Deck 12: Cash, Banking, and Internal Controls

Question 1

Cash registers are an important internal control device used in controlling over-the-counter receipts.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.

Question 5

Cash registers are an important internal control device used in controlling cash disbursements.

Question 6

A debit memorandum could show the collection of a note receivable by the bank.

Question 7

A deposit ticket is a negotiable instrument that can be transferred to another party by endorsement.

Question 8

Checks from customers who pay their accounts promptly are called outstanding checks.

Question 9

The petty cash fund eliminates the need for a bank checking account.

Question 10

If a company deposits all its receipts in the bank and pays all its bills by check, then the monthly bank statement balance will always agree with the company's record of its checking account balance.

Question 11

In a voucher system, vouchers are prepared in the accounts receivable department.

Question 12

Electronic Funds Transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another.

Question 13

A voucher system is used by many large companies as a means of controlling cash receipts.

Question 14

Control over cash disbursements is improved if major expenditures are paid by check.

Question 15

The custodian of the petty cash fund has the responsibility of recording journal entries to establish and replenish the fund.

Question 16

Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check.

Question 17

Cash register overages are deposited in the petty cash fund and cash shortages are made-up from the petty cash fund.

Question 18

Internal control is mainly concerned with the amount of authority a supervisor exercises over a subordinate.

Question 19

The custodian of the petty cash fund has the responsibility of recording a journal entry every time cash is used from the fund.

Question 20

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

Question 21

Personnel who handle cash receipts should have the option of taking a vacation or not.

Question 22

The safeguarding of assets is an objective of a company's system of internal control.

Question 23

In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry.

Question 24

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

Question 25

A segregation of duties among employees eliminates the possibility of collusion.

Question 26

A highly automated computerized system of accounting eliminates the need for internal control.

Question 27

In general, documents should be prenumbered and all documents should be accounted for.

Question 28

Internal controls policies related to cash receipts include all of the following except:

A) Only designated personnel should be authorized to handle cash receipts.
B) Different individuals receive cash, record cash receipts in the journal, and hold the cash.
C) Checks received should be immediately stamped "For Deposit Only."
D) Cash should be stored in a locked safe and deposited in the bank on a weekly basis.

Question 29

Internal control is most effective when several people are responsible for a given task.

Question 30

Internal control consists of the plan of organization and all of the related methods and measures adopted within a business to (a) safeguard its assets, and (b) enhance the accuracy and reliability of its accounting records.

Question 31

Which statement about cash is not true?

A) A main goal of an internal control system is to protect assets other than cash.
B) Cash is the one asset that is readily convertible into any other type of asset.
C) Cash is easily concealed and transported and is highly desired.
D) Cash is the asset most susceptible to fraudulent activities.

Question 32

The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.

Question 33

Only large companies need to be concerned with a system of internal control.

Question 34

An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as check on the other.

Question 35

Firms use physical controls primarily to safeguard their assets.

Question 36

Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system.

Question 37

Which is not included in cash?

A) Checks.
B) Money orders.
C) Marketable securities with a maturity of 3 months or less.
D) Money on deposit at a savings and loan.

Question 38

Management is responsible for establishing a system of internal control.

Question 39

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

Question 40

The duties of approving an item for payment and paying for the item should be done by different departments or individuals.

Question 41

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 check.
D) all purchases are made on credit.

Question 42

Proper control for over-the-counter cash receipts includes

A) a cash register with totals visible to the customer.
B) using electronic cash registers with no tapes.
C) cash count sheets requiring only the supervisor's signature.
D) cash count sheets requiring only the cashier's signature.

Question 43

Allowing only the treasurer to sign checks is an example of

A) documentation procedures.
B) segregation of duties.
C) other controls.
D) establishment of responsibility.

Question 44

Which of the following is not true concerning the use of a bank?

A) In order to take advantage of the many features of a bank that contribute to strong internal control over cash, a business must have a bank account. Each bank may require specific documentation in order to open an account.
B) Although banks offer many types of accounts, most businesses start by opening a savings account.
C) The person or company opening a checking account is referred to as the depositor.
D) A bank requires the depositor to complete a signature card, which the bank uses when needed to verify the validity of a check.

Question 45

Internal controls policies related to cash payments include the following:

A) All payments should be made using cash or EFT rather than by cash.
B) Only designated personnel are authorized to sign checks.
C) The person who is authorized to sign checks should be different from the person who prepares checks.
D) All of these internal control policies relate to cash payments.

Question 46

Automated teller machines (ATMs) allow bank customers to make

A) deposits, withdrawals, and transfers at any time of the day.
B) deposits only at any time of the day.
C) withdrawals and transfers only at any time of the day.
D) deposits and transfers only at any time of the day.

Question 47

Having different individuals receive cash, record cash receipts, and hold the cash is an example of

A) establishment of responsibility.
B) segregation of duties.
C) documentation procedures.
D) independent internal verification.

Question 48

Which one of the following items would not be considered cash?

A) Coins
B) Money orders
C) Currency
D) All of these choices are considered cash.

Question 49

Postage stamps on hand are considered to be

A) cash.
B) petty cash.
C) cash equivalents.
D) a prepaid expense.

Question 50

Checks received through the mail should

A) immediately be endorsed "For Deposit Only."
B) be sent to the accounts receivable subsidiary ledger clerk for immediate posting to the customer's account.
C) be cashed at the bank as soon as possible.
D) be "rung up" on a cash register immediately.

Question 51

A voucher system is a series of prescribed control procedures

A) to check the credit worthiness of customers.
B) designed to assure that disbursements by check are proper.
C) which eliminates the need for a sales journal.
D) specifically designed for small firms who may not have checking accounts.

Question 52

Blank checks

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.

Question 53

A company stamps checks received in the mail with the words "For Deposit Only". This endorsement is called a(n)

A) blank endorsement.
B) rubber stamp.
C) restrictive endorsement.
D) operational endorsement.

Question 54

From an internal control standpoint, the asset most susceptible to improper diversion and use is

A) prepaid insurance.
B) cash.
C) buildings.
D) land.

Question 55

Cash consists of each of the following except

A) checks.
B) money orders.
C) vouchers.
D) All of these choices are considered cash.

Question 56

Under a voucher system, a prenumbered voucher is prepared for every

A) cash receipt, regardless of source.
B) transaction entered into by the business.
C) expenditure except those made from petty cash.
D) journal entry.

Question 57

An application of good internal control over cash disbursements is

A) following payment, the approved invoice should be stamped PAID.
B) blank checks should be stored in the treasurer's desk.
C) each check should be compared with the approved invoice after the check is issued.
D) check signers should record the cash disbursements.

Question 58

Using prenumbered checks and having an approved invoice for each check is an example of

A) establishment of responsibility.
B) segregation of duties.
C) documentation procedures.
D) independent internal verification.

Question 59

Which statement is correct concerning the voucher system?

A) A voucher is a check prepared for each cash payment.
B) Companies do require vouchers for disbursements from petty cash.
C) The system begins with the authorization to incur a cost or expense, and ends with the issuance of a check.
D) A voucher system can be done manually but not electronically.

Question 60

Which is not an example of electronic funds transfers (EFTs)?

A) Direct deposit of payroll amounts to employees.
B) Online bill payments for utilities and car loans.
C) Writing a check to an electric company.
D) Use of a debit card.

Question 61

A paid check is sometimes referred to as a

A) debit check.
B) credit check.
C) cancelled check.
D) NSF check.

Question 62

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 rendered.
D) shows the activity which increased or decreased the depositor's account balance during a period of time.

Question 63

Amounts in credit memoranda

A) are deducted from the customer's account.
B) are added to the customer's account.
C) may be added or deducted from the customer's account, depending on the situation.
D) do not affect the customer's account.

Question 64

When the depositor only signs the back of the check, it is what kind of endorsement?

A) Blank
B) Restrictive
C) Special
D) Authentic

Question 65

A company maintains the asset account, Cash, on its books, while the bank maintains a reciprocal account which is, to the bank,

A) a contra-asset account.
B) a liability account.
C) also an asset account.
D) an owner's equity account.

Question 66

All of the following are parties to a check except the

A) bank.
B) Federal Reserve.
C) maker.
D) payee.

Question 67

When opening a bank checking account, a signature card

A) indicates to whom money is to be paid.
B) indicates each person authorized to sign checks on the account.
C) is attached to all pre-printed checks.
D) is required only when dealing with an out-of-state bank.

Question 68

The bank _________ a customer's account for every deposit it receives.

A) debits
B) credits
C) debits or credits
D) does nothing

Question 69

Which one of the following is not necessarily a party to a check?

A) Maker
B) Buyer
C) Payee
D) Payer

Question 70

The use of a debit card is like ___________; the use of a credit card is like ___________.

A) writing a check (reducing cash); creating a liability.
B) creating a liability; writing a check (reducing cash).
C) writing a check (reducing cash); writing a check (reducing cash)..
D) creating a liability; creating a liability.

Question 71

Which is not a party to a check?

A) Maker
B) Payer
C) Payee
D) Guarantor

Question 72

The bank statement

A) is based on the bank's records.
B) is based on the depositor's records.
C) shows reductions but not additions to the account.
D) does not show a daily running balance after each day's transactions.

Question 73

The first number preprinted at the left side of the bottom left corner of a check is the

A) Bank routing number
B) Depositor's account number
C) Check number
D) Dollar amount

Question 74

Which is not one of the steps to writing a check?

A) Date the check.
B) Write the name of the payee on the "Pay to the order of line."
C) Sign the check (signature should match the signature on file at the bank).
D) Write out the name of the payer

Question 75

The bank _________ check payments to the customer's account.

A) debits
B) credits
C) debits or credits
D) does nothing

Question 76

The words, "For Deposit Only" added to the back of the check indicate what kind of endorsement?

A) Blank
B) Restrictive
C) Special
D) Authentic

Question 77

Each customer's account is a (an) __________ to the bank.

A) liability
B) asset
C) expense
D) revenue

Question 78

Which is strongest for internal control?

A) Writing checks
B) Using a debit card.
C) Using a credit card.
D) All three are equal.

Question 79

Amounts in debit memoranda

A) are deducted from the customer's account.
B) are added to the customer's account.
C) may be added or deducted from the customer's account, depending on the situation.
D) do not affect the customer's account.

Question 80

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) Wiring of funds to other locations
D) Checks marked NSF