by the Committee of Sponsoring Organizations.
D) Internal Control Localized Structure by the Congress of Special Offerings.

Question 47

Minimum cash balance maintained in the bank account is called line of credit.

Question 48

In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is deducted from the cash balance per bank.

Question 49

_____, which constitute one of the most important elements of internal control, include separating responsibilities for related operations.

A) Control procedures
B) Risk assessment activities
C) Risk monitoring procedures
D) Information and communication activities

Question 50

When there are major changes in strategy, senior management, business structure, or operations, evaluations of controls is usually performed by _____.

A) internal auditors
B) management
C) supervisors
D) directors

Question 51

Which of the following is an element of the control environment?

A) Control procedures
B) Managements' operating styles
C) Information and communication activities
D) Risk assessment plans

Question 52

The purpose of the Sarbanes-Oxley Act of 2002 is to:

A) restore public confidence and trust in the financial statements of publicly held companies.
B) require all companies to prepare financial statements.
C) protect companies from demands of investors, stockholders, and creditors.
D) do all of these.

Question 53

Which of the following elements of internal control includes maintaining records of employees documenting their compensation and promotion?

A) Risk assessment
B) Control environment
C) Monitoring
D) Control procedures

Question 54

A debit memorandum from the bank indicates that the bank has deducted an amount from the depositor's account.

Question 55

Internal control consist of policies and procedures that _____.

A) involve cost-benefit considerations
B) deal with human element of controls such as, fatigue, carelessness, etc.
C) ensure public relations
D) ensure the accuracy of business information

Question 56

Which element of internal control observes employees' behavior and the accounting system for indicators of control problems?

A) Control environment
B) Risk assessment
C) Control procedures
D) Monitoring

Question 57

In preparing a bank reconciliation, the amount indicated by a credit memorandum for a note receivable collected by the bank is added to the cash balance per books.

Question 58

In preparing a bank reconciliation, the amount of outstanding checks is deducted from the cash balance per books.

Question 59

Internal controls are important because they:

A) deter fraud and prevent misleading financial statements.
B) eliminate fraud.
C) ensure that the company maintains a compensating balance.
D) guarantee accurate financial statements.

Question 60

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

Question 61

When preparing a bank reconciliation statement, outstanding checks would:

A) increase the cash balance according to the bank statement.
B) deduct the cash balance according to the bank statement.
C) increase the cash balance according to the company statement.
D) deduct the cash balance according to the company statement.

Question 62

Zorro Inc.has the following cash register data for December 31: Cash register total for cash sales
$23,500
Cash receipts from cash sales
$23,480
How should the difference be recorded?

A) $20 cash overage as miscellaneous operating expense
B) $20 cash overage as revenue
C) $20 cash shortage as normal operating expense
D) $20 cash shortage as other revenue

Question 63

What adjustment is required in the depositor's accounts to record outstanding checks?

A) None
B) Increase Cash; decrease Accounts Receivable
C) Increase Cash; increase Accounts Payable
D) Increase Accounts Receivable; decrease Cash

Question 64

Day Time Company records the receipts from cash sales of $41,200 as $12,400.What adjustment is required in the bank's accounts?

A) No adjustment needed
B) Increase Sales; decrease Cash
C) Increase Cash; decrease Sales
D) Increase Cash; decrease Accounts Receivable

Question 65

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

A) Risk assessment
B) Control procedures
C) Monitoring
D) Information and communication

Question 66

The bank statement of Jade Co.shows a balance of $4,555 as of December 31.The following reconciling items were identified: i) Deposit not recorded on bank statement, $50
Ii) Total outstanding checks, $105
Iii) Check of $100 returned because of not sufficient funds (NSF)What is the adjusted balance according to the bank statement?

A) $4,400
B) $4,605
C) $4,500
D) $4,810

Question 67

A credit memorandum from the bank :

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

Question 68

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the depositor.This item would be included on the bank reconciliation as a(n):

A) deduction from the cash balance per books.
B) addition to the cash balance per bank.
C) deduction from the cash balance per bank.
D) addition to the cash balance per books.

Question 69

Accompanying the bank statement was a debit memorandum for an NSF check received from a customer.This item would be included on the bank reconciliation as a(n):

A) deduction from the cash balance per books.
B) addition to the cash balance per bank.
C) deduction from the cash balance per bank.
D) addition to the cash balance per books.

Question 70

Which of the following is true of EFT?

A) It cost more than receiving cash payments through the mail.
B) It can process certain cash transactions at less cost than by using the mail.
C) It is easy to document purchase and sale transactions.
D) It means Effective Funds Transfer.

Question 71

Accompanying the bank statement was a debit memorandum for bank service charges.What adjustment is required in the depositor's accounts?

A) Increase Miscellaneous Expense; decrease Cash
B) Increase Cash; increase Other Income
C) Increase Cash; increase Accounts Payable
D) Decrease Accounts Payable; decrease Cash

Question 72

On the bank's accounting records, customers' accounts are normally shown as a(n):

A) revenue.
B) liability.
C) asset.
D) expenses.

Question 73

Which of the following elements of internal control focuses on locating weaknesses and improving control effectiveness?

A) Control environment
B) Risk assessment
C) Control procedures
D) Monitoring

Question 74

Separating the custody of assets from accounting for assets is a part of which element of internal control?

A) Information and communication
B) Monitoring
C) Control environment
D) Control procedures

Question 75

Anna erroneously records a check drawn for $385 as $835.This error is adjusted on the bank reconciliation as a(n):

A) $450 addition to the cash balance per books.
B) $385 addition to the cash balance per bank.
C) $835 deduction from the cash balance per bank.
D) $1,220 deduction from the cash balance per books.

Question 76

Which of the following of internal control deals with hiring, training, evaluation, compensation, and promotion of employees?

A) Monitoring
B) Control environment
C) Risk assessment
D) Control procedures

Question 77

A bank reconciliation should be prepared periodically because:

A) the depositor'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 depositor'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

MMC Inc.recorded the receipt from cash sales of $2,600 as $6,200.This error is adjusted on the bank reconciliation as a(n):

A) $2,600 addition to the cash balance per books.
B) $8,800 addition to the cash balance per bank.
C) $6,200 deduction from the cash balance per bank.
D) $3,600 deduction from the cash balance per books.

Question 79

A check drawn by a depositor for $810 in payment of a liability was recorded by the depositor as $180.The $630 difference would be included on the bank reconciliation as a(n):

A) addition to the cash balance per books.
B) addition to the cash balance per bank.
C) deduction from the cash balance per bank.
D) deduction from the cash balance per books.

Question 80

A bank issues credit memos for:

A) payments made by electronic funds transfer.
B) interest earned on the company's account.
C) service charges.
D) customer checks returned for not sufficient funds.