Deck 7: Internal Control and Cash

Question 1

Electronic funds transfers never have to be recorded.

Answer 1

False

Question 2

An authorized signing officer should sign a cheque only after reviewing the appropriate supporting documentation.

Answer 2

True

Question 3

Control over cash disbursements is improved if all expenditures are paid by cheque or through use of electronic funds transfers.

Answer 3

True

Question 4

The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals.

Question 5

All documents should be prenumbered.

Question 6

The use of electronic funds transfers normally results in better control over cash.

Question 7

Errors give rise to unintentional misstatements in the financial statements.

Question 8

An effective control activity results when at least two individuals are assigned to one cash drawer so that each can serve as check on the other.

Question 9

All reconciling items in determining the reconciled cash balance per books require the depositor to make adjusting journal entries to the Cash account.

Question 10

External auditors are usually employees of the company.

Question 11

The person responsible for making credit sales should be the vice-president of finance.

Question 12

A bank reconciliation is generally prepared by the bank and sent to the depositor along with cancelled cheques.

Question 13

To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the person authorized to sign cheques.

Question 14

Fraud is an unintentional act to misappropriate (steal) assets or misstate financial statements.

Question 15

The use of a bank account makes internal control over cash more difficult.

Question 16

An example of segregation of duties is having a cheque signer record cash disbursements.

Question 17

External auditors report on whether or not the company's financial statements fairly present its financial position and results of operations.

Question 18

Segregation of duties among employees eliminates the possibility of collusion.

Question 19

NSF cheques received from customers are debited by the bank to the depositor's account.

Question 20

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

Question 21

Which of the following statements is true in terms of an internal control system?

A) A good internal control system will help a company achieve reliable financial reporting, effective and efficient operations, and compliance with laws and regulations.
B) An internal control system cannot be considered effective until the possibility of human error has been completely eliminated.
C) Only large companies need to be concerned with a system of internal control.
D) The extent of internal control activities adopted by a company must not be evaluated in terms of cost-benefit.

Question 22

Internal controls are concerned with all of the following except

A) computerized systems of accounting.
B) effective and efficient operations.
C) ensuring reliable financial reporting.
D) compliance with relevant laws and regulations.

Question 23

An employee who makes a sale, ships the goods, and bills the customer violates which control activity?

A) review and reconciliation
B) documentation
C) segregation of duties
D) assignment of responsibility

Question 24

Management only needs to know how much cash is available at the end of the month (when the bank reconciliation is prepared).

Question 25

All of the following are examples of a control activity except

A) using prenumbered documents.
B) reconciling the bank statement.
C) insistence that employees work overtime.
D) prenumbering cheques.

Question 26

NSF cheques received are accounted for by adding them to the cash balance per books.

Question 27

A compensating balance is always reported as a non-current asset.

Question 28

Idle cash should be reported as restricted cash.

Question 29

When the cash account has a credit balance in the general ledger, it is reported as a non-current liability.

Question 30

Deposits in transit require an adjustment to the cash balance per books.

Question 31

Which of the following is not a limitation of internal control?

A) cost of establishing control procedures
B) the human element
C) use of a bank account
D) the size of the company

Question 32

Internal controls may be limited by each of the following except

A) the size of the business.
B) the human element.
C) internal audits.
D) collusion.

Question 33

Which one of the following is not a primary component of an internal control system?

A) control activities
B) delay payment of liabilities
C) risk assessment
D) control environment

Question 34

All of the following are examples of a control activity except

A) limited access to assets.
B) review and reconciliation.
C) assignment of responsibility.
D) increasing the speed of collection on receivables.

Question 35

All of the following are examples of a control activity except

A) an extensive marketing plan.
B) assignment of responsibility.
C) segregation of duties.
D) insurance on assets.

Question 36

Which of the following statements is true?

A) A good system of internal control does not require monitoring.
B) Risk assessment is one component of a good system of internal control.
C) When one individual is responsible for all related activities, the potential for errors and irregularities is decreased.
D) Control activities are most effective when several people are responsible for a given task.

Question 37

Debt investments due within three months are normally classified as cash equivalents.

Question 38

An NSF cheque that was received is recorded as an account receivable.

Question 39

Cash restricted in use should be reported separately on the statement of financial position.

Question 40

Independent internal reviews should be done

A) at the end of each accounting period.
B) at the end of each month.
C) periodically on a surprise basis.
D) by the external auditor.

Question 41

The control activity related to not having the same person authorize and pay for goods is known as

A) physical controls.
B) review and reconciliation.
C) segregation of duties.
D) assignment of responsibility.

Question 42

An accounts payable clerk also has cheque signing authority. Which control procedure is violated?

A) assignment of responsibility
B) review and reconciliation
C) documentation
D) segregation of duties

Question 43

Maximum benefit from review and reconciliation is obtained when

A) it is made on a pre-announced basis.
B) it is done by the employee possessing custody of the asset.
C) discrepancies are reported to management.
D) it is done at the time of the external audit.

Question 44

Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them

A) increases the potential for errors and fraud.
B) decreases the potential for errors and fraud.
C) is an example of a control activity.
D) reduces cost and maximizes benefit.

Question 45

Which of the following is not a control activity over cash?

A) Only designated personnel are authorized to handle cash.
B) The same individual receives the cash and pays the bills.
C) Surprise audits of cash on hand should be made occasionally.
D) Access to cash is limited.

Question 46

Physical controls to safeguard assets do not include

A) cashier department supervisors.
B) vaults.
C) safety deposit boxes.
D) locked warehouses.

Question 47

Which of the following is not a suggested procedure to establish a good control activity over cash disbursements?

A) pre-signed blank cheques
B) Different individuals approve and make payments.
C) Blank cheques are stored with limited access.
D) The bank statement is reconciled monthly.

Question 48

Internal auditors

A) are hired by independent accounting firms to audit companies.
B) are employees of the government who evaluate the internal controls of companies filing tax returns.
C) evaluate the system of internal controls for the companies that employ them.
D) cannot evaluate the system of internal controls of the companies that employ them because they are not independent.

Question 49

Physical controls are not designed to safeguard assets from

A) natural disasters.
B) employee theft.
C) robbery.
D) unauthorized use.

Question 50

Two employees at a retail store work the same cash register. You evaluate this situation as

A) a violation of assignment of responsibility.
B) a violation of segregation of duties.
C) supporting assignment of responsibility.
D) supporting review and reconciliation.

Question 51

Arthur is warehouse custodian and also maintains the accounting records of the inventory held at the warehouse. Which control activity is violated?

A) documentation
B) review and reconciliation
C) segregation of duties
D) assignment of responsibility

Question 52

Which of the following is not a good control activity over cash?

A) Payments to creditors should be made in cash.
B) There should be limited access to cash.
C) The amount of cash on hand should be kept at a minimum.
D) Cash should be deposited daily.

Question 53

The use of electronic funds transfers

A) normally results in better internal controls.
B) does not require segregation of duties.
C) eliminates opportunities for fraud.
D) does not require proper authorization.

Question 54

External auditors

A) evaluate the system of internal controls for the companies that employ them.
B) are employees of the company.
C) are independent of the company.
D) plan and perform an internal audit.

Question 55

Control over cash disbursements is generally more effective when

A) all bills are paid in cash.
B) disbursements are made by the accounts payable subsidiary clerk.
C) payments are made by cheque or electronic funds transfer.
D) all purchases are made on credit.

Question 56

A system of internal control can only provide reasonable assurance, which is based on the belief that

A) the system is infallible.
B) the system can always detect errors and irregularities.
C) the costs of establishing control activities should not be greater than their expected benefit.
D) the human element is not important.

Question 57

When two or more people get together for the purpose of circumventing prescribed controls, it is called

A) fraud prevention.
B) collusion.
C) a division of duties.
D) assignment of responsibilities.

Question 58

In large companies, review and reconciliation is often assigned to

A) shift supervisors.
B) management.
C) internal auditors.
D) external auditors.

Question 59

The independent audit committee of the board of directors is not responsible for reviewing the company's internal control systems to ensure that they are adequate to result in

A) fair financial results.
B) complete financial results.
C) reasonable financial results.
D) accurate financial results.

Question 60

The use of prenumbered cheques is an example of

A) documentation.
B) review and reconciliation.
C) assignment of responsibility.
D) segregation of duties.

Question 61

A cheque written by the company for $182 is incorrectly recorded as $218. On the bank reconciliation, the $36 error should be

A) added to the balance per books.
B) deducted from the balance per books.
C) added to the balance per bank.
D) deducted from the balance per bank.

Question 62

On the April 30 bank reconciliation, a deposit made by a company to its bank account on April 18 will likely appear as a(n)

A) addition to the balance per books.
B) deduction from the balance per books.
C) deduction from the balance per bank.
D) This will not affect the current period's bank reconciliation.

Question 63

A bank statement

A) lets a depositor know the financial position of the bank as of a certain date.
B) is a credit reference letter written by the depositor's bank.
C) is a bill from the bank for services provided.
D) shows the activity that increased or decreased the depositor's account balance.

Question 64

For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?

A) cheque for $86 recorded as $68 by the depositor
B) deposit of $300 recorded by the bank as $30
C) a paid cheque for $600 recorded by the bank as $60
D) cheque for $28 recorded as $82 by the depositor

Question 65

Allowing only the treasurer to sign cheques is an example of which control activity?

A) documentation
B) segregation of duties
C) physical controls
D) assignment of responsibility

Question 66

Which of the following bank reconciliation items would not require an adjusting entry on the depositor's books?

A) bank service charge
B) outstanding cheques
C) a customer's NSF cheque
D) electronic payment on account

Question 67

Which one of the following would not cause a bank to debit a depositor's account?

A) bank service charge
B) collection of a note receivable
C) payment of a note payable
D) cheques marked NSF

Question 68

An NSF cheque received from a customer should appear in which section of the bank reconciliation?

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

Question 69

A cheque in the amount of $425 was returned by the bank marked "NSF". A bank service fee of $20 was charged for processing the returned cheque. Upon notification of the NSF, the company who initially received the customer's cheque will most likely

A) reverse the customer's payment on their books to re-establish the accounts receivable for $425.
B) make no changes to the accounting records but advise the customer that the payment was declined and is still outstanding.
C) reverse the customer's payment on their books to re-establish the accounts receivable for $425 and debit bank charges expense for the bank service fee of $20.
D) reverse the customer's payment on their books to re-establish the accounts receivable for $425 and debit the accounts receivable for the bank service fee of $20.

Question 70

An employee authorized to sign cheques should not record

A) shipping documents.
B) mail receipts.
C) cash disbursement transactions.
D) sales transactions.

Question 71

On a bank reconciliation, which of the following would be deducted from the balance per bank?

A) outstanding cheques
B) deposits in transit
C) electronic payment by a customer on account
D) bank service charges

Question 72

If a cheque correctly written and paid by the bank for $483 is incorrectly recorded on the company's books for $384, the appropriate treatment on the bank reconciliation would be to

A) add $99 to the balance per bank.
B) add $99 to the balance per books.
C) deduct $99 from the balance per books.
D) deduct $99 from the balance per bank.

Question 73

In preparing a bank reconciliation, outstanding cheques are

A) added to the balance per bank.
B) deducted from the balance per books.
C) added to the balance per books.
D) deducted from the balance per bank.

Question 74

Which of the following is considered to be Cash?

A) returned cheques
B) cheques
C) postdated cheques
D) stale-dated cheques

Question 75

On a bank reconciliation, which of the following would be added to the balance per bank?

A) outstanding cheques
B) deposits in transit
C) electronic payment by a customer on account
D) bank service charges

Question 76

Which of the following bank reconciliation items would require an adjusting entry on the depositor's books?

A) error by the bank
B) outstanding cheques
C) bank service charge
D) deposit in transit

Question 77

On a bank reconciliation, which of the following would be deducted from the balance per books?

A) outstanding cheques
B) deposits in transit
C) electronic payment by a customer on account
D) bank service charges

Question 78

Outstanding cheques from the prior period which clear the bank in the current period

A) should be added to the balance per books.
B) should be deducted from the balance per books.
C) should be deducted from the balance per bank.
D) do not affect the current period's bank reconciliation.

Question 79

On a bank reconciliation, which of the following would be added to the balance per books?

A) outstanding cheques
B) deposits in transit
C) electronic payment by a customer on account
D) bank service charges

Question 80

Blank cheques

A) should be safeguarded.
B) should be pre-signed.
C) do not need to be safeguarded since they must be signed to be valid.
D) should not be prenumbered.