Deck 6: Internal Control and Accounting for Cash

Question 1

Chester Company has established internal control policies and procedures in order to achieve the following objectives:
1) Effective evaluation of management performance.
2) Assure that the accounting records contain reliable information.
3) Safeguard the company's assets.

Which of these objectives are achieved by accounting controls?

A)Objectives 1 and 2
B)Objectives 2 and 3
C)Objectives 3 and 4
D)All four objectives

Answer 1

Objectives 2 and 3

Question 2

A review of the bank statement and accounting records of Blake Company revealed the following items:


-Which of the item(s)would be subtracted from the company's unadjusted book balance to determine the true cash balance?

A)Item numbers 2 and 4
B)Item numbers 2,4,and 5
C)Item numbers 1 and 4
D)Item numbers 1,2,4,and 5

Answer 2

Item numbers 2 and 4

Question 3

A review of the bank statement and accounting records of Blake Company revealed the following items:


-Which of the item(s)would be added to the unadjusted bank balance to determine the true cash balance?

A)Item numbers 3 and 3
B)Item number 2
C)Item numbers 3,4,and 6
D)Item number 3

Answer 3

Item number 3

Question 4

Which of the following is not a typical document associated with a bank checking account?

A)Signature card
B)Bank statement
C)Cash register tape
D)Deposit ticket

Question 5

Which of the following is an administrative control?

A)Performance evaluation
B)Accuracy of the recording procedures
C)Keeping cash in a safe
D)Maintenance of accurate inventory records

Question 6

Which of the following statements accurately describes a fidelity bond?

A)Procedures to provide reasonable assurance that the objectives of a company are accomplished.
B)Proper procedures for processing transactions.
C)Insurance that the company buys to protect itself from loss due to employee dishonesty.
D)Guidelines or policies that limit the actions of different levels of management.

Question 7

Which of the following is not a common feature of an internal control system?

A)Segregating duties
B)Performance evaluation
C)Bonding employees
D)Implementing the most effective marketing plan

Question 8

Which internal control procedure is a deterrent to corruption?

A)Segregation of duties
B)Physical controls
C)Fidelity bonding
D)Use of prenumbered documents

Question 9

Which of the following is not one of the nine features of an internal control system?

A)Establishment of clear lines of authority
B)Having employees covered by a fidelity bond
C)Requiring regular vacations for certain employees
D)Customer service comment cards

Question 10

Which of the following is not a motive for the embezzlement of cash by employees?

A)Cash is the common unit of measurement
B)Ownership of cash is difficult to prove
C)Cash has universal appeal
D)Small quantities of high-denomination currency can represent significant value

Question 11

The accountant for Ye Olde Bookstore balanced out the cash register for the day.The company began the day with $125 and ended the day with $1,150.25 in the cash drawer.That day's cash register tape shows $1,031.50 in cash sales.What is the effect on the financial statements of the entry to record the day's sales and any related overage or shortage?

A)Option A
B)Option B
C)Option C
D)Option D

Question 12

Which of the following is not an example of a common control activity?

A)Required absences
B)Collusion
C)Procedures manual
D)Use of prenumbered documents

Question 13

The April 30 bank statement for Trimble Corporation shows an ending balance of $34,351.The unadjusted cash account balance was $28,250.The accountant for Trimble gathered the following information:
There was a deposit in transit for $4,240.
The bank statement reports a service charge of $39.
A credit memo included in the bank statement shows interest earned of $95.
Outstanding checks totaled $10,935.
The bank statement included a $650 NSF check deposited in April.
What is the true cash balance as of April 30?

A)$27,656
B)$27,006
C)$31,801
D)$31,896

Question 14

Which of the following internal control procedures should be implemented to control cash?

A)Disbursements by prenumbered checks
B)Depositing cash receipts in the bank on a timely basis
C)Providing copies of written receipts to customers
D)All of these answer choices are correct

Question 15

Which of the following is not a common internal control procedure that would be implemented with regards to cash receipts?

A)Preparing a record of all cash collections immediately upon receipt
B)Providing copies of written receipts to customers
C)Depositing cash receipts in a bank on a timely basis
D)Marking supporting documents Paid when checks are signed

Question 16

A review of the bank statement and accounting records of Blake Company revealed the following items:


-Which of the following describes an activity that increases a company's bank account balance?

A)Credit memo
B)Debit memo
C)Balance sheet
D)Certified check

Question 17

Which of the following adjustments reflected on a bank reconciliation would not require an adjusting journal entry?

A)An error in which the company's accountant recorded a check as $235 that was written correctly for $253.
B)A check for $37 deposited during the month,but returned for non-sufficient funds.
C)An error in which the bank charged the company $83 for a check that had been written by another account holder.
D)All of these answer choices would require adjusting journal entries.

Question 18

Which of the following statements concerning internal controls is true?

A)Internal administrative controls are designed to limit the amount of funds spent on investments.
B)Strong internal controls provide reasonable assurance that the objectives of a company will be accomplished.
C)Internal accounting controls are limited to the policies and procedures used to protect the company from embezzlement.
D)The control procedure,segregation of duties,prohibits the employment of a husband and wife or other closely related parties within the same company.

Question 19

At March 31,Cummins Co.had an unadjusted balance in its cash account of $10,400.At the end of March,the company determined that it had outstanding checks of $900,deposits in transit of $600,a bank service charge of $20,and an NSF check from a customer for $200.What is the true cash balance at March 31?

A)$10,100
B)$10,180
C)$10,380
D)$9,880

Question 20

Which of the following is an internal control procedure used to safeguard a company's assets?

A)Depositing cash receipts in a bank on a timely basis
B)Segregation of duties
C)Preparing a bank reconciliation
D)All of these answer choices are correct

Question 21

Which of the following is not a common internal control procedure over cash payments?

A)A receipt should be provided to each cash customer
B)Checks should be properly authorized with approval signatures
C)All checks should be prenumbered
D)Voided checks should be defaced and retained

Question 22

While performing the monthly bank reconciliation,the bookkeeper for Avon Company made the journal entry for a bank service charge of $20.Which of the following correctly shows the effect of the entry on the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 23

Jasper Company accepted a check from Harp Company as payment for services rendered.Jasper's bank statement revealed that the Harp check was an NSF check.What effect will the entry to record the NSF check have on the accounting equation of Jasper Company?

A)option A
B)option B
C)option C
D)option D

Question 24

How is a customer's NSF check reflected on a bank reconciliation?

A)Subtracted from the unadjusted book balance to get the true cash balance
B)Added to the unadjusted bank balance to get the true cash balance
C)Subtracted from the unadjusted bank balance to get the true cash balance
D)Added to the unadjusted book balance to get the true cash balance

Question 25

Owen Company's unadjusted book balance at June 30 is $9,700.The company's bank statement reveals bank service charges of $45.Two credit memos are included in the bank statement: one for $900,which represents a collection that the bank made for Owen,and one for $50,which represents the amount of interest that Owen had earned on its interest-bearing account in June.What is the true cash balance?

A)$9,700
B)$10,695
C)$10,550
D)$10,605

Question 26

In preparing the April bank reconciliation for Oscar Company,it was discovered that on April 10 a check was written to pay delivery expense of $45 but the check was erroneously recorded as $54 in the company's books.Which of the following journal entries would correct this error?

A)
B)
C)
D)

Question 27

How will a certified check be shown on a company's bank reconciliation?

A)As a deduction to the company's unadjusted book balance.
B)As an increase to the bank's unadjusted bank balance.
C)As a deduction to the bank's unadjusted bank balance.
D)There is no adjustment when preparing the bank reconciliation.

Question 28

Rainey Company's true cash balance at October 31 is $5,710.The following information is available for the bank reconciliation:
Outstanding checks,$600
Deposits in transit,$450
Bank service charges,$90
The bank had collected an account receivable for Rainey Company,$1,000
The bank statement included an NSF check written by one of Ramsey's customers for $600.
What was the unadjusted book balance at October 31?

A)$5,870
B)$5,400
C)$6,400
D)$5,490

Question 29

Following the February bank reconciliation,the accountant made the following entry in the journal of Kincaid Company:

Which of the following is a possible explanation for this journal entry?

A)The bank statement included a debit memo advising of a customer's NSF check that was returned
B)The collection of an account receivable by Kincaid that is part of a deposit in transit
C)Bank charges owed by Kincaid to the bank.
D)The collection of an account receivable by the bank that has been deposited in Kincaid's account.

Question 30

Which of the following describes an activity that reduces a company's bank account balance?

A)A debit entry
B)A debit memo
C)A credit memo
D)A reconciling entry

Question 31

[The following information applies to the questions displayed below.]

The bank statement for Tetra Company contained the following items: a bank service charge of $10; a credit memo for interest earned, $15; and a $50 NSF check from a customer. The company had outstanding checks of $100 and a deposit in transit of $300.


-Assuming that the unadjusted bank balance was $500,what is the unadjusted book balance?

A)$745
B)$455
C)$700
D)$800

Question 32

Duke Company's unadjusted bank balance at March 31 is $2,300.The bank reconciliation revealed outstanding checks amounting to $500 and deposits in transit of $400.What is the true cash balance?

A)$2,200
B)$2,000
C)$2,700
D)$2,400

Question 33

What is an outstanding check?

A)A check that has been issued by the company but has not been presented to the bank for payment.
B)A check that is guaranteed for payment by the bank.
C)A check that has been presented to the bank for payment but has not been reported on the bank statement.
D)A check that was written for an amount that is greater than the balance in the account holder's bank account.

Question 34

While performing its monthly bank reconciliation,the bookkeeper for Mosaic Company discovered that a check written for $421 for advertising expense was recorded in the firm's books as $241.Which of the following shows the effect of the correcting entry on the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 35

Which of the following will be caused by the entry to record the customer's NSF check?

A)Accounts receivable increases.
B)Cash decreases.
C)Stockholders' equity decreases.
D)Accounts receivable increases and cash decreases.

Question 36

Keatts Company's bank statement included an NSF check written by one of its customers.What effect will the entry to recognize the NSF check have on the company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 37

While preparing its bank reconciliation,Maynard Company determined that its bank had collected a $650 account receivable for the company and deducted a $25 collection fee.Which of the following shows the effect of this transaction on the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 38

On September 30 the bank statement of Fine Company showed a balance of $7,800.The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records:
Deposits in transit amounted to $3,150
Outstanding checks amounted to $6,200
A $550 check was incorrectly drawn on Fine's account
NSF checks returned by the bank were $750
The bank service charge was $29
Credit memo for $75 for the collection of one of the company's account receivable
What is the true cash balance?

A)$5,346
B)$5,300
C)$4,596
D)$7,096

Question 39

While performing its monthly bank reconciliation,the bookkeeper for Grace Corporation noted that a deposit of $990 (received from a customer on account)was recorded in the company books as $900.Which of the following shows the effect of the correcting entry on the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 40

In the reconciliation of the June bank statement,a deposit made on June 30 did not appear on the June bank statement.How is this deposit in transit shown on the bank reconciliation?

A)Subtracted from the unadjusted book balance.
B)Added to the unadjusted book balance.
C)Subtracted from the unadjusted bank balance.
D)Added to the unadjusted bank balance.

Question 41

Which of the following procedures are typically used when a petty cash fund is established?

A)Assigning a petty cash custodian.
B)Use of petty cash vouchers.
C)Physical control over the petty cash fund.
D)All of these procedures are used when a petty cash fund is established.

Question 42

Which of the following is not a primary role of an independent auditor?

A)Assume legal and professional responsibilities to the public.
B)Advise client on tax strategies.
C)Determine whether a company's financial statements are materially correct.
D)All of these answer choices are correct.

Question 43

Internal controls designed to evaluate performance and the degree of compliance with company policies and public laws are classified as administrative controls.

Question 44

Peterson Company's petty cash fund was established on January 1 with $500.On January 31,a count of the fund revealed: $105 in cash remaining and vouchers for miscellaneous expenses totaling $400.If the entries to record the disbursements and to replenish the fund are combined,what effect will the resulting entry have on the elements of the' financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 45

Requiring segregation of duties in a business eliminates the need for the work of one employee to serve as a check on the work of other employees.

Question 46

Assuming the entries used to record the disbursements and to replenish the fund are combined,which of the following is included in the entry to replenish a petty cash fund?

A)A credit to Cash
B)A credit to Petty Cash
C)Credits to expenses
D)A debit to Cash

Question 47

Even a good system of internal controls can be circumvented by collusion among employees.

Question 48

The owner of Barnes Company established a petty cash fund amounting to $400.What is the effect on the financial statements of the entry to record this transaction?

A)Option A
B)Option B
C)Option C
D)Option D

Question 49

Which of the following statements regarding the Securities and Exchange Commission (SEC)is not true?

A)SEC rules frequently require disclosures in addition to those required by GAAP.
B)The SEC has the authority to establish and enforce accounting rules for public companies.
C)The SEC is a private professional organization.
D)Public companies must register with the SEC.

Question 50

Segregation of duties in an organization should be required to reduce the likelihood of theft.

Question 51

Which of the following statements about the materiality concept is not true?

A)Materiality is different for each company.
B)A material error would change the opinion of the average prudent investor.
C)Any error greater than $5,000 is considered material in a financial statement audit.
D)Material misstatements should not exist in order for a company to receive an unqualified audit opinion.

Question 52

If the financial statements cannot be relied upon because they contain one or more material departures from GAAP,what type of opinion will the auditor issue?

A)Qualified opinion
B)Disclaimer of opinion
C)Adverse opinion
D)Unqualified opinion

Question 53

A well-designed system of internal controls will eliminate all fraud.

Question 54

Gross Company established a $250 petty cash fund on January 1.On March 1,the fund contained $160 in receipts for miscellaneous expenses and $85 in cash.If the entries to record the disbursements and to replenish the fund are combined,what effect will the resulting entry have on the elements of the financial statements?

A)No effect on total assets
B)Decrease stockholder's equity by $160
C)Increase stockholder's equity by $165
D)Decrease total assets by $165

Question 55

Which of the following statements is true with regards to financial statement audits?

A)The auditors guarantee that the financial statements are accurate and correct.
B)Financial audits are directed toward the discovery of fraud.
C)Auditors provide reasonable assurance that statements are free from material misstatements,whether caused by errors or fraud.
D)Auditors will not disclose information that they have acquired as a result of their accountant-client relationship.

Question 56

What account is used to record the amount of cash shortages or overages relative to a petty cash system?

A)Petty Cash Payable
B)Gain or Loss on Petty Cash
C)Petty Cash Expense
D)Cash Short and Over

Question 57

Which of the following entries would be required to establish a $500 petty cash fund?

A)
B)
C)
D)

Question 58

On April 30,Midwest Company established a petty cash fund of $1,000.On May 1,a disbursement of $355 was made from the fund for payment of delivery expense.What entry should be made on May 1 to record this disbursement?

A)Debit delivery expense and credit cash for $355.
B)Debit petty cash and credit cash for $355.
C)Debit delivery expense and credit petty cash for $355.
D)No entry is necessary on May 1.

Question 59

What is the most favorable audit opinion that a company can receive on its financial statements?

A)Adverse opinion
B)Unqualified opinion
C)Disclaimer of opinion
D)Qualified opinion

Question 60

Blake Company established a petty cash fund in the amount of $400.At the end of the accounting period,the petty cash box contained receipts for expenditures amounting to $180 and $215 in cash.If the entries to record the disbursements and to replenish the fund are combined,what effect will the entries to replenish the fund have on total assets and expenses?

A)Option A
B)Option B
C)Option C
D)Option D

Question 61

The true cash balance can only be determined if both the unadjusted bank balance and the unadjusted book balance are known.

Question 62

After the adjustments identified on the bank reconciliation have been recorded,the ending cash (book)balance reflected in the company's records will equal the true cash balance.

Question 63

A savings account or certificate of deposit that imposes a substantial penalty for early withdrawals should not be classified as Cash on the balance sheet.

Question 64

To ensure proper segregation of duties,after the check is signed,an employee should record the check in the accounting records and review the appropriate supporting documents.

Question 65

A credit balance in the Cash Short and Over account represents a shortage of cash and would be treated as an expense.

Question 66

Typical adjustments to the unadjusted book balance on a bank reconciliation include bank service charges,customer NSF checks,and certified checks.

Question 67

Establishment of a petty cash fund is an asset exchange transaction.

Question 68

An error is considered material if it would trigger an IRS audit.

Question 69

Typical adjustments to the unadjusted bank balance on a bank reconciliation include deposits in transit and outstanding checks.

Question 70

Most audits result in unqualified audit opinions.

Question 71

A bank reconciliation normally begins with the ending cash balance shown on the bank statement and reconciles it to the unadjusted cash account balance on the company's books.

Question 72

All adjustments to the unadjusted book balance on a bank reconciliation require journal entries,but adjustments to the unadjusted bank balance do not require journal entries.

Question 73

A bank statement debit memo describes a transaction that increases a customer's account balance.

Question 74

For a petty cash fund to be most useful to a business,one of the employees of the business should be designated as responsible for the fund.

Question 75

Preparing a bank reconciliation is a control activity.

Question 76

All journal entries made related to bank reconciliations include an expense or revenue account.

Question 77

The purpose of a petty cash fund is to eliminate the need for control over a business's small cash disbursements.

Question 78

For financial reporting purposes,cash generally includes currency and other items that are payable on demand,such as checks,money orders,bank drafts,and certain savings accounts.

Question 79

A business learns about customers' NSF checks through debit memos that are included with the bank statement.

Question 80

At the time petty cash funds are disbursed,a journal entry should be made,debiting the appropriate asset or expense account.