Deck 4: Internal Control and Cash

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

Collections of accounts receivable are considered to be cash equivalents.

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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 16

Petty Cash is NOT considered to be a cash equivalent.

Question 17

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

Question 18

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

Question 19

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 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

____________________ 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 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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 30

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

Question 31

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

Question 32

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 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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 38

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 39

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

Question 40

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

Question 41

Which of the following is not considered to be a Cash Equivalent?

A)Corporate commercial paper due in 60 days after purchase
B)U.S.Treasury bills with an original maturity of six months
C)A money market account with a stock brokerage firm
D)A certificate of deposit with a term of 75 days when acquired

Question 42

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 43

Each of the following items is considered a cash equivalent except:

A)a 30-day certificate of deposit
B)60-day corporate commercial paper
C)a 75-day U.S.Treasury bill
D)a 180-day note issued by a local government

Question 44

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 45

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 46

Checks presented for payment and paid by the bank are known as

A)Certified checks
B)NSF checks
C)Outstanding checks
D)canceled checks

Question 47

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

Question 48

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

Question 49

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 50

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

Question 51

Cash collected and recorded by a company but not yet reflected in a bank statement are known as

A)Debit memos
B)Credit memos
C)Outstanding checks
D)Deposits in transit

Question 52

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

Question 53

How are cash equivalents reported or disclosed in the financial statements?

A)They are included with cash as a current asset on the balance sheet.
B)They are only reported on the statement of cash flows.
C)They are only disclosed in the notes to the financial statements.
D)They are included with short-term investments as a current asset on the balance sheet.

Question 54

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 55

Which of the following is not included in Cash and Cash Equivalents on a company's balance sheet?

A)A savings account at the bank
B)A checking account at the bank
C)A bank certificate of deposit for one year
D)Petty cash

Question 56

Effective cash management and control for a company's operating cycle includes all of the following except:

A)the use of a petty cash fund
B)the preparation of monthly bank reconciliations
C)the practice of using surplus cash for the purchase of bonds or other long-term investments
D)the practice of keeping inventory levels low

Question 57

Which of the assets listed below is considered the most liquid?

A)Accounts receivable
B)Cash
C)Inventory
D)Prepaid insurance

Question 58

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

Question 59

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 60

Which one of the following would never be considered a cash equivalent?

A)U.S.Treasury bills
B)Corporate commercial paper
C)Money market funds
D)Common stock issued by a corporation

Question 61

Which of the following items would be added to the company's cash balance on a bank reconciliation?

A)Outstanding checks
B)Deposits in transit
C)Bank service charges
D)Interest earned on the bank account

Question 62

Dance Town Academy The items listed below were identified while preparing a bank reconciliation for the company's checking account as of March 31,2013.
$\begin{array}{ll}\text { Cash balance according to the general ledger } & ? \\\text { Bank statement balance } & \$ 18,500 \\\text { Outstanding checks } & 2,700 \\\text { Customer's bounced check } & 350 \\\text { Bank service charges } & 100 \\\text { Deposits in transit } & 1,000 \\\text { Interest earned on the checking account } & 60\end{array}$

-Refer to Dance Town Academy.Determine the amount of the company's adjusted cash balance.

A)$16,800
B)$20,200
C)$ 1,700
D)Cannot be determined

Question 63

Which of the following procedures is not part of the preparation of a bank reconciliation for a checking account?

A)Comparing deposits listed on the bank statement to the cash account to identify deposits in transit
B)Comparing canceled checks returned with the bank statement to the cash account to identify outstanding checks
C)Looking for bank services charges and other items on the bank statement that have not yet been included in the cash account.
D)Reversing all the transactions recorded on the company's records that do not yet appear on the bank statement.

Question 64

Which of the following items would not be a reconciling item on a bank reconciliation?

A)canceled checks
B)NSF checks
C)Outstanding checks
D)Bounced checks

Question 65

Dance Town Academy The items listed below were identified while preparing a bank reconciliation for the company's checking account as of March 31,2013.
$\begin{array}{ll}\text { Cash balance according to the general ledger } & ? \\\text { Bank statement balance } & \$ 18,500 \\\text { Outstanding checks } & 2,700 \\\text { Customer's bounced check } & 350 \\\text { Bank service charges } & 100 \\\text { Deposits in transit } & 1,000 \\\text { Interest earned on the checking account } & 60\end{array}$

-Refer to Dance Town Academy.How will the deposits in transit be handled on a bank reconciliation?

A)add to the balance from the company records
B)subtract from the balance from the company records
C)add to the bank statement balance
D)subtract from the bank statement balance

Question 66

While preparing the February 28th bank reconciliation,the accountant identified the following items: In the process of preparing the reconciliation,the accountant discovered an error in recording a customer's check;the amount was incorrectly recorded on the books as a cash receipt of $600,while the bank correctly recorded the amount as $650.What is the company's adjusted cash balance on February 28th?

A)$22,250
B)$21,700
C)$22,200
D)$22,150

Question 67

Which of the following statements best describes the term "outstanding check" from a company's point of view?

A)A check written by the company and presented to the bank for payment.
B)A check written by the company but not yet presented to the bank for payment.
C)A check written by a customer to the company,and the check has been presented to the bank for payment.
D)A check written by a customer to the company,but it has not yet been presented to the bank for payment.

Question 68

While preparing a bank reconciliation,which of the following items would be subtracted from the balance per the company records?

A)Outstanding checks
B)Deposits in transit
C)Bank service charges
D)Interest earned on the bank account

Question 69

Dance Town Academy The items listed below were identified while preparing a bank reconciliation for the company's checking account as of March 31,2013.
$\begin{array}{ll}\text { Cash balance according to the general ledger } & ? \\\text { Bank statement balance } & \$ 18,500 \\\text { Outstanding checks } & 2,700 \\\text { Customer's bounced check } & 350 \\\text { Bank service charges } & 100 \\\text { Deposits in transit } & 1,000 \\\text { Interest earned on the checking account } & 60\end{array}$

-Refer to Dance Town Academy.How will the customer's bounced checks be handled on a bank reconciliation?

A)add to the balance from the company records
B)subtract from the balance from the company records
C)add to the bank statement balance
D)subtract from the bank statement balance

Question 70

While preparing a bank reconciliation,which of the following items would be added to the bank statement balance?

A)Outstanding checks
B)Deposits in transit
C)Bank service charges
D)Interest earned on the bank account

Question 71

Which one of the following statements is true?

A)Sound internal control practice dictates that disbursements should be made by check.
B)Good cash management practice dictates that large cash balances should be maintained.
C)The person handling cash should also prepare the bank reconciliation.
D)Petty cash can be substituted for a checking account to expedite the payment of all disbursements.

Question 72

Dance Town Academy The items listed below were identified while preparing a bank reconciliation for the company's checking account as of March 31,2013.
$\begin{array}{ll}\text { Cash balance according to the general ledger } & ? \\\text { Bank statement balance } & \$ 18,500 \\\text { Outstanding checks } & 2,700 \\\text { Customer's bounced check } & 350 \\\text { Bank service charges } & 100 \\\text { Deposits in transit } & 1,000 \\\text { Interest earned on the checking account } & 60\end{array}$

-Refer to Dance Town Academy.How will the interest earned on the checking account be handled on a bank reconciliation?

A)add to the balance from the company records
B)subtract from the balance from the company records
C)add to the bank statement balance
D)subtract from the bank statement balance

Question 73

A check returned by a bank because the issuer's cash account balance could not cover the check is called a(n)

A)Outstanding check.
B)canceled check
C)Certified check
D)NSF check

Question 74

Dance Town Academy The items listed below were identified while preparing a bank reconciliation for the company's checking account as of March 31,2013.
$\begin{array}{ll}\text { Cash balance according to the general ledger } & ? \\\text { Bank statement balance } & \$ 18,500 \\\text { Outstanding checks } & 2,700 \\\text { Customer's bounced check } & 350 \\\text { Bank service charges } & 100 \\\text { Deposits in transit } & 1,000 \\\text { Interest earned on the checking account } & 60\end{array}$

-Refer to Dance Town Academy.Determine the company's cash balance before adjustment.

A)$16,410
B)$16,900
C)$17,190
D)$17,310

Question 75

Dance Town Academy The items listed below were identified while preparing a bank reconciliation for the company's checking account as of March 31,2013.
$\begin{array}{ll}\text { Cash balance according to the general ledger } & ? \\\text { Bank statement balance } & \$ 18,500 \\\text { Outstanding checks } & 2,700 \\\text { Customer's bounced check } & 350 \\\text { Bank service charges } & 100 \\\text { Deposits in transit } & 1,000 \\\text { Interest earned on the checking account } & 60\end{array}$

-Refer to Dance Town Academy.How will the outstanding checks be handled on a bank reconciliation?

A)add to the balance from the company records
B)subtract from the balance from the company records
C)add to the bank statement balance
D)subtract from the bank statement balance

Question 76

Each of the following represents an effective cash management practice except:

A)Short-term investments should be purchased with excess cash in order to maximize the interest-earning potential.
B)Payments should be delayed as long as possible (without compromising the relationship with the payee)in order to maximize the interest-earning potential.
C)Payments should be expedited in order to simplify record keeping.
D)Receivable collections should be expedited or receivables should be sold in order to minimize the costs associated with accounting for customer accounts and servicing delinquent accounts.

Question 77

While preparing a bank reconciliation,which of the following items would be subtracted from the balance per the bank statement?

A)Outstanding checks
B)Deposits in transit
C)Bank service charges
D)Interest earned on the bank account

Question 78

Dance Town Academy The items listed below were identified while preparing a bank reconciliation for the company's checking account as of March 31,2013.
$\begin{array}{ll}\text { Cash balance according to the general ledger } & ? \\\text { Bank statement balance } & \$ 18,500 \\\text { Outstanding checks } & 2,700 \\\text { Customer's bounced check } & 350 \\\text { Bank service charges } & 100 \\\text { Deposits in transit } & 1,000 \\\text { Interest earned on the checking account } & 60\end{array}$

-Refer to Dance Town Academy.How will the bank services charges be handled on a bank reconciliation?

A)add to the balance from the company records
B)subtract from the balance from the company records
C)add to the bank statement balance
D)subtract from the bank statement balance

Question 79

Which of the following would not appear on a bank statement for a checking account?

A)Service charges
B)Outstanding checks
C)Credit memos
D)Interest earned

Question 80

While preparing the April 30th bank reconciliation,the accountant identified the following items: What is the company's adjusted cash balance at April 30th?

A)$12,385
B)$12,500
C)$14,885
D)$17,385