Deck 6: Reporting and Analyzing Cash and Internal Controls

Question 1

Cash includes currency,coins,and the deposits in most checking accounts.

Answer 1

True

Question 2

Technologically advanced accounting systems do not need monitoring for errors because computers always process transactions correctly.

Answer 2

False

Question 3

Basic bank services such as bank accounts,bank deposits,and checking contribute to the control and safeguarding of cash.

Answer 3

True

Question 4

Good internal control dictates that a person who controls an asset should also maintain the accounting records for that asset.

Question 5

Liquidity refers to a company's ability to pay its short-term obligations.

Question 6

Once a good system of internal control is in place,it rarely needs review.

Question 7

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

Question 8

Internal control systems used to monitor and control operations are a low priority for managers within the company.

Question 9

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

Question 10

Separation of duties divides responsibility for a transaction or a series of transactions between two or more individuals or departments.Separation of duties reduces the risk of error and fraud.

Question 11

Technology such as cash registers,check protectors,time clocks,and personal identification scanners can increase the strength of internal controls.

Question 12

The payee is the person who signs a check and authorizes payment.

Question 13

Proper internal control means that the responsibility for a task is clearly established and assigned to one person.

Question 14

Two important limitations of internal control systems are (1) human error or human fraud and (2) cost-benefit.

Question 15

Internal control policies and procedures are the same for all companies.

Question 16

Bonding does not discourage employees from stealing from the company as employees know that bonding is an insurance policy against loss from theft.

Question 17

Internal control in technologically advanced accounting systems depends more on the design and operation of the information system and less on the analysis of its resulting documents.

Question 18

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

Question 19

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

Question 20

Maintaining adequate business records is an important internal control principle.

Question 21

When evaluating the days' sales uncollected ratio,generally the less time that money is tied up in receivables often translates into increased profitability.

Question 22

Canceled checks are a way to confirm what the bank has paid and deducted from the customer's account during the period.

Question 23

On a bank statement,deposits are listed as debits because the bank increases its cash account when the deposit is made.

Question 24

For good internal controls over cash,all payments should be made from the petty cash,except for very large payments.

Question 25

A company had $12,000 in accounts receivable and $320,000 in net sales for the current period.Its days' sales uncollected is equal to 13.7 days.

Question 26

A voucher system establishes procedures for verifying,approving,and recording obligations for eventual cash disbursement.

Question 27

The days' sales uncollected ratio reflects the liquidity of accounts receivable.

Question 28

The days' sales uncollected ratio is calculated by dividing accounts receivable by net sales and multiplying this quotient by 365.

Question 29

A voucher is an internal document or file used to accumulate information to control cash disbursements and to ensure that a transaction is properly recorded.

Question 30

Electronic funds transfer (EFT) is the use of electronic communication transfer of cash from one party to another.

Question 31

The days' sales uncollected ratio measures a company's ability to manage its debt.

Question 32

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

Question 33

Receiving and paying for merchandise should be performed by one individual or department to streamline a voucher system and simplify the procedures for purchasing.

Question 34

A good voucher system includes a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.

Question 35

Cash receipts by mail require only two people: one to open the mail and a second person to deposit the cash in the bank and record the cash receipt in the accounting records.

Question 36

A check involves three parties: the maker who signs the check,the payee who is the recipient,and the bank on which the check is drawn.

Question 37

If the Cash Over and Short account has a debit balance at the end of the period,the amount is reported as miscellaneous revenue.

Question 38

Controls of cash disbursements are important for companies as most large thefts occur from payment of fictitious invoices.

Question 39

Internal control devices for banking activities include signature cards,deposit tickets,checks,and bank statements.

Question 40

Vouchers should be used only for purchases.Other expenditures do not need to go through the voucher system.

Question 41

An invoice is an itemized statement of goods prepared by the vendor listing the customer's name,items sold,sales prices,and terms of sale.

Question 42

Assume that cash sales according to the register file total $705 but the amount of cash in the register is $685.This cash shortage of $20 represents a Miscellaneous Expense.

Question 43

An effective voucher system has limited ability to prevent a dishonest employee from colluding with a dishonest supplier to fraudulently acquire cash payments for goods and services not received.

Question 44

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

Question 45

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

Question 46

The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared.

Question 47

The steps to reconcile the balance of the bank statement to the adjusted balance include adding outstanding checks,deposits,and bank service charges.

Question 48

The voucher register is a journal that is used to record all approved vouchers within the company.

Question 49

All disbursements from petty cash should be documented by a petty cash receipt.

Question 50

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

Question 51

The purposes and principles of internal control are fundamentally the same across the globe.However,cultural differences sometimes suggest different emphasis on the mix of control procedures.

Question 52

When merchandise is needed,a department manager must inform the purchasing department of this need by preparing and signing a purchase requisition,which lists the merchandise needed and requests that it be purchased.

Question 53

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

Question 54

A bank reconciliation usually yields both an adjusted bank balance and an adjusted book balance.

Question 55

Deposits in transit are deposits made and recorded by the depositor but not yet recorded on the bank statement.

Question 56

A bank reconciliation explains any differences between the balance of a checking account on the depositor's records and the balance reported on the bank statement.

Question 57

After preparing a bank reconciliation,adjustments must be made for items reconciling the bank balance and items reconciling the book balance.

Question 58

Assume that at the end of the day,the cash register tape shows a balance of $635.However,the cash drawer has a balance of $650.This difference should be debited to Miscellaneous Expense.

Question 59

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

Question 60

The journal entry for petty cash reimbursement involves a debit to the appropriate expenses and a credit to Petty Cash.

Question 61

Assume that a buyer receives a shipment of MODEL SD010 with an invoice amount of $780,although $870 worth of goods was received.The purchase order was for $870.Since the difference was in the buyer's favor,the buyer's purchasing department should authorize payment of $780.

Question 62

Recording a purchase is initiated by an invoice approval,not an invoice.

Question 63

Cash equivalents:

A)Are short-term,highly liquid investments.
B)Include six-month CDs.
C)Include checking accounts.
D)Are recorded in petty cash.
E)Include money orders.

Question 64

When two clerks share the same cash register,which internal control principle is violated?

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

Question 65

A purchase requisition is a document the purchasing department sends to the vendor to place an order.

Question 66

Which of the following is the most serious limitation of internal controls?

A)Computer error
B)Human fraud or human error
C)Cost-benefit principle
D)Cybercrime
E)Management fraud

Question 67

For which item does a bank NOT issue a debit memorandum?

A)To notify a depositor of all withdrawals through an ATM.
B)To notify a depositor of a deduction to a depositor's account.
C)To notify a depositor of a bounced check.
D)To notify a depositor of periodic payments arranged in advance,by a depositor.
E)To notify a depositor of a deposit to their account.

Question 68

Cash,not including cash equivalents,includes:

A)Postage stamps.
B)Coins,currency,and checking accounts.
C)IOUs.
D)Two-year certificates of deposit.
E)Money market funds.

Question 69

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

A)Technological controls.
B)Maintain adequate records.
C)Perform regular and independent reviews.
D)Establish responsibilities.
E)Divide responsibility for related transactions.

Question 70

Cash equivalents:

A)Include savings accounts.
B)Include checking accounts.
C)Are short-term investments sufficiently close to their maturity date that their value is not sensitive to interest rate changes.
D)Include time deposits.
E)Have no immediate value.

Question 71

Which of the following are risks of e-commerce?

A)Firewalls,fraud,and computer viruses.
B)Encryption,stolen credit card numbers,and fraud.
C)Stolen credit card numbers,computer viruses,and impersonation.
D)Computer viruses,encryption,and stolen credit card numbers.
E)Impersonation,encryption,and firewalls.

Question 72

In order to streamline the purchasing process,department managers should place orders directly with suppliers.

Question 73

A company's internal control system:

A)Eliminates the risk of loss.
B)Monitors and controls business activities.
C)Eliminates human error.
D)Eliminates the need for audits.
E)Is not necessary in large companies.

Question 74

The number of days' sales uncollected:

A)Is used to evaluate the liquidity of receivables.
B)Is calculated by dividing accounts receivable by sales.
C)Measures a company's ability to pay its bills on time.
D)Measures a company's debt to income.
E)Is calculated by dividing sales by accounts receivable.

Question 75

A good system of internal control:

A)Urges adherence to prescribed managerial policies.
B)Insures profitable operations.
C)Eliminates the need for an audit.
D)Requires the use of a manual accounting system.
E)Is not necessary if the company uses a computerized system.

Question 76

A remittance advice is:

A)An explanation for a payment by check.
B)A bank statement.
C)A voucher.
D)An EFT.
E)A canceled check.

Question 77

The impact of technology on internal controls includes which of the following?

A)Reduced processing errors.
B)Elimination of the need for regular audits.
C)Elimination of the need to bond employees.
D)More efficient separation of duties.
E)Elimination of fraud.

Question 78

The main principles of internal control include which of the following:

A)Establish responsibilities.
B)Maintain minimal records.
C)Use only computerized systems.
D)Bond all employees.
E)Require automated sales systems.

Question 79

A check:

A)Involves the writer,the signers,the cashier,and the bank.
B)Involves the maker,the payee and the bank.
C)Involves the maker and the payee.
D)Involves the bookkeeper,the payee,and the bank.
E)Involves the signer,the cashier,and the company.

Question 80

Why is it a matter of good internal control to deposit all cash receipts daily and make all payments for goods and services by check?

A)When no paper documents are required,there is increased convenience and lower cost
B)These actions control the access to cash and create an independent record of all cash activities.
C)These procedures result in a more extensive testing of a company's records.
D)The Sarbanes-Oxley Act requires these steps be taken by each publicly traded company.
E)These procedures allow management to determine if projected cash receipts and disbursements came in over or under budgeted amounts.