Deck 8: Internal Control and Cash

Question 1

A system cannot be overcome or broken into if its internal controls are properly designed and structured.

Answer 1

False

Question 2

Under the Sarbanes-Oxley Act, accounting firms are allowed to audit a public company and provide certain consulting services for the same client.

Answer 2

False

Question 3

Which of the following is one of the purposes of internal control?

A)to encourage employees to follow company policy
B)to ensure timely payment of Accounts Payables
C)to ensure timely collection of Accounts Receivable
D)to guarantee that a business makes a profit

Answer 3

A

Question 4

Which of the following is one of the benefits provided by internal control?

A)ensures timely collection of Accounts Receivables
B)ensures that financial statements are produced timely
C)guarantees that a business makes profit
D)promotes operational efficiency

Question 5

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)One of the major purposes of internal control is to ensure that the assets are safeguarded.
C)Internal control procedures tend to diminish the importance of operational efficiency.
D)Internal controls are mainly used to ensure timely payment of liabilities.

Question 6

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

Question 7

Internal control is an organizational plan that ensures that the financial statements are prepared and submitted in time.

Question 8

Violators of Sarbanes-Oxley Act may be sentenced to prison for making false sworn statements.

Question 9

Which of the following is representative of safeguarding assets?

A)keeping office supplies under lock and key
B)reducing expense to increase operating profit
C)increasing operating profit to increase net income
D)ensuring maximum use of resources

Question 10

External auditors evaluate company controls to ensure the financial statements are presented fairly in accordance with Generally Accepted Accounting Principles.

Question 11

An information system is one of the five components by which a company can achieve its internal control objectives.

Question 12

Separating the custody of assets from accounting implies that the accountants must not handle cash, and the cashier must not have access to the accounting records.

Question 13

The Public Company Accounting Oversight Board oversees the work of auditors of public companies.

Question 14

The Sarbanes-Oxley Act was passed by the Public Company Accounting Oversight Board.

Question 15

Separation of duties is a part of the definition of internal control.

Question 16

The environment is the culture of a business, and it starts with the owner and the top managers.

Question 17

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

Question 18

Burglar alarms, fire alarms, and security cameras improve internal control.

Question 19

Reducing expenses to increase operating profit is representative of:

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

Question 20

Sarbanes-Oxley Act requires all the private companies in the U.S. to maintain an internal control system.

Question 21

Which of the following statements is true of the Sarbanes-Oxley Act?

A)Accounting firms are allowed to provide both auditing services and a full range of consulting services to their public company clients.
B)Those who commit securities fraud must be sentenced to 10 years in prison.
C)All private and foreign companies must issue an internal control report evaluated by an outside auditor.
D)Auditors of public companies are under the scrutiny of the Public Company Accounting Oversight Board.

Question 22

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

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

Question 23

Which of the following is a key element of good internal control?

A)having latest version of information system installed
B)having audits at periodic intervals
C)having a good working environment for employees
D)allowing no vacations and job rotations

Question 24

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

A)assignment of responsibilities
B)competent, reliable, and ethical personnel
C)separation of duties
D)documents

Question 25

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

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

Question 26

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

A)assignment of responsibilities
B)competent, reliable, and ethical personnel
C)separation of duties
D)documents

Question 27

Which of the following statements about internal control is true?

A)Internal auditors ensure that the employees follow company policies.
B)The treasurer and controller have the same responsibilities.
C)External auditors are employees of the company.
D)The control procedures are known as the "tone at the top."

Question 28

Which of the following describes "firewall"?

A)a malicious program that enters program code or destroys data without authorization
B)when two or more people cooperate together to defraud a company
C)a technique for protecting data
D)when a company defrauds its suppliers by making false claims

Question 29

Which of the following is a requirement of the Sarbanes-Oxley Act?

A)An outside auditor must issue an internal control report for each public company.
B)The Public Company Oversight Board must conduct audits of public companies.
C)The accounting firm that audits a public client must also provide consulting services for the same client.
D)The Public Company Oversight Board must create new accounting standards.

Question 30

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

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

Question 31

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

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

Question 32

Which of the following describes the control environment?

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

Question 33

Which of the following led to the passage of the Sarbanes-Oxley Act?

A)the stock market crash of 2002
B)the savings and loan bailout
C)the accounting scandals of WorldCom and Enron
D)the mounting government deficit

Question 34

Which of the following describes the internal control procedure "documents?"

A)Mandatory vacations will improve internal control.
B)Separate the custody of assets from accounting.
C)The invoices and other documents must be pre-numbered.
D)A company should purchase a fireproof vault to protect legal documents.

Question 35

Which of the following components of internal control consist of internal and external auditors?

A)monitoring of controls
B)information systems
C)control procedures
D)control environment

Question 36

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

A)the criticality of information system
B)the need of training and supervision of employees
C)monitoring of internal controls by external auditors
D)purchase of burglar alarms.

Question 37

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

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

Question 38

In the following situation, which internal control procedure needs strengthening? Santhom Inc. does not have a separate accounting department. Its operating departments are also responsible for recording transactions in the books of accounts of the company apart from their main operations.

A)assignment of responsibilities
B)competent, reliable, and ethical personnel
C)separation of duties
D)documents

Question 39

In the following situation, which internal control procedure needs strengthening? The controller's duties at New Era Inc. 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)assignment of responsibilities
B)competent, reliable, and ethical personnel
C)separation of duties
D)documents

Question 40

Before any internal control procedure is initiated, which of the following questions must be primarily addressed by a company?

A)Will this put an end to theft?
B)Is this the best security, money can buy?
C)How much benefit will be derived from the cost of the procedure?
D)Will this prevent accounting errors?

Question 41

Which of the following is a problem that must be addressed in the internal controls for e-commerce?

A)encryption
B)firewall
C)phishing expeditions
D)separation of duties

Question 42

In a large company, the person who is responsible for comparing cash and the bank balance is the:

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

Question 43

In the following situation, which internal control procedure needs strengthening? Syria 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)assignment of responsibilities
B)competent, reliable, and ethical personnel
C)separation of duties
D)documents

Question 44

A basic principle of internal control over cash receipts is that the deposit of the cash and the recording of the receipts into the journal should be separated.

Question 45

A point-of-sale terminal provides control over cash receipts over the counter.

Question 46

Regarding controls over cash receipts by mail, the bank deposit slip should be compared to the remittance advices by the accounting department.

Question 47

Which of the following is described as a system where customers send their checks directly to a post office box that belongs to a bank?

A)an encryption system
B)an imprest system
C)a lock-box system
D)a firewall system

Question 48

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

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

Question 49

A receiving report should be matched with the supplier invoice before a payment to the supplier is approved.

Question 50

In the following situation, which internal control procedure needs strengthening? Syria 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)assignment of responsibilities
B)competent, reliable, and ethical personnel
C)separation of duties
D)documents

Question 51

Which of the following is used by companies to separate cash duties and establish stronger control over cash receipts?

A)an encryption system
B)an imprest system
C)a lock-box system
D)a firewall system

Question 52

A(n)________ is a security procedure designed for e-commerce.

A)burglar alarm
B)firewall
C)fireproof vault
D)inventory storage

Question 53

Which of the following is the last step in the daily control over cash receipts by mail?

A)A mailroom employee sends all customer checks to the treasurer who has the cashier make the bank deposit.
B)The controller opens the mail and sends the remittance advices to the accounting department.
C)The controller compares the records of the day's bank deposit amount from the treasurer and the debit to cash from the accounting department.
D)The accounting department prepares journal entries to cash and the customers' accounts.

Question 54

For strong controls over cash receipts, the checks to be deposited should be sent to the treasurer, and the remittance advices should be sent to the accounting department.

Question 55

Before signing a check, the controller or the treasurer should examine the purchase order, the invoice, and the receiving report to determine that the company received the goods and that the company is paying only for the goods received.

Question 56

Rearranging plain-text messages by a mathematical process is known as:

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

Question 57

In the following situation, which internal control procedure needs strengthening? At Syria 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)assignment of responsibilities
B)competent, reliable, and ethical personnel
C)separation of duties
D)documents

Question 58

As long as the same person deposits customer checks and records the deposits into the journal, there will be good internal control over cash receipts.

Question 59

Two or more people working together to circumvent internal controls and defraud a company is known as:

A)encryption.
B)firewalls.
C)collusion.
D)separation of duties.

Question 60

As a part of the internal control over cash receipts by mail, the mailroom sends both the customer checks and the remittance advices to the accounting department.

Question 61

Which of the following statements describes a voucher?

A)It is an order to purchase goods from a supplier.
B)It is a statement from the supplier showing the goods purchased, and the amount due.
C)It is a report showing that the goods have been received in good condition, as ordered.
D)It is a document authorizing payment to a supplier.

Question 62

An imprest system is a way to account for petty cash by maintaining a constant balance in the petty cash account, supported by the fund, cash plus payment tickets, totaling the same amount.

Question 63

For good controls over cash payments, the company officer approving a payment voucher should be the same as the person who ordered the goods, to ensure that the correct amount of cash is paid.

Question 64

In a good internal control system, which of the following documents are required for proper approval of a payment to a supplier?

A)a journal entry, a supplier invoice, and a description of the goods being purchased
B)a receiving report, an invoice, and a purchase order
C)a purchase order, a journal entry, and a price catalog
D)a supplier invoice, a bill of lading, and the supplier's financial statements

Question 65

Cash in the bank is more liquid than a petty cash fund.

Question 66

For good controls over cash payments, the person who orders goods from a supplier should always be different from the person who approves the payment.

Question 67

The journal entry to open a new petty cash fund includes a debit to the Petty Cash account and a credit to the Cash account.

Question 68

Which of the following is the first step in the purchasing and payment process?

A)The supplier ships the goods and sends an invoice to the purchaser.
B)The purchaser sends a check to the supplier.
C)The purchaser sends a purchase order to the supplier.
D)The purchase receives the inventory and prepares a receiving report.

Question 69

Which of the following statements describes a purchase order?

A)It is an order to purchase goods from a supplier.
B)It is a statement from the supplier showing the goods purchased and the amount due.
C)It is a report showing that the goods have been received in good condition, as ordered.
D)It is a document authorizing a payment to a supplier.

Question 70

A streamlined process that bypasses paper documents altogether and in which computers of retailers communicate directly with the computers of suppliers to automate routine business transactions is known as:

A)Real Time Gross Settlement.
B)Electronic Data Interchange.
C)Electronic Fund Transfer.
D)Evaluated Receipts Settlement.

Question 71

Which of the following is included in a voucher?

A)rate of profit
B)a check
C)the invoice number
D)company identification number

Question 72

A key to strong control over petty cash is to ensure that several persons serve as custodian at one time.

Question 73

Petty cash is a fund containing a small amount of cash that is used to pay for minor expenditures.

Question 74

Which of the following statements describes an invoice from a supplier?

A)It is an order to purchase goods from a supplier.
B)It is a statement from the supplier showing the goods purchased and the amount due.
C)It is a report showing that the goods have been received in good condition, as ordered.
D)It is a document authorizing a payment to a supplier.

Question 75

Which of the following items must be examined by the controller or treasurer before signing a check?

A)the ledger
B)the purchase order
C)the confirmation report
D)the journal entry

Question 76

A document authorizing a cash payment is a(n):

A)check.
B)invoice.
C)voucher.
D)bill of lading.

Question 77

A company check for payment must be signed by:

A)any employee of the company.
B)a bank employee.
C)an employee specifically authorized by the company.
D)the external auditor.

Question 78

The journal entry to replenish a petty cash fund includes a debit to the Petty Cash account and a credit to the Expense account.

Question 79

Which of the following statements describes a receiving report?

A)It is an order to purchase goods from a supplier.
B)It is a statement from the supplier showing the goods purchased and the amount due.
C)It is a report showing that the goods have been received in good condition, as ordered.
D)It is a document authorizing a payment to a supplier.

Question 80

A sequentially numbered document authorizing a cash payment is known as a:

A)cash register.
B)voucher.
C)voucher register.
D)ledger folio.