Deck 8: Internal Control and Cash

Question 1

Which of the following conditions must exist for internal controls to be effective?

A)Personnel at all levels must adopt the organisation's goals, objectives and ethical standards.
B)Policies must be communicated effectively by top management.
C)They must be tailored to the size and nature of the business.
D)All of the above.

Answer 1

D

Question 2

Separation of duties limits fraud and promotes the accuracy of the account records.

Answer 2

True

Question 3

The control environment is one of the five components by which a company can achieve its internal control objectives.

Answer 3

True

Question 4

Internal and external auditors are part of which of the following components of internal control?

A)Control procedures
B)Monitoring controls
C)Control environment
D)Information systems

Question 5

Internal control is the organisational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policy, promote operational efficiency, and ensure accurate and reliable accounting records.

Question 6

A pharmaceutical company testing drugs to determine possible side effects is a part of:

A)risk assessment.
B)monitoring controls.
C)control procedures.
D)information systems.

Question 7

Risk assessment is the 'tone at the top' of a business, starting with the owner and the top managers.

Question 8

All publicly listed companies are obliged to follow the guidelines established by the Corporate Governance Council of the Australian Securities Exchange.

Question 9

Which of the following is NOT a key element of good internal control?

A)Having competent, reliable and ethical personnel
B)Having a good working environment for employees
C)Having separation of duties
D)Having periodic audits

Question 10

Which of the following is a general internal control, but is not classified as an 'accounting control'?

A)authorising transactions
B)encouraging employees to follow organisational policy
C)ensuring the accuracy of financial records
D)safeguarding assets

Question 11

Which of the following is TRUE of internal control?

A)A company's outside auditor is responsible for the company's internal control system.
B)Internal control procedures tend to diminish the importance of operational efficiency.
C)One of the major purposes of internal control is to ensure accurate, reliable accounting records.
D)Internal controls are only necessary for large businesses.

Question 12

Internal auditors evaluate company controls to ensure the accuracy of financial statements.

Question 13

Reducing expense to increase operating profit is representative of:

A)following company policies.
B)ensuring accurate, reliable accounting records.
C)safeguarding assets.
D)promoting operational efficiency.

Question 14

Which of the following is NOT one of the purposes of internal control?

A)To encourage employees to follow company policy
B)To guarantee that a business makes a profit
C)To safeguard the company's assets
D)To ensure accurate, reliable accounting records

Question 15

Which of the following statements about internal control is FALSE?

A)Internal auditors insure that employees follow company policies.
B)The treasurer is the officer ultimately responsible for writing of cheques.
C)The control environment is known as the 'tone at the top.'
D)External auditors are employees of the company.

Question 16

It is always the auditor's responsibility to set up and maintain the internal control system.

Question 17

Which of the following is NOT one of the benefits provided by internal control?

A)To offer protection against theft
B)To reduce waste
C)To ensure that better business decisions are made
D)To reduce inefficiency

Question 18

Mandatory vacations and job rotation improve internal control.

Question 19

External auditors monitor company controls to safeguard assets and ensure that employees are following company policies.

Question 20

Keeping office supplies under lock and key is representative of:

A)promoting operations efficiency.
B)safeguarding assets.
C)following company policies.
D)ensuring accurate, reliable accounting records.

Question 21

Which of the following describes the internal control procedure separation of duties?

A)The information system is critical.
B)Cashiers must not have access to accounting records.
C)Prenumber invoices and other documents.
D)External auditors will monitor internal controls.

Question 22

In the following situation, which internal control procedure needs strengthening? At Hofstra Services, the operations accountant is responsible for safeguarding and maintaining the pipe inventory and also to record inventory transactions into the journal. A separate accounting clerk keeps records of the cash receipts and payments. The treasurer signs cheques and approves contracts.

A)Separation of duties
B)Documents and records
C)Assignment of responsibilities
D)Competent, reliable, and ethical personnel

Question 23

In the following situation, which internal control procedure needs strengthening? Hofstra Services hired a new accountant to be responsible for the petty cash fund and the cash receipts. The newly hired employee has an accounting degree and a criminal record.

A)Documents and records
B)Assignment of responsibilities
C)Competent, reliable, and ethical personnel
D)Separation of duties

Question 24

Which of the following describes the control environment?

A)The control environment is designed to ensure that the business's goals are achieved.
B)Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
C)A company must identify its risks.
D)The control environment is the 'tone at the top' of the business.

Question 25

If a system of internal controls is too strict or complex, it may harm efficiency and not be cost- effective.

Question 26

When designing a system of internal control, every procedure should be implemented strictly and properly, regardless of the cost.

Question 27

Which of the following describes the internal control component risk assessment?

A)Risk assessment is designed to ensure that the business's goals are achieved.
B)A company must identify its risks.
C)Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.
D)Risk assessment is the 'tone at the top' of the business.

Question 28

Which of the following describes the internal control component monitoring of controls?

A)Monitoring of controls is designed to ensure that the business's goals are achieved.
B)Monitoring of controls is the 'tone at the top' of the business.
C)Internal auditors monitor company controls to safeguard assets, and external auditors evaluate the controls to ensure that the accounting records are accurate.
D)A company must identify its risks.

Question 29

Which of the following describes the internal control procedure competent, reliable and ethical personnel?

A)External auditors monitor internal controls.
B)A company must train and supervise high- quality employees.
C)A company purchases burglar alarms.
D)The information system is critical.

Question 30

If a system of internal controls is properly designed and structured, it cannot be overcome or broken into.

Question 31

Which of the following describes the internal control component information system?

A)Only authorized users have access to various parts of the information system.
B)Control procedures are designed to ensure that the business's goals are achieved.
C)The information system is the'tone at the top' of the business.
D)Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate.

Question 32

Which of the following describes the internal control procedure assignment of responsibilities?

A)Have clearly assigned responsibilities for each position.
B)The company should separate the custody of assets from accounting.
C)To validate their accounting records, a company should have an audit by an external accountant.
D)The external auditors will monitor internal controls.

Question 33

In a large company, the person who is responsible for writing cheques is the:

A)controller.
B)CEO.
C)accountant.
D)CFO.

Question 34

In the following situation, which internal control procedure needs strengthening? At Hofstra Services, the junior accountant collects cheques and cash from customers and records the transactions into the Journal. The controller approves the journal entries and bank reconciliations. The treasurer signs cheques and approves contracts.

A)Assignment of responsibilities
B)Separation of duties
C)Documents and records
D)Competent, reliable, and ethical personnel

Question 35

In the following situation, which internal control procedure needs strengthening? Hofstra Services hired a new accounting manager. He signed a contract for a new accounting information system, but his position did not specify whether he was authorized to do so or not.

A)Documents and records
B)Competent, reliable, and ethical personnel
C)Assignment of responsibilities
D)Separation of duties

Question 36

In the following situation, which internal control procedure needs strengthening? Hofstra Services hired a new clerk to keep custody of and maintain all the equipment in the equipment yard. That employee has not yet been adequately trained on the maintenance needs of the equipment.

A)Separation of duties
B)Assignment of responsibilities
C)Competent, reliable, and ethical personnel
D)Documents and records

Question 37

Which of the following describes the internal control procedure documents and records?

A)A company should purchase a fireproof vault.
B)Separate the custody of assets from accounting.
C)Mandatory vacations will improve internal control.
D)Prenumber invoices and other documents.

Question 38

In the following situation, which internal control procedure needs strengthening? The controller's duties include approving bank reconciliations, approving general journal entries, hiring administrative staff, and approving various types of administrative expenses. She needs new computer equipment for the accounting office, but there are no guidelines specifying whether she can approve purchases of office equipment.

A)Separation of duties
B)Assignment of responsibilities
C)Competent, reliable, and ethical personnel
D)Documents and records

Question 39

In the following situation, which internal control procedure needs strengthening? At Hofstra Services, the accounting clerk fills out unnumbered purchase order forms for purchases of supplies. An operations engineer completes the form with a detailed description of the supplies being ordered, and the operations manager approves the purchase and passes the purchase order back to the accountant for processing.

A)Documents and records
B)Competent, reliable, and ethical personnel
C)Assignment of responsibilities
D)Separation of duties

Question 40

A strong computer firewall is an essential element of good internal controls for e- commerce.

Question 41

When a cheque is issued, the party being paid the cash is referred to as the:

A)drawer.
B)bank signatory.
C)payee.
D)depositor.

Question 42

The cash balance in a company's general ledger and the bank's balance on the bank statement will generally be different because of the time lag in recording transactions.

Question 43

Journal entries must be made to record the reconciling items on the bank side of the reconciliation.

Question 44

For added security, businesses generally prefer to pay employees by issuing cheques rather than electronic funds transfer.

Question 45

The remittance advice or copy of a cheque provides details of a transaction which may be recorded in the cash receipts journal.

Question 46

An outstanding cheque is a cheque issued by the company and recorded on its books, but not yet paid by its bank.

Question 47

'Two- factor authentication' involves logging into a computer system with a user ID and a password.

Question 48

Which of the following is a common tactic to overcome internal controls?

A)Encryption
B)Firewalls
C)Separation of duties
D)Collusion

Question 49

Which of the following statements is FALSE?

A)A bank statement lists deposits made and cheques cleared.
B)Online bank statements will show one month's transactions along with the beginning and ending balance.
C)A hard copy of the bank statement may be requested and mailed to the client.
D)A bank statement lists the period's transactions conducted through the bank.

Question 50

Which of the following is NOT a problem that must be addressed in the internal controls for commerce?

A)Stolen credit- card numbers
B)Separation of duties
C)Trojans
D)Phishing expeditions

Question 51

'Access creep' occurs when:

A)personnel move throughout the organisation and accumulate access rights to different parts of the system.
B)an employee fruadulently gains access to a program or computer system.
C)passwords are not changed regularly, allowing others access to the system.
D)personnel leave the organisation, retaining access to the company's systems.

Question 52

A malicious program that enters program code or destroys data without authorization is an example of:

A)phishing.
B)encryption.
C)a password.
D)a virus.

Question 53

Which of the following is a security procedure designed for e- commerce which rearranges text messages by a mathematical process?

A)Phishing
B)Trojans
C)Firewalls
D)Encryption

Question 54

Which of the following describes collusion?

A)When bogus websites acquire passwords and account numbers fraudulently
B)When one employee steals from a company
C)When a company defrauds its suppliers by making false claims
D)When two or more people cooperate together to defraud a company

Question 55

When a cheque is issued, the party who is paying the cash is referred to as the:

A)depositor.
B)drawer.
C)bank signatory.
D)payee.

Question 56

Which of the following is retained by the customer as proof of a deposit transaction?

A)A bank reconciliation
B)A deposit receipt
C)A signature card
D)A cancelled cheque

Question 57

Cash is the most liquid of all company assets.

Question 58

Which of the following is the most basic internal control for cash?

A)Checking for counterfeit bills
B)Counting cash receipts twice
C)Internal audit of cash procedures
D)Keeping money in a bank account

Question 59

Which of the following is a security procedure designed for e- commerce?

A)Burglar alarms
B)Secure inventory storage
C)Firewalls
D)Fireproof vaults

Question 60

Which of the following must be signed by the person authorised to write cheques drawn on a bank account?

A)A bank reconciliation
B)A deposit slip
C)A bank statement
D)A signature card

Question 61

If the bank reconciliation includes a book error, no journal entries are required.

Question 62

If the bank reconciliation includes a bank service charge, a journal entry is required which debits Cash and credits Miscellaneous expense.

Question 63

Which of the following is a benefit of internet banking?

A)The business can reduce their internal controls over cash receipts.
B)The business can reconcile to the bank's balance at any time.
C)The bank reconciliation is not necessary.
D)A company's book balance will always equal the bank's balance.

Question 64

If the bank reconciliation includes outstanding cheques, no journal entries are required.

Question 65

In a bank reconciliation, a deposit in transit will be shown on the bank side of the reconciliation.

Question 66

On a bank reconciliation, deposits in transit are subtracted on the book side of the reconciliation.

Question 67

Cheque Number 6135 for $576 was incorrectly entered as $657. Which adjustment needs to be made?

A)Increase the bank statement balance.
B)Increase the book balance.
C)Decrease the bank statement balance.
D)Decrease the book balance.

Question 68

If the bank reconciliation includes interest revenue, a journal entry is required which debits Cash and credits Interest revenue.

Question 69

In a bank reconciliation, a book error will be shown on the bank side of the reconciliation.

Question 70

In a bank reconciliation, a dishonoured cheque will be shown on the bank side of the reconciliation.

Question 71

Journal entries that are necessitated by reconciling items on the book side of the reconciliation all include either a debit to Cash or a credit to Cash.

Question 72

If the bank reconciliation includes a deposit in transit, a journal entry is required which includes a debit to cash.

Question 73

In a bank reconciliation, outstanding cheques will be shown on the bank side of the reconciliation.

Question 74

A cheque of $75 deposited by a company was returned to the bank for nonsufficient funds. How would this information be included on the bank reconciliation?

A)An addition on the bank side
B)An addition on the book side
C)A deduction on the bank side
D)A deduction on the book side

Question 75

Cheque Number 367 for $33.52 was incorrectly entered as $33.25. Which adjustment needs to be made?

A)Increase the bank statement balance.
B)Decrease the book balance.
C)Decrease the bank statement balance.
D)Increase the book balance.

Question 76

The bank recorded a $2 000 deposit as $200. How would this information be included on the bank reconciliation?

A)An addition on the bank side
B)An addition on the book side
C)A deduction on the bank side
D)A deduction on the book side

Question 77

The bank charged a service fee of $20. How would this information be included on the bank reconciliation?

A)A deduction on the book side
B)An addition on the book side
C)An addition on the bank side
D)A deduction on the bank side

Question 78

A cheque was written by a business for $205, but was recorded in the cash payments journal as $502. How would this error be included on the bank reconciliation?

A)A deduction on the book side
B)An addition on the bank side
C)A deduction on the bank side
D)An addition on the book side

Question 79

Which of the following items found on a bank reconciliation does NOT require an adjusting entry?

A)A bank service charge
B)Interest earned
C)Deposits in transit
D)A bill receivable collected by the bank

Question 80

Which of the following items will NOT appear on the book side of the reconciliation?

A)The bank collected a bill receivable of $1 000.
B)A deposit was in transit.
C)A dishonoured cheque of $75 was returned to the bank.
D)The bank charged a service fee of $20.