Deck 7: Internal Control and Cash

Question 1

Maintaining accurate records is an important internal control principle.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

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

Chequing accounts are sometimes called savings accounts.

Question 8

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

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

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

Question 11

Internal control policies and procedures are standard across companies.

Question 12

When preparing a bank reconciliation, adjustment are made to the bank side and not the ledger (book)side.

Question 13

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 14

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

Question 15

When preparing a bank reconciliation, if the adjusted book balance and the adjusted bank balance are equal, then there is no need to have an external auditor test internal controls for the "cash" account.

Question 16

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

Question 17

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

Question 18

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 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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 29

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

Question 30

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

Question 31

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 32

The payee is the person who signs a cheque.

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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 38

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

Question 39

Maintaining a petty cash fund makes it possible to determine human fraud.

Question 40

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

Question 41

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 42

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

Question 43

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 44

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

Question 45

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

Question 46

Quick assets include cash, inventory, and receivables.

Question 47

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

Question 48

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

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

Question 49

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 50

Cash, short-term investments, inventory, and receivables, are called quick assets.

Question 51

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

Question 52

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

Question 53

The quick ratio is current assets divided by current liabilities.

Question 54

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

Question 55

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

Question 56

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 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

The impact of technology on internal controls includes:

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

Question 62

Cash equivalents:

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

Question 63

Limitations of internal control include:

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

Question 64

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

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

Question 65

Principles of internal control include:

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

Question 66

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

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

Question 67

Cash consists of:

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

Question 68

Cash receipts are the result of:

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

Question 69

Cash equivalents:

A)Are often combined with cash as a single balance sheet item.
B)Include short-term investments purchased to increase earnings.
C)Are readily convertible to a known cash amount.
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 70

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

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

Question 71

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

Question 72

Principles of internal control include:

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

Question 73

A good system of internal control:

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

Question 74

Policies and procedures used to promote efficient company operations are known as:

A)Inventory control.
B)Internal controls.
C)Cash controls.
D)Asset controls.
E)Management controls.

Question 75

Risks involved in e-commerce include:

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

Question 76

The owner of Zeke's Landscaping Designs just hired an office manager to handle all the office functions for him. Among other responsibilities, the office manager will handle key accounting functions such as processing customer payments, writing cheques toemployees to pay the payroll, handle daily bank deposits at the bank, pay suppliers, and reconcile the company bank account bank reconciliations. What internal cash controlpractice is being overlooked by the owner?

A)Ensuring all cash disbursements are tracked by making payments by cheque.
B)Separation of cash payment from cash disbursement function.
C)Performing external audit.
D)Making daily cash deposits.
E)Frequent preparation of bank reconciliations.

Question 77

Cash equivalents:

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

Question 78

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

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

Question 79

Internal control procedures:

A)Include policies and procedures to safeguard assets.
B)Eliminate the risk of loss.
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 80

Internal control procedures for cash receipts require:

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