Question 1

The objectives of internal control are to:&#10;A) prevent unintentional errors and irregularities.&#10;B) safeguard assets and enhance the accuracy and reliability of the accounting records.&#10;C) enhance the accuracy and reliability of financial statements.&#10;D) safeguard assets and prevent thefts.

Accepted Answer

The objectives of internal control are to safeguard assets and enhance the accuracy and reliability of the accounting records. While preventing unintentional errors and irregularities and enhancing the accuracy and reliability of financial statements are important, they are not the primary objectives of internal control. Preventing thefts is also important, but it falls under the umbrella of safeguarding assets.

Question 2

Texter Company has a balance of $65,000 in Accounts Receivable and a $5,000 credit balance in Allowance for Doubtful Accounts. If a specific customer's account with a balance of $500 is written off as uncollectible, the cash (or net) realizable value of the accounts receivable will be:

A) $64,500.
B) $60,000.
C) $65,500.
D) $60,500.

B

Accepted Answer

B

Question 3

Companies that fail to maintain an adequate system of internal control:&#10;A) may be subject to charges of fraud.&#10;B) will be automatically dissolved.&#10;C) may be subject to fines and officer imprisonment.&#10;D) may be forced to sell their assets.

Accepted Answer

Companies that fail to maintain an adequate system of internal control may be subject to fines and officer imprisonment. While they may also face charges of fraud, automatic dissolution or forced asset sales are not common consequences for this particular infraction.

Question 4

Allowance for Doubtful Accounts is presented as a(n):&#10;A) addition to Accounts Receivable on the balance sheet.&#10;B) operating expense on the income statement.&#10;C) deduction from Sales on the income statement.&#10;D) contra asset on the balance sheet.

Accepted Answer

Allowance for Doubtful Accounts is a contra asset account, which is presented as a deduction from Accounts Receivable on the balance sheet. This account represents the estimated amount of accounts receivable that are not expected to be collected. It is used to reduce the balance of accounts receivable to its net realizable value.

Question 5

The bank statement that a depositor receives from the bank includes:&#10;A) notification of amounts deducted by the bank to cover such things as the cost of a supply of new checks ordered by the depositor.&#10;B) a designation of which checks are still outstanding at the end of the month.&#10;C) a designation of which deposits are in transit at the end of the month.&#10;D) notification of errors made by the depositor in recording checks written during the month in the depositor's accounts.

Accepted Answer

A bank statement typically includes notifications of amounts deducted by the bank for various services, such as the cost of new checks ordered by the depositor. Choices B, C, and D are not typically included in a bank statement; outstanding checks and deposits in transit are tracked by the depositor, and errors in recording checks are identified by the depositor through reconciliation, not reported by the bank.

Question 6

Lack of agreement between the cash balance per bank and the cash balance per books is due to:&#10;A) errors and poor internal control.&#10;B) errors and bank memoranda.&#10;C) time lags.&#10;D) time lags and errors.

Accepted Answer

Time lags and errors can cause discrepancies between the cash balance on the bank statement and the cash balance in the company's books. Time lags occur because certain transactions may not be recorded by the bank and the company at the same time. Errors, either by the bank or the company, can also lead to differences in recorded cash balances.

Question 7

The three primary accounting issues associated with accounts receivable are:&#10;A) valuation, disposing, and statement presentation.&#10;B) recognition, valuation, and statement presentation.&#10;C) revenue recognition, matching, and statement presentation.&#10;D) recognition, valuation, and disposing.

Accepted Answer

The answer of The three primary accounting issues associated with...

Question 8

Which of the following is not a limitation of internal control?&#10;A) Cost of establishing control procedures should not exceed their benefit.&#10;B) The human element.&#10;C) Collusion.&#10;D) The size of the company.

Accepted Answer

The answer of Which of the following is not a...

Question 9

Which one of the following sections would not appear on a cash budget?&#10;A) Investing.&#10;B) Financing needed.&#10;C) Cash receipts.&#10;D) Cash disbursements.

Accepted Answer

The cash budget typically only includes sections related to cash inflows (cash receipts) and outflows (cash disbursements) for operating activities, as well as any financing needed to cover cash shortfalls. Investing activities, such as buying or selling long-term assets, would not typically be included in a cash budget.

Question 10

Which of the following methods and bases of accounting for uncollectible accounts receivable is inconsistent with the proper application of matching?&#10;A) Direct write-off method.&#10;B) Aging of receivables allowance method.&#10;C) Percentage of receivables basis.&#10;D) None of the above.

Accepted Answer

The direct write-off method does not match the recognition of bad debt expense with the related revenues. Instead, it waits until a specific account is identified as uncollectible before recording the expense, which could cause a mismatch in the timing of expenses and revenues.

Deck 4: Accrual Accounting Concepts