Deck 8: Internal Control and Cash

Question 1

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) A company must identify its risks.
C) The control environment is the 'tone at the top' of the business.
D) The control environment is designed to ensure that the business's goals are achieved.

Answer 1

C

Question 2

Reducing expense to increase operating profit is representative of:

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

Answer 2

D

Question 3

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

A) External auditors monitor internal controls.
B) A company purchases burglar alarms.
C) A company must train and supervise high-quality employees.
D) The information system is critical.

Answer 3

C

Question 4

Keeping office supplies under lock and key is representative of:

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

Question 5

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

A) Documents and records
B) Separation of duties
C) Competent, reliable and ethical personnel
D) Assignment of responsibilities

Question 6

In the following situation,which internal control procedure needs strengthening?
The controller's duties 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) Documents and records
B) Separation of duties
C) Competent, reliable and ethical personnel
D) Assignment of responsibilities

Question 7

Which of the following is a general internal control,but is not classified as an 'accounting control'?

A) Authorising transactions
B) Ensuring the accuracy of financial records
C) Encouraging employees to follow organisational policy
D) Safeguarding assets

Question 8

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

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

Question 9

Internal and external auditors are part of which of the following components of internal control?

A) Information systems
B) Environment
C) Control procedures
D) Monitoring of controls

Question 10

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

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

Question 11

In a large company,the person who is responsible for writing cheques is the:

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

Question 12

Which of the following is TRUE of internal control?

A) Internal controls are only necessary for large businesses.
B) A company's outside auditor is responsible for the company's internal control system.
C) Internal control procedures tend to diminish the importance of operational efficiency.
D) One of the major purposes of internal control is to ensure accurate, reliable accounting records.

Question 13

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

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

Question 14

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

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

Question 15

Internal control is the organisational plan and all the related measures adopted by an entity to safeguard assets,encourage employees to follow company policy,promote operational efficiency and ensure accurate and reliable accounting records.

Question 16

It is always the auditor's responsibility to set up and maintain the internal control system.

Question 17

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) A company must identify its risks.
C) Risk assessment is designed to ensure that the business's goals are achieved.
D) Risk assessment is the 'tone at the top' of the business.

Question 18

Which of the following describes the internal control procedure documents and records?

A) Separate the custody of assets from accounting.
B) A company should purchase a fireproof vault.
C) Mandatory vacations will improve internal control.
D) Prenumber invoices and other documents.

Question 19

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

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

Question 20

Which of the following conditions must exist for internal controls to be effective?

A) Policies must be communicated effectively by top management.
B) They must be tailored to the size and nature of the business.
C) Personnel at all levels must adopt the organisation's goals, objectives and ethical standards.
D) All of the above.

Question 21

Which of the following is retained by the customer as proof of a deposit transaction?

A) A deposit slip
B) A bank reconciliation
C) A cancelled cheque
D) A signature card

Question 22

Which of the following must be signed by the person authorised to write cheques drawn on a bank account?

A) A bank statement
B) A signature card
C) A deposit slip
D) A bank reconciliation

Question 23

Which of the following describes collusion?

A) When a company defrauds its suppliers by making false claims
B) When bogus websites acquire passwords and account numbers fraudulently
C) When two or more people cooperate together to defraud a company
D) When one employee steals from a company

Question 24

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

A) Competent, reliable and ethical personnel
B) Assignment of responsibilities
C) Separation of duties
D) Documents and records

Question 25

Mandatory vacations and job rotation improve internal control.

Question 26

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

Question 27

Internal auditors evaluate company controls to ensure the accuracy of financial statements.

Question 28

If a system of internal controls is properly designed and structured,it cannot be overcome or broken into.

Question 29

A malicious program that enters program code or destroys data without authorisation is an example of:

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

Question 30

If a system of internal controls is too strict or complex,it may harm efficiency and not be cost-effective.

Question 31

When a cheque is issued,the party being paid the cash is referred to as the:

A) payee.
B) depositor.
C) bank signatory.
D) drawer.

Question 32

The control environment is one of the five components by which a company can achieve its internal control objectives.

Question 33

Separation of duties limits fraud and promotes the accuracy of the account records.

Question 34

In the following situation,which internal control procedure needs strengthening?
At Hofstra 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) Separation of duties
B) Competent, reliable and ethical personnel
C) Documents and records
D) Assignment of responsibilities

Question 35

Which of the following is the most basic internal control for cash?

A) Keeping money in a bank account
B) Counting cash receipts twice
C) Internal audit of cash procedures
D) Checking for counterfeit bills

Question 36

Which of the following is a security procedure designed for e-commerce?

A) Secure inventory storage
B) Fireproof vaults
C) Burglar alarms
D) Firewalls

Question 37

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

Question 38

'Two-factor authentication' involves logging into a computer system with a user ID and a password.

Question 39

Which of the following is a security procedure designed for e-commerce that rearranges text messages by a mathematical process?

A) Trojans
B) Phishing
C) Encryption
D) Firewalls

Question 40

'Access creep' occurs when:

A) an employee fruadulently gains access to a program or computer system.
B) passwords are not changed regularly, allowing others access to the system.
C) personnel leave the organisation, retaining access to the company's systems.
D) personnel move throughout the organisation and accumulate access rights to different parts of the system.

Question 41

The bank charged a service charge of $20.How would this information be included on the bank reconciliation?

A) An addition on the book side
B) A deduction on the book side
C) A deduction on the bank side
D) An addition on the bank side

Question 42

Which of the following is TRUE about a bank reconciliation?

A) A bank reconciliation guarantees that no errors have been made.
B) A bank reconciliation should not be prepared by an employee who handles cash transactions.
C) A bank reconciliation cannot be prepared with internet banking.
D) A bank reconciliation is a financial statement.

Question 43

A cheque of $75 deposited by a company was returned from the bank as a dishonoured cheque.How would this information be included on the bank reconciliation?

A) An addition on the bank side
B) An addition on the book side
C) A deduction on the book side
D) A deduction on the bank side

Question 44

Which of the following items found on a bank reconciliation does NOT require an adjusting entry?

A) Interest earned
B) A bill receivable collected by the bank
C) A bank service charge
D) Deposits in transit

Question 45

In reconciling a bank statement,the bank balance is $1 800 and the chequebook balance is $1 205.Which of the following is the MOST probable reason why the bank balance is larger than the book balance?

A) The company erroneously recorded a cheque for an amount less than the actual amount.
B) A deposit in transit was made at the end of the month.
C) There are outstanding cheques.
D) The bank has deducted certain amounts for bank service charges.

Question 46

The bank statement reveals an EFT received from a customer that has not yet been recorded in the ledger.How would this information be included on the bank reconciliation?

A) An addition on the bank side
B) A deduction on the book side
C) A deduction on the bank side
D) An addition on the book side

Question 47

The remittance advice or copy of a cheque provides details of a transaction that may be recorded in the cash receipts journal.

Question 48

The bank statement reveals an EFT payment made to one of the company's suppliers that has not yet been recorded in the ledger.How would this information be included on the bank reconciliation?

A) An addition on the book side
B) A deduction on the bank side
C) An addition on the bank side
D) A deduction on the book side

Question 49

Which of the following items does NOT cause a difference in the bank balance and the book balance on a bank reconciliation?

A) Cancelled cheques
B) Deposits in transit
C) Dishonoured cheques
D) Outstanding cheques

Question 50

In reconciling a bank statement,the bank balance is $1 000 and the chequebook balance is $1 205.Which of the following is the MOST probable reason why the chequebook balance is larger than the bank balance?

A) The bank has not cleared certain cheques.
B) A deposit in transit was made at the end of the month.
C) The bank has added interest revenue to the account balance.
D) The bank received an EFT from a customer.

Question 51

A cheque was written by a business for $205,but was recorded in the cash payments journal as $502.How would this error be included on the bank reconciliation?

A) A deduction on the book side
B) An addition on the bank side
C) A deduction on the bank side
D) An addition on the book side

Question 52

Cash is the most liquid of all company assets.

Question 53

Which of the following items would require an adjusting entry after preparation of the bank reconciliation?

A) Outstanding cheques
B) Errors made on the books revealed by the bank reconciliation
C) All items on the bank's side
D) Errors made by the bank revealed by the bank reconciliation

Question 54

The bank recorded a $2 000 deposit as $200.How would this information be included on the bank reconciliation?

A) An addition on the bank side
B) A deduction on the book side
C) A deduction on the bank side
D) An addition on the book side

Question 55

Which of the following is a benefit of internet banking?

A) The business can reduce its internal controls over cash receipts.
B) The bank reconciliation is not necessary.
C) The business can reconcile with the bank's balance at any time.
D) A company's book balance will always equal the bank's balance.

Question 56

A ________ is a document explaining the reasons for the difference between a depositor's cash records and the depositor's cash balance in its ledger.

A) bank reconciliation
B) remittance advice
C) bank statement
D) deposit slip

Question 57

Which of the following would be included in a journal to record a dishonoured cheque?

A) A debit to Accounts payable and a credit to Cash
B) A debit to Accounts receivable and a credit to Cash
C) A debit to Miscellaneous expense and a credit to Cash
D) A debit to Cash and a credit to Accounts receivable

Question 58

Which of the following items are both reconciling items on the bank side of the reconciliation?

A) Deposit in transit and dishonoured cheques
B) Outstanding cheques and correction of book error
C) Bank service charge and correction of book error
D) Deposit in transit and outstanding cheques

Question 59

Which of the following items are both reconciling items on the book side of the reconciliation?

A) Bank service charge and correction of book error
B) Bank service charge and outstanding cheques
C) Deposits in transit and dishonoured cheques
D) Outstanding cheques and correction of book error

Question 60

Cheque number 6135 for $576 was incorrectly entered as $657.Which adjustment needs to be made?

A) Decrease the book balance.
B) Increase the bank statement balance.
C) Decrease the bank statement balance.
D) Increase the book balance.

Question 61

The following information is needed to reconcile the cash balance for Fire Steel Ltd:
∙ A deposit of $5500 is in transit.
∙ Outstanding cheques total $1500.
∙ The book balance is $6500 at 28 February 2017.
∙ The bookkeeper recorded a $1800 cheque as $17,100 in payment of the current month's rent.
∙ The bank balance at 28 February 2017 was $19,040.
∙ A deposit of $500 was credited by the bank for $5000.
∙ A dishonoured cheque from a customer for $3200 was returned by the bank.
∙ The bank service charge is $60.
What was the adjusted bank balance?

A) $19,100
B) $18,540
C) $18,660
D) $18,600

Question 62

Journal entries must be made to record the reconciling items on the bank side of the reconciliation.

Question 63

In a bank reconciliation,a dishonoured cheque will be shown on the bank side of the reconciliation.

Question 64

If the bank reconciliation includes a deposit in transit,a journal entry is required that includes a debit to cash.

Question 65

The cash balance in a company's general ledger and the bank's balance on the bank statement will generally be different because of the time lag in recording transactions.

Question 66

If the bank reconciliation includes a book error,no journal entries are required.

Question 67

The bookkeeper of Fire Steel Ltd recorded a $1564 cheque as $15,640 in payment of the current month's rent.Which of the following journal entries is needed to adjust for this error in the books of the company?

A) $$\begin{array} { | c | l | l | } \hline \text { Cash } & 14,076 & \\\hline \text { Rent expense } & & 14,076 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Cash } & 14,076 & \\\hline \text { Sales revenue } & & 14,076 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Booking error } & 1564 & \\\hline \text { Cash } & & 1564 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Rent expense } & 15,640 & \\\hline \text { Cash } & & 15,640 \\\hline\end{array}$$

Question 68

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

A) A firewall system
B) A bank direct deposit system
C) An encryption system
D) An imprest system

Question 69

A company received a bank statement showing a balance of $77,000.Reconciling items included outstanding cheques of $2300 and a deposit in transit of $9000.What is the company's adjusted bank balance?

A) $68,000
B) $70,300
C) $65,700
D) $83,700

Question 70

Journal entries that are necessitated by reconciling items on the book side of the reconciliation all include either a debit to Cash or a credit to Cash.

Question 71

If the bank reconciliation includes a bank service charge,a journal entry is required that debits Cash and credits Miscellaneous expense.

Question 72

A company received a bank statement with a balance of $6300.Reconciling items included a bookkeeper error of $300-a $300 cheque recorded as $500-two outstanding cheques totalling $800,a service charge of $22,a deposit in transit of $250 and interest revenue of $19.What is the adjusted bank balance?

A) $5247
B) $5591
C) $5750
D) $5450

Question 73

An outstanding cheque is a cheque issued by the company and recorded on its books but not yet paid by its bank.

Question 74

If the bank reconciliation includes interest revenue,a journal entry is required that debits Cash and credits Interest revenue.

Question 75

The following information is available for Jade Company for the month ending 30 June 2016.
∙ Balance as per the bank statement is $11,700.
∙ Balance as per books is $10,400.
∙ Cheque #506 for $1300 and cheque #510 for $800 were not shown on the 30 June bank statement.
∙ A deposit in transit of $3000 had not been received by the bank when the bank statement was generated.
∙ A bank debit memo indicated a dishonoured cheque for $70 written by Jane Smith to Jade Company on 13 June.
∙ A bank credit memo indicated bank collections of $2200 and interest revenue of $52 on 20 June.
∙ The bank statement indicated service charges of $20.
What is the adjusted book balance?

A) $8352
B) $8300
C) $12,562
D) $12,582

Question 76

A company's cash ledger shows an ending balance of $4600.Reconciling items included a bookkeeper error of $80 (a $550 cheque recorded as $630),two outstanding cheques totalling $810,a service charge of $20,a deposit in transit of $260 and interest revenue of $31.What is the adjusted book balance?

A) $4691
B) $4509
C) $5150
D) $4050

Question 77

The following information is available for Jack's Unlimited Company for the current month.
$$\begin{array} { | l | l | } \hline \text { Book balance end of the month } & \$ 7100 \\\hline \text { Outstanding cheques } & 700 \\\hline \text { Deposits in transit } & 4000 \\\hline \text { Service charges } & 95 \\\hline \text { Interest revenue } & 35 \\\hline\end{array}$$
What is the adjusted book balance on the bank reconciliation?

A) $10,270
B) $7040
C) $7740
D) $6970

Question 78

On a bank reconciliation,deposits in transit are subtracted on the book side of the reconciliation.

Question 79

In a bank reconciliation,a book error will be shown on the bank side of the reconciliation.

Question 80

In a bank reconciliation,a deposit in transit will be shown on the bank side of the reconciliation.