Deck 4: Internal Control Cash

Question 1

What is lapping accounts receivable?

A)A way to speed up the collection of accounts receivable by calling the debtors every week.
B)A way to speed up the collection of accounts receivable by sending reminder notices to the debtors every week.
C)Transferring accounts receivable to another company to collect the receivables.
D)An embezzlement scheme whereby an employee steals customers' checks and uses devious bookkeeping procedures to conceal the theft.

Answer 1

D

Question 2

The type of fraud committed by company managers who make false and misleading entries in the books in order to improve a company's financial statements is called:

A)misappropriation of assets.
B)fraudulent financial reporting.
C)embezzlement.
D)collusion.

Answer 2

B

Question 3

________ is the most common fraud,but ________ is the most expensive fraud.

A)Fraudulent financial reporting,misappropriation of assets
B)Misappropriation of assets,fraudulent financial reporting
C)Misappropriation of assets,cooking the books
D)Cooking the books,misappropriation of assets

Answer 3

B

Question 4

What are some examples of the misappropriation of assets?

A)An employee overstates an expense reimbursement request after a company trip.
B)An employee steals some money from the petty cash fund.
C)Kickback scheme between a purchasing agent and vendor
D)all of the above

Question 5

Which of the following statements about the lapping of Accounts Receivable is TRUE?

A)Lapping is a type of fraud perpetuated by an employee.
B)Lapping is also referred to as a misappropriation of assets.
C)Lapping arises from a weak internal control system.
D)All of the above are true.

Question 6

The two most common types of fraud impacting the financial statements are:

A)fraudulent financial reporting and e-commerce fraud.
B)misappropriation of assets and embezzlement.
C)fraudulent financial reporting and misappropriation of assets.
D)cooking the books and fraudulent financial reporting.

Question 7

Fraud is a major problem in many businesses throughout the world.

Question 8

The type of fraud committed by employees of an entity who steal money from the company and cover it up through erroneous entries in the books is called:

A)misappropriation of assets.
B)fraudulent financial reporting.
C)phishing.
D)collusion.

Question 9

One of the most common types of fraud that impacts the financial statements is the misappropriation of assets.

Question 10

An environment with strong internal controls can be circumvented with collusion.

Question 11

Examples of a weak control environment are:

A)a CEO who overrides controls.
B)a weak and ineffective Board of Directors.
C)no company-wide code of ethics.
D)all of the above.

Question 12

________ is the element in the fraud triangle that results from weak internal controls.

A)Motive
B)Opportunity
C)Rationalization
D)Reasoning

Question 13

Fraudulent financial reporting is also called:

A)the fraud triangle.
B)a misappropriation of assets.
C)cooking the books.
D)investigative reporting.

Question 14

Fraudulent financial reporting:

A)involves employee overstatement of expense reimbursement requests.
B)involves bribes and kickbacks.
C)involves stealing assets from the company.
D)deceives financial statement users.

Question 15

The three main components of the fraud triangle are:

A)rationalization,opportunity and greed.
B)opportunity,motive and lack of ethics.
C)motive,opportunity and rationalization.
D)none of the above.

Question 16

Opportunity in the fraud triangle arises from:

A)weak control environment.
B)improper segregation of duties.
C)improper access to assets.
D)all of the above.

Question 17

What is fraud?

A)Fraud is the intentional misrepresentation of facts made for the purpose of persuading another individual to act in a way that causes injury or damage to that individual.
B)Fraud is the misappropriation of assets.
C)Fraud is untruthful financial reporting.
D)all of the above

Question 18

An employee states that he steals office supplies for his wife and children because "Everyone is doing it." This is an example of:

A)opportunity.
B)motive.
C)rationalization.
D)understanding.

Question 19

One of the elements of the fraud triangle is opportunity.

Question 20

Perpetrators of fraud usually commit fraud for their own short-term economic gain.

Question 21

Access to sensitive data files in a business should be protected by Trojan horses.

Question 22

The Sarbanes-Oxley Act of 2002:

A)requires public companies to issue an internal control report.
B)requires an outside auditor to evaluate the soundness of a public company's internal controls.
C)requires public companies to issue a special report on the amount of collusion within a company.
D)A and B

Question 23

The primary way that fraud is prevented and detected is through a proper system of:

A)ethical standards and a code of ethics.
B)policies developed by upper management.
C)internal control.
D)internal and external audits.

Question 24

External auditors are responsible for maintaining the internal controls for each company they audit.

Question 25

What are some examples of fraudulent financial reporting?

A)Enron Corporation
B)WorldCom Corporation
C)A company overstates total assets and net income.
D)all of the above

Question 26

Smart hiring practices and separation of duties is part of the control environment.

Question 27

Collusion is the method used to defeat an internal controls system.

Question 28

A fidelity bond is a(n):

A)employment contract for a specified period of time.
B)insurance policy that reimburses a company for employee theft.
C)contract prohibiting former employees from working for a competitor.
D)promise by a company to safeguard customers' personal information.

Question 29

All employees should have a background check before being hired,and should be properly trained and supervised.

Question 30

A system of handling cash receipts by mail whereby customers send checks in payment of their accounts directly to a post office box controlled by a bank is a(n):

A)imprest system.
B)lock-box system.
C)phishing system.
D)online banking system.

Question 31

The "tone at the top" refers to:

A)a component of the control environment.
B)attitudes and behaviors directed towards people of different heritage.
C)owners and top managers behaving honorably to set a good example for employees.
D)A and C.

Question 32

The primary way that fraud and unintentional errors in financial statements are prevented is by external auditors.

Question 33

Which is NOT an objective of an internal control system?

A)Safeguarding of assets
B)Compliance with company policies
C)Compliance with legal requirements
D)Risk assessment

Question 34

Internal control is a plan of organization and system of procedures implemented by company ________ and the ________ designed to accomplish five objectives.

A)internal auditors,employees
B)external auditors,management
C)management,board of directors
D)employees,board of directors

Question 35

The Sarbanes-Oxley Act created the American Institute of Certified Public Accountants to oversee the audits of public companies.

Question 36

The objectives of internal control do NOT include:

A)compliance with standards of social responsibility.
B)safeguard assets.
C)promoting operational efficiency.
D)compliance with legal requirements.

Question 37

Internal controls are designed to accomplish five objectives that include compliance with legal requirements,promote operational efficiency,safeguard assets,encourage employees to follow company policy and:

A)prevent misappropriation of assets.
B)prevent collusion.
C)prevent fraud.
D)ensure accurate,reliable accounting records.

Question 38

What is the purpose of fraudulent reporting?

A)Net income and total assets are understated so managers can receive their bonuses.
B)Net income and total assets are overstated so managers can receive their bonuses.
C)So the stock price increases and managers benefit from share appreciation of stock held.
D)B and C

Question 39

The Public Company Oversight Board was created to oversee the:

A)SEC.
B)management of public companies.
C)audits of public companies.
D)American Institute of Certified Public Accountants.

Question 40

Small companies cannot have internal controls since they do not have enough employees to segregate duties.

Question 41

Which is NOT a component of comparisons and compliance monitoring?

A)control environment
B)budgets
C)audits
D)all of the above

Question 42

Examples of internal control procedures do NOT include:

A)proper segregation of duties.
B)adequate records.
C)proper approvals.
D)risk assessment.

Question 43

Which of the following is NOT a way to circumvent a strong system of internal control?

A)management override
B)collusion
C)mandatory vacations
D)employee negligence

Question 44

The components of internal control do NOT include:

A)control environment.
B)risk assessment.
C)control procedures.
D)safeguard assets.

Question 45

Three key duties must always be separated under a good system of internal controls:

A)asset handling,record keeping and transaction approval.
B)asset handling,hiring and safeguarding of assets.
C)asset handling,recordkeeping and safeguarding of assets.
D)record keeping,transaction analysis and transaction approval.

Question 46

Which statement is FALSE?

A)Sales to customers should be approved by a separate credit department.
B)Purchases on credit should be approved by a separate purchasing department.
C)Transactions with a large dollar amount should be approved by the Board of Directors or top management.
D)The firing of employees should be handled by the department where the employee works.

Question 47

A malicious program that enters program code without consent and performs destructive actions in the victim's computer files or programs is a(n):

A)encryption device.
B)phishing expedition.
C)computer virus.
D)fidelity bond.

Question 48

Which statement is FALSE?

A)The bookkeeper should not handle incoming checks from customers.
B)Cashiers should not have access to the accounting records.
C)The treasurer's department should be in charge of handling customers' incoming checks,signing checks and approving payments.
D)The accounting department should be in charge of record keeping and depositing customers' checks.

Question 49

Creating bogus websites for the purpose of stealing unauthorized data is a(n):

A)encryption device.
B)phishing expedition.
C)computer virus.
D)Trojan horse.

Question 50

For each of the following situations,indicate which internal control procedure Johnson Company has violated:
1.Since they are costly,background checks are not done for the employees.
2.Purchases of items on credit do not need the approval of the purchasing department.
3.All hard copies of documents are shredded after one month and electronic records are deleted after two months.
4.The company does not prepare operating or cash budgets.
5.The accountant receives the checks from customers in payment of amounts due and records the cash receipts.
6.There are no locks in the area where inventory is stored.
7.The hiring,firing and pay adjustments are made by the foremen in the manufacturing area.

Question 51

Internal control procedures do NOT include:

A)smart hiring practices.
B)adequate records.
C)limited access.
D)control environment.

Question 52

The objectives of internal control do NOT include:

A)safeguard assets.
B)encourage employees to follow company policy.
C)ensure accurate,reliable accounting records.
D)strong control environment.

Question 53

The rule that all major groups of transactions should be supported by hard copy documents or electronic records is part of the control procedure of:

A)limited access.
B)segregation of duties.
C)adequate records.
D)proper approvals.

Question 54

________ rearranges messages by a mathematical formula making the message impossible to read by someone who does not know the code.

A)Encryption
B)Firewall
C)Security wall
D)Access device

Question 55

Smart hiring practices include:

A)background checks.
B)clear job descriptions.
C)proper training and supervision.
D)all of the above.

Question 56

The control environment does NOT include:

A)a corporation's code of ethics.
B)prohibition of bribes and kickbacks.
C)risk assessment.
D)avoidance of transactions that involve a conflict of interest.

Question 57

A company has a policy that all checks over $5,000 need to have the signature of the owner in addition to the signature of the bookkeeper.This is an example of:

A)limited access.
B)proper approvals.
C)adequate records.
D)encryption.

Question 58

An internal control system can be circumvented by:

A)collusion,encryption and management override.
B)collusion,management override and segregation of duties.
C)collusion,management override and human limitations.
D)nothing,if it is a good internal control system.

Question 59

E-commerce pitfalls include all of the following EXCEPT:

A)stolen credit card numbers.
B)phishing expedition.
C)encryption.
D)trojan horses.

Question 60

Which statement about internal controls is FALSE?

A)Public companies must issue a report on internal control with their financial statements.
B)Outside auditors much evaluate and report on the soundness of a company's internal controls.
C)The Sarbanes-Oxley Act requires public companies to issue a report on internal control.
D)Public companies do not have to evaluate the effectiveness of internal controls.

Question 61

Johnny Company deposited $25,000 in its bank on the same day as,but after the bank prepared Johnny Company's bank statement.The deposit should appear on the bank reconciliation as a(n)________ and is called a(n):

A)addition to the bank balance; outstanding deposit
B)addition to the bank balance; deposit in transit
C)deduction to the bank balance; deposit in transit
D)deduction to the bank balance; outstanding deposit

Question 62

Deposits that have been recorded on the books,but have not yet been recorded by the bank are:

A)nonsufficient funds deposits.
B)outstanding deposits.
C)deposits in transit.
D)electronic funds deposits.

Question 63

The person performing the bank reconciliation should not have any other cash duties.

Question 64

When preparing a bank reconciliation:

A)deposits in transit are added to the bank balance.
B)service charges are subtracted from the bank balance.
C)outstanding checks are deducted from the book balance.
D)book errors are subtracted from the bank balance.

Question 65

Outstanding checks are checks that have been recorded by the bank,but are not yet recorded on the books.

Question 66

In a bank reconciliation,an EFT cash payment is:

A)added to the bank balance.
B)added to the book balance.
C)deducted from the book balance.
D)deducted from the bank balance.

Question 67

In a bank reconciliation,a bank service charge for printing checks is:

A)added to the bank balance.
B)added to the book balance.
C)deducted from the book balance.
D)deducted from the bank balance.

Question 68

Differences between the bank statement and the company's Cash account are primarily the result of a time lag in recording transactions.

Question 69

In a bank reconciliation,items recorded by the bank,but not yet recorded by the company,include:

A)deposits in transit.
B)bank collections of accounts receivable.
C)outstanding checks.
D)both deposits in transit and outstanding checks.

Question 70

Another term for a "hot check" is:

A)electronic check.
B)outstanding check.
C)nonsufficient funds (NSF)check.
D)cleared checks.

Question 71

Every adjustment on the bank side of the bank reconciliation needs to be recorded in the books.

Question 72

In a bank reconciliation,a NSF check is:

A)added to the bank balance.
B)added to the book balance.
C)deducted from the book balance.
D)deducted from the bank balance.

Question 73

The person to whom a check is paid is referred to as the maker.

Question 74

The bank reconciliation can be used to control cash in a bank account.

Question 75

Alpha Company has an account at First Bank.Alpha writes a check payable to Beta Company.In this transaction,Beta Company is the:

A)payee.
B)payer.
C)drawer.
D)maker.

Question 76

When preparing a bank reconciliation,which of the following items should be added to the book balance?

A)EFT receipts
B)Deposits in transit
C)Collection of note receivable by bank
D)Both EFT receipts and collection of note receivable

Question 77

All of the following will appear on the bank statement EXCEPT for:

A)checks paid and deposits made before the cutoff date on the bank statement.
B)book errors.
C)checks paid and deposits made after the cutoff date on the bank statement.
D)B and C.

Question 78

There are three parties to a check.The person or company to whom the check is paid is the:

A)maker.
B)payee.
C)draftee.
D)promissee.

Question 79

Which of the following items can be added to or subtracted from the bank balance when preparing the bank reconciliation?

A)book errors
B)bank errors
C)EFT payments by bank
D)EFT receipts by bank

Question 80

All of the following will appear on the book side of the bank reconciliation EXCEPT for:

A)service charges.
B)electronic funds transfers.
C)deposits in transit.
D)book errors.