Deck 2: Internal Control and Cash

Question 1

Petty cash is NOT considered a cash equivalent.

Answer 1

True

Question 2

On a bank reconciliation,bank service charges for the month are added to the cash balance per the company records.

Answer 2

False

Question 3

The stronger the system of internal control,the higher the accuracy of the company's accounting records and financial reports.

Answer 3

True

Question 4

A cheque written by a company but NOT yet presented to the bank for payment is called a cheque in transit.

Question 5

When reconciling a bank account,the company must prepare an adjusting entry for deposits in transit.

Question 6

An accounting system must be computerized in order to ensure the company has proper internal control.

Question 7

As a result of the bank reconciliation process,a company will prepare an adjusting entry for a debit memo but NOT for a credit memo.

Question 8

Cash equivalents typically appear in the long-term investments section of a balance sheet.

Question 9

Money market accounts with original maturities of less than 90 days are cash equivalents.

Question 10

The key to being classified as a cash equivalent is that the amount must be available to pay debts within a year's time or less.

Question 11

In a sound system of internal control,cash receipts should be deposited daily.

Question 12

On a bank reconciliation,outstanding cheques are added to the cash balance per the bank statement.

Question 13

Collections of accounts receivable are considered to be cash equivalents.

Question 14

When a bank collects a note on behalf of a company,the bank is likely to issue a debit memo.

Question 15

When reconciling a bank account,the company has to prepare an adjusting entry for outstanding cheques.

Question 16

The establishment of a petty cash fund has no effect on the company's total cash balance.

Question 17

When a bank pays interest on a company's chequing account balance,the bank will likely issue a credit memo.

Question 18

On a bank reconciliation,interest earned for the month is added to the cash balance per the company records.

Question 19

A debit memo may be issued in the monthly bank statement for the bank to notify a company that a service charge has been assessed on the company's account.

Question 20

No special internal control procedures are necessary with a petty cash fund because the amount is so small.

Question 21

If the bank credits a customer's account,then that customer's cash account balance increases.

Question 22

A cheque that "bounced" or was returned by the bank due to lack of funds is called a(n)____________________.

Question 23

An amount recorded as an increase in the company's cash account at the end of the period,but which has NOT yet been reflected on the bank statement is called a(n)____________________.

Question 24

Items that are included on a bank statement and decrease the bank account balance are called ____________________.

Question 25

The accountant must make journal entries for all items in the book section of the bank reconciliation.

Question 26

The accountant must make journal entries for all items in the bank section of the bank reconciliation.

Question 27

If a company has an internal audit function,it does NOT need to have external auditors.

Question 28

Items that are included on a bank statement and increase the bank account balance are called ____________________.

Question 29

____________________ are those investments and deposits with financial institutions that are readily convertible into known amounts of cash and that have original maturities of three months or less.

Question 30

The sole purpose for creating an internal control system is to deter embezzlement.

Question 31

If a company records a $450 receipt as $540,this type of mistake is called a(n)____________________.

Question 32

A cheque written by a company but NOT yet presented to the bank for payment is called a(n)____________________.

Question 33

The best response to an employee caught stealing from the company is to say,"Don't ever let me catch you doing that again!"

Question 34

If the bank debits its customer's chequing account,then the customer's cash balance increases.

Question 35

As part of a sound system of internal controls,all disbursements (with the exception of petty cash)should be made by cheque.

Question 36

A(n)____________________ is the process used by an accountant to ensure consistency between the balance shown on the bank statement for a particular account and the balance shown on the accounting records.

Question 37

If a company hires honest employees and its top management acts with integrity,no internal control procedures will be necessary.

Question 38

A good system of internal control requires that the physical custody of assets be separated from the accounting for those assets.This concept is known as safeguarding of assets and records.

Question 39

Internal control over financial reporting is concerned with ensuring the reliability of the financial statements.

Question 40

A company's internal control system must be designed and maintained by its external auditors.

Question 41

When there is proper segregation of duties,the likelihood of fraud is reduced so that an employee attempting to carry out a fraudulent scheme would have to work in ____________________ with another employee.

Question 42

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.

-segregation of duties

A)One employee or department should verify the work of another.
B)Specific approval is given by management for the performance of activities.
C)Accounting and cash collections should be properly separated.
D)Blank cheques should be stored in a locked location.
E)Initial entry into the accounting system should be from a consistent source with complete information.

Question 43

Business process risk assessment is designed to identify,analyze,and manage possible threats to the organization's success concerning ____________________ forces such as resource allocations.

Question 44

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)

-customer's NSF cheque returned with the bank statement

A)addition to bank balance
B)subtraction from bank balance
C)addition to company balance
D)subtraction from company balance
E)not included on the reconciliation

Question 45

The account used to record the discrepancies that will occasionally occur between the amounts deposited and amounts shown on cash register tapes is called ____________________.

Question 46

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)

-cheque written on the company's account in May,paid by the bank,and returned with the bank statement

A)addition to bank balance
B)subtraction from bank balance
C)addition to company balance
D)subtraction from company balance
E)not included on the reconciliation

Question 47

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)

-cheque written on the company's account in May that does not appear on the bank statement

A)addition to bank balance
B)subtraction from bank balance
C)addition to company balance
D)subtraction from company balance
E)not included on the reconciliation

Question 48

Whenever feasible,cash handling activities and cash record-keeping activities should be assigned to different employees,according to the internal control activity called ____________________.

Question 49

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.

-clearly defined authority and responsibility

A)One employee or department should verify the work of another.
B)Specific approval is given by management for the performance of activities.
C)Accounting and cash collections should be properly separated.
D)Blank cheques should be stored in a locked location.
E).Initial entry into the accounting system should be from a consistent source with complete information.

Question 50

The elapsed time between the purchase of goods for resale and the collection of cash from customers is referred to as the ____________________ cycle.

Question 51

Under the ____________________ Act,management of publicly-traded corporations has increased responsibility for a system of internal controls that ensures reliability of financial statements.

Question 52

The practices of delaying payments to suppliers,speeding up collection from customers,and earning the greatest possible return on any excess cash are known as ____________________ principles.

Question 53

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)

-bank service charge on the bank statement for new cheques

A)addition to bank balance
B)subtraction from bank balance
C)addition to company balance
D)subtraction from company balance
E)not included on the reconciliation

Question 54

Strategic risk assessment is designed to identify,analyze,and manage possible threats to the organization's success concerning ____________________ forces such as competitors,customers,suppliers,and PEST factors.

Question 55

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.

-adequate documents and records

A)One employee or department should verify the work of another.
B)Specific approval is given by management for the performance of activities.
C)Accounting and cash collections should be properly separated.
D)Blank cheques should be stored in a locked location.
E)Initial entry into the accounting system should be from a consistent source with complete information.

Question 56

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)

-interest earned on the chequing account for May

A)addition to bank balance
B)subtraction from bank balance
C)addition to company balance
D)subtraction from company balance
E)not included on the reconciliation

Question 57

An internal control activity that separates responsibilities so that no one person handles all the tasks for a particular activity is referred to as ____________________.

Question 58

The foundation of the internal control system is the control _____________ - the collection of environmental factors that influence the effectiveness of control procedures.

Question 59

A cost-cutting measure used in many business organizations is the use of a(n)____________________ fund,whereby a custodian handles disbursements and documentation for small expenditures.

Question 60

MATCHING
The accountant for a local manufacturing company is reconciling the company's bank account for May. For each item listed, state how it would be handled on a bank reconciliation. (Choices may be used more than once.)

-customer's cheque deposited on May 31 but not included on the bank statement

A)addition to bank balance
B)subtraction from bank balance
C)addition to company balance
D)subtraction from company balance
E)not included on the reconciliation

Question 61

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.

-cheques on recorded amounts

A)One employee or department should verify the work of another.
B)Specific approval is given by management for the performance of activities.
C)Accounting and cash collections should be properly separated.
D)Blank cheques should be stored in a locked location.
E)Initial entry into the accounting system should be from a consistent source with complete information.

Question 62

Match the following terms with their correct definition.

-a bank reconciling item that must be subtracted from the unadjusted bank balance when preparing a bank reconciliation

A)bank reconciliation
B)deposit in transit
C)nonsufficient funds cheque
D)outstanding cheque
E)service charges

Question 63

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-The clerk in the accounting department records both purchases and payments of invoices.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 64

Choose the proper category of internal control activities that best matches the following actions. Each action should be matched with a different numbered item within the internal controls list.

-safeguards over assets and records

A)One employee or department should verify the work of another.
B)Specific approval is given by management for the performance of activities.
C)Accounting and cash collections should be properly separated.
D)Blank cheques should be stored in a locked location.
E)Initial entry into the accounting system should be from a consistent source with complete information.

Question 65

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-Mathematical extensions and footings on purchase invoices are verified before the invoices are paid.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 66

Match the following terms with their correct definition.

-the process of ensuring that the company's accounting records are consistent with the bank's accounting records

A)bank reconciliation
B)deposit in transit
C)nonsufficient funds cheque
D)outstanding cheque
E)service charges

Question 67

Match the following terms with their correct definition.

-an amount received and recorded by the business but not yet recorded by the bank

A)bank reconciliation
B)deposit in transit
C)nonsufficient funds cheque
D)outstanding cheque
E)service charges

Question 68

Match the following terms with their correct definitions.

-policies and procedures established by top management to help ensure that the company's accounting system and financial statements are as accurate as possible

A)accounting system
B)business process risks
C)control activities
D)control environment
E)internal control system
F)safeguarding
G)segregation of duties
H)strategic risks

Question 69

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-An employee from the accounting department compares the cash register tapes with the bank deposits.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 70

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-The receiving department compares the quantity of merchandise received with the quantity ordered.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 71

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-An accounting department employee records cash receipts from customers and prepares the bank deposit slips.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 72

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-Cash register tapes are recorded daily by an employee from the accounting department.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 73

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-Although department supervisors can request a preferred supplier or vendor,the purchasing department is responsibile for making the final decisions on a vendor.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 74

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-Monthly statements are mailed to customers to indicate the current balance due.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 75

Match the following terms with their correct definitions.

-possible external threats to the organization's success in accomplishing its goals

A)accounting system
B)business process risks
C)control activities
D)control environment
E)internal control system
F)safeguarding
G)segregation of duties
H)strategic risks

Question 76

Match the following terms with their correct definition.

-the fees charged by the bank for chequing accounting services

A)bank reconciliation
B)deposit in transit
C)nonsufficient funds cheque
D)outstanding cheque
E)service charges

Question 77

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-A mailroom employee opens the mail,counts the money received,and updates the accounting records for the amount received.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 78

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-Cheques are signed by the clerk in the accounting department.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control

Question 79

Match the following terms with their correct definition.

-a bank reconciling item that must be subtracted from the unadjusted book balance when preparing a bank reconciliation

A)bank reconciliation
B)deposit in transit
C)nonsufficient funds cheque
D)outstanding cheque
E)service charges

Question 80

The following set of items describes activities completed by a company in purchasing and paying for merchandise and in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. (Choices may be used more than once.)

-All supporting documents attached to an invoice are cancelled when the cheque is signed.

A)adheres to sound internal controls
B)violates sound internal controls
C)neither strengthens nor violates internal control