Deck 8: Internal Control and Cash

Question 1

Internal control policies and procedures are standard across companies.

Answer 1

False

Question 2

Preventing unauthorized access to company resources is one of the most difficult and time-consuming tasks for internal control experts.

Answer 2

True

Question 3

Firewalls and encryption can be used as methods to eliminate some of the risks involved in e-commerce.

Answer 3

True

Question 4

The use of internal controls provides guaranteed protection against losses due to operating activities.

Question 5

Cash consists of cash on hand and demand deposits.This includes coins,currency,and amounts on deposits in bank accounts,chequing accounts and some savings accounts.

Question 6

An internal control system is comprised of the policies and procedures companies use to protect assets,ensure reliable accounting,and promote efficient operations.

Question 7

Bonding does not discourage loss from theft because employees know that bonding is an insurance policy against loss from theft.

Question 8

Collusion occurs when a person embezzles money from a company and tries to hide the evidence.

Question 9

The principles of internal control include: ensure transactions and activities are authorized,maintain records,insure assets,separate recordkeeping and custody of assets,and perform internal and external audits.

Question 10

Good internal control procedures for cash receipts imply that cash receipts by mail should be opened by an accounting employee who is responsible for recording and depositing receipts.

Question 11

Cash equivalents are short-term investments that a company invests in to increase earnings.

Question 12

Money orders,cashier's cheques,and certified cheques are examples of cash equivalents.

Question 13

Risks involved in e-commerce include: credit card theft,computer viruses and impersonation.

Question 14

When used to monitor and control operations,internal control systems are a low priority for managers.

Question 15

A properly designed internal control system is a key part of systems design,analysis,and performance.

Question 16

Separation of duties divides responsibility for a series of transactions between two or more employees or departments.Despite the increased complexity,separation of duties reduces the risk of error and fraud.

Question 17

Small differences between cash sales and the amounts on the cash register are directly debited or credited to the cash account.

Question 18

Liquidity measures how easily assets can be converted to another asset or be used to pay for services or obligations.

Question 19

Maintaining accurate records is an important internal control principle.

Question 20

Chequing accounts are sometimes called savings accounts.

Question 21

Internal control devices for banking activities include signature cards,deposit slips,cheques,and bank statements.

Question 22

EFT is the use of electronic communication to transfer cash from one party to another.

Question 23

At the end of the day,the cash register shows a balance of $635.The cash drawer has a balance of $650.The difference of $15 should be debited to miscellaneous expense.

Question 24

The petty cash fund should be reimbursed at the end of the period even if the fund is not low on money.

Question 25

A cheque involves three parties: the maker,who signs the cheque,the payee,who is the recipient,and the bank,on which the cheque is drawn.

Question 26

The clerk who has access to the cash in the cash register should not have access to the register tape or file.

Question 27

Cash sales total $705 and the amount of cash in the register is $685.The shortage of $20 represents an expense.

Question 28

Internal control over cash receipts ensures that all cash received is properly recorded and deposited.

Question 29

The Petty Cash account is a separate chequing account used for small amounts.

Question 30

The entry to increase the balance in petty cash from $50 to $75 would include a credit to Petty Cash of $25.

Question 31

Credit cards do not remove the risk of bad debts to the business accepting payment by credit card.

Question 32

Basic services provided by banks such as bank accounts,deposit slips and cheques contribute to the control and safeguarding of cash.

Question 33

All monies disbursed from petty cash should be documented by a petty cash receipt.

Question 34

It is not necessary for businesses to reconcile their chequing accounts since banks keep accurate records and provide internal control support for cash.

Question 35

Firms have the option of recording credit card expense as a discount from sales or as a selling expense.

Question 36

Credit cards are seen as an advantage by businesses because the cash is normally received quicker than with other forms of extended credit.

Question 37

The journal entry for petty cash reimbursement is a debit to various expenses and a credit to Petty Cash.

Question 38

Outstanding cheques are cheques the bank has paid and deducted from the customer's account during the month.

Question 39

If Cash Over and Short has a debit at the end of the period,the dollar amount represents miscellaneous revenue.

Question 40

The payee is the person who signs a cheque.

Question 41

An internal control system is the policies and procedures that managers use to:

A) Protect assets.
B) Ensure reliable accounting.
C) Promote efficient operations.
D) Encourage adherence to company policies.
E) All of these answers are correct.

Question 42

The steps to reconcile the balance of the bank statement to the adjusted balance include adding outstanding cheques,deposits,and bank service charges to the bank balance.

Question 43

Quick assets include cash,inventory,and receivables.

Question 44

Internal control procedures:

A) Eliminate the risk of loss.
B) Include policies and procedures to safeguard assets.
C) Prevent unavoidable losses.
D) Both eliminate the risk of loss and include policies and procedures to safeguard assets.
E) All of these answers are correct.

Question 45

The acid-test ratio is current assets divided by current liabilities.

Question 46

The acid-test ratio is a more accurate measure of a company's liquidity than the current ratio.

Question 47

Omega Supply's current ratio is 2 to 1.Its acid test ratio is .75 to 1.Omega Supply is a good credit risk because the ratios reveal no liquidity problem.

Question 48

Z-Mart's quick assets are $147,000.With current liabilities of $143,000,Z-Mart's acid-test ratio is 1.03 to 1.

Question 49

The common rule of thumb is that a company's acid-test ratio should be at least 1.5 to 1.

Question 50

An error made by the bank should result in a reconciling item on the book side of a bank reconciliation.

Question 51

Cash,short-term investments and receivables,are called acid-test assets.

Question 52

The acid-test ratio is also called the quick ratio.

Question 53

An NSF cheque for $17.50 would be recorded as a debit to Cash and a credit to Accounts Receivable.

Question 54

Managers place a high priority on internal control systems because the systems assist managers in the:

A) Prevention of avoidable losses.
B) Planning of operations.
C) Monitoring of company performance.
D) Monitoring of employee performance.
E) All of these answers are correct.

Question 55

Bank service charges are treated as a reconciling item on the book side of a bank reconciliation.

Question 56

A bank reconciliation explains the difference between the balance of a chequing account on the customer's books and the balance on the bank statement.

Question 57

Factors that cause the bank statement balance of a chequing account to be different from the business chequing account balance include: outstanding cheques,deposits in transit,deductions for bank fees,additions for interest,and errors.

Question 58

A bank reconciliation results in creating an adjusted bank balance as well as an adjusted book balance.

Question 59

A good system of internal control:

A) Encourages adherence to prescribed managerial policies.
B) Promotes operational efficiencies.
C) Eliminates the need for an audit.
D) Both encourages adherence to prescribed managerial policies and promotes operational efficiencies.
E) All of these answers are correct.

Question 60

Banks normally use a flat rate fee for the processing of debit card transactions and a percentage fee for the processing of credit card transactions.

Question 61

Principles of internal control include:

A) Establish responsibilities.
B) Maintain adequate records.
C) Insure assets.
D) Bond key employees.
E) All of these answers are correct.

Question 62

Cash equivalents:

A) Include savings accounts.
B) Include chequing accounts.
C) Are short-term investments that a company invests their cash in to increase their earnings.
D) Include savings and chequing accounts.
E) All of these answers are correct.

Question 63

Z-Mart had $43 in missing petty cash receipts.The correct procedure is to:

A) Debit Cash Over and Short for $43.
B) Credit Cash Over and Short for $43.
C) Debit Petty Cash for $43.
D) Credit Petty Cash for $43.
E) Credit Cash for $43.

Question 64

Limitations of internal control include:

A) Human error.
B) Human fraud.
C) Cost-benefit standard.
D) Human error and fraud.
E) All of these answers are correct.

Question 65

Prenumbered printed cheques are an example of which internal control principle?

A) Technological controls.
B) Maintain adequate records.
C) Perform regular and independent reviews.
D) Technological controls and maintain adequate records.
E) All of these answers are correct.

Question 66

The Cash Over and Short account:

A) Is used to record a credit balance in the cash account.
B) Is an income statement account used for recording the income effects of cash overages and cash shortages from errors in making change and missing petty cash receipts.
C) Is not necessary in a computerized accounting system.
D) Is an income statement account used for recording the income effects of cash overages and cash shortages from errors in making change and missing petty cash receipts and is not necessary in a computerized accounting system.
E) None of these answers is correct.

Question 67

An income statement account used to record cash overages and cash shortages arising from omitted petty cash receipts and from errors in making change is the:

A) Cash Lost account.
B) Bank Reconciliation account.
C) Petty Cash account.
D) Cash Over and Short account.
E) Cash Receivable account.

Question 68

Cash equivalents:

A) Are readily convertible to a known cash amount.
B) Include short-term investments purchased to increase earnings.
C) Are often combined with cash as a single balance sheet item.
D) Are readily convertible to a known cash amount and include short-term investments purchased to increase earnings.
E) All of these answers are correct.

Question 69

Cash equivalents:

A) Are short-term,highly liquid investments.
B) Include 6-month certificates of deposit.
C) Include chequing accounts.
D) Are recorded in petty cash.
E) Are short-term,highly liquid investments and include chequing accounts.

Question 70

Cash consists of:

A) Postage stamps.
B) Coins,currency,and chequing accounts.
C) IOUs.
D) Certificates of deposit.
E) Coins,currency,chequing accounts,and certificates of deposit.

Question 71

The entry necessary to establish a petty cash fund should include:

A) A debit to Cash.
B) A credit to Cash.
C) A debit to Petty Cash.
D) A credit to Petty Cash.
E) A credit to Cash and a debit to Petty Cash.

Question 72

The impact of technology on internal controls includes:

A) Reduced processing errors.
B) Elimination of the need for regular audits.
C) Fewer hard copies of source documents.
D) More efficient separation of duties.
E) Reduced processing errors and fewer hard copies of source documents.

Question 73

Principles of internal control include:

A) Record purchases using the gross method.
B) Divide responsibilities for related transactions.
C) Perform regular and independent reviews.
D) Divide responsibilities for related transactions and perform regular and independent reviews.
E) All of these answers are correct.

Question 74

Which of the following is NOT a principle of internal control?

A) Responsibilities should be clearly established.
B) Adequate records should be maintained.
C) Responsibility for related transactions should be divided.
D) Assets should be insured and employees bonded.
E) Audits should always be conducted by employees internal to the organization.

Question 75

Two clerks sharing the same cash register is a violation of which internal control principle?

A) Establish responsibilities.
B) Maintain adequate records.
C) Insure assets.
D) Bond key employees.
E) Apply technological controls.

Question 76

Video Buster had $62 in extra cash at the end of the day.The correct procedure is:

A) Credit Cash for $62.
B) Debit Cash for $62.
C) Credit Cash Over and Short for $62.
D) Debit Cash Over and Short for $62.
E) Debit Petty Cash for $62.

Question 77

Internal control procedures for cash receipts require:

A) Separation of custody of cash receipts from their recordkeeping.
B) In-store cash sales be recorded on a cash register at the time of each sale.
C) All cheques to be numbered in sequence.
D) Separation of custody of cash receipts from its recordkeeping and in-store cash sales be recorded on a cash register at the time of each sale.
E) All of these answers are correct.

Question 78

Risks involved in e-commerce include:

A) Firewalls.
B) Encryption.
C) Missing documents.
D) Computer viruses.
E) All of these answers are correct.

Question 79

The entry to record reimbursement of the petty cash fund for postage expense should include:

A) A debit to Postage Expense.
B) A debit to Petty Cash.
C) A debit to Cash.
D) A debit to Cash Short and Over.
E) A debit to Supplies.

Question 80

Cash receipts are the result of:

A) Cash sales.
B) Cash disbursements.
C) Collection of accounts receivable.
D) Collection of accounts payable.
E) Cash sales and collection of accounts receivable.