Deck 7: Cash and Internal Control

Question 1

Using bar codes to take a physical inventory is considered poor accounting practice.

Answer 1

False

Question 2

A system of internal control cannot be considered good until the possibility of human error has been completely eliminated.

Answer 2

False

Question 3

Taking a physical inventory is not necessary under a perpetual inventory system.

Answer 3

False

Question 4

Management's regular assessment of its internal controls is part of monitoring.

Question 5

Merchandisers usually take a physical inventory when the volume of goods is at its lowest levels.

Question 6

Separation of duties relates to a control activity in the accounting system.

Question 7

Good internal control dictates that one employee should oversee all related parts of a transaction.

Question 8

Proper control procedures can guarantee the prevention of theft.

Question 9

Under the perpetual inventory system,inventory losses can be identified more easily than under the periodic inventory system.

Question 10

An understated ending inventory will produce an overstated cost of goods sold.

Question 11

Internal control involves,in part,the protection of a company's assets.

Question 12

Bonding provides a guarantee against theft.

Question 13

The periodic inventory system provides no means of identifying losses from spoilage,shoplifting,and theft.

Question 14

In a small business,active involvement by the owner can be a practical substitute for the separation of some duties.

Question 15

Damaged goods that can be sold at a reduced price should be included in a company's merchandise inventory.

Question 16

Cash and inventory are very vulnerable to theft.

Question 17

An effective system of internal control requires that individuals take periodic vacations.

Question 18

It is unlikely that a company would want to bond its employees who handle cash or inventory.

Question 19

Bonding means insuring a company against loss due to employee theft.

Question 20

Merchandisers usually end their fiscal year during the peak season.

Question 21

A formal request for a purchase from a requesting department of a business is known as a purchase order.

Question 22

A purchase requisition is a document sent by a company to a vendor.

Question 23

The use of prenumbered documents is important to a good system of internal control.

Question 24

Sound internal control activities dictate that extra cash should always be on hand.

Question 25

It is best that the receiving department not be given a copy of the purchase order or the invoice.

Question 26

The purchasing department prepares a purchase requisition addressed to the vendor (seller)containing instructions related to the items ordered.

Question 27

The degree of separation of duties varies with the size of the business.

Question 28

The treasurer should prepare and sign a check only after a proper check authorization has been provided.

Question 29

A check authorization would be prepared after a receiving report.

Question 30

A purchase requisition is prepared after a purchase order.

Question 31

Effective internal control requires a department to purchase supplies on its own.

Question 32

In addition to keeping the records of a purchase transaction,the accounting department should prepare and mail checks in payment of invoices.

Question 33

A remittance advice accompanies a check sent to a vendor or the vendor's bank.

Question 34

A check authorization is a document that permits the issuance of a check to pay an invoice.

Question 35

Under an effective system of internal control,errors occur only as a result of fraud or dishonesty.

Question 36

Invoices are documents prepared by a vendor and sent to the accounting department of its customers.

Question 37

The use of a cash register is an example of a physical control.

Question 38

At the end of each day,the cashier should be the one responsible for comparing the amount on the cash register tape with the day's cash additions to the cash register.

Question 39

The receiving department must compare goods received with goods purchased,as indicated on the purchase order.

Question 40

Cash received through the mail should be handled by only one employee to achieve effective internal control.

Question 41

On a bank reconciliation,interest income would be added to the balance per bank.

Question 42

It is usually a good business practice to maintain as large a balance in the Cash account as possible.

Question 43

The petty cash voucher should be kept by the person being reimbursed.

Question 44

Cash equivalents are usually listed as short-term investments on the balance sheet.

Question 45

The taking of a physical inventory is an example of periodic independent verification.

Question 46

The use of electronic funds transfers makes check writing unnecessary.

Question 47

When the balance of a petty cash fund is increased,the entry would contain a credit to Petty Cash.

Question 48

One example of a periodic independent verification is the bank reconciliation.

Question 49

The amount in the petty cash fund plus the sum of the petty cash vouchers should at all times equal the amount shown in the Petty Cash account.

Question 50

In the financial statements,the balance of the Petty Cash account and the balance of the Cash account are shown separately.

Question 51

One of the best ways to control a petty cash fund is through an imprest system.

Question 52

Management is responsible for establishing a satisfactory system of internal control.

Question 53

An effective system of internal control centralizes functions in a single,capable individual.

Question 54

Merchandising companies do not need as good a system of internal control as service companies.

Question 55

When a petty cash fund is replenished,the entry requires a debit to Petty Cash.

Question 56

Cash equivalents are defined as investments that carry terms of 90 days or less.

Question 57

A petty cash fund is established for small payments for which writing a check would be impractical.

Question 58

When an individual uses a debit card to make a purchase,the amount of the purchase is deducted directly from the individual's bank account.

Question 59

The materiality concept dictates that no internal controls be established over petty cash.

Question 60

When a petty cash fund is established,the entry contains a credit to Cash.

Question 61

To assure an efficient system of internal control,management should authorize all transactions.

Question 62

A good system of internal control is designed to achieve all of the following except

A)efficiency of operations.
B)reliability of financial reporting.
C)compliance with relevant laws and regulations.
D)attainment of target sales.

Question 63

A physical inventory is usually taken

A)in the middle of the fiscal year.
B)at the peak of the busy season.
C)at the end of the fiscal year.
D)at December 31.

Question 64

The financial statements of nonpublic companies are not required to be audited by an independent CPA.

Question 65

A result of a separation of duties is that

A)operations become extremely inefficient because of constant training of employees.
B)more employees will need to be bonded.
C)theft by employees becomes impossible.
D)theft is possible only if several employees scheme together.

Question 66

Which of the following would not be found in a good system of internal control?

A)Requiring all employees to take earned vacations
B)Establishing a system of checks and balances
C)Having one person handle all the responsibilities of a department
D)Establishing an internal audit staff

Question 67

Cash Short or Over would be debited for a shortage.

Question 68

The Sarbanes-Oxley Act has not stopped the occurrence of fraud,and additional guidance with regard to internal controls is expected to be issued.

Question 69

All of the following are examples of internal control activities except

A)adequate supervision.
B)rotation of key personnel.
C)customer satisfaction surveys.
D)insistence that employees take earned vacations.

Question 70

Internal control is weakened by all of the following except

A)collusion.
B)separation of duties.
C)human error.
D)effects of changing conditions.

Question 71

Public companies must have their financial statements audited,but are not required to have their internal control systems audited.

Question 72

Each of the following is a feature of internal control except

A)management planning.
B)periodic independent verification.
C)limited access to assets.
D)authorization of transactions.

Question 73

Which of the following is not a goal of a system of internal control over merchandising transactions?

A)Keep credit losses as low as possible.
B)Prevent the theft of cash and inventory.
C)Keep the maximum amount of inventory on hand at all times.
D)Keep enough cash on hand to take advantage of purchase discounts.

Question 74

The Sarbanes-Oxley Act of 2002 does not require any certification from a public company's chief executive officer about the company's system of internal control.

Question 75

A company's merchandise inventory includes all of the following,except

A)goods in possession,but which cannot be sold.
B)goods on shelves.
C)damaged goods that can be sold at a reduced price.
D)goods in storerooms.

Question 76

A company's merchandise inventory includes all of the following,except

A)goods in warehouses.
B)goods sold,but not yet delivered.
C)goods in transit from suppliers,if title has passed to the merchandiser.
D)goods in trucks between the warehouse and the store.

Question 77

Under the perpetual inventory system,the entry to recognize inventory losses usually contains a

A)debit to Cost of Goods Sold.
B)debit to Merchandise Inventory.
C)credit to Gross Margin.
D)credit to Cash.

Question 78

Annual reports of public companies will include statements from both management and independent auditors regarding the adequacy of internal control.

Question 79

Which of the following attributes of internal control would be violated if the purchasing department wrote checks to pay accounts payable?

A)Adequate design of documents
B)Sound personnel procedures
C)Periodic independent verification
D)Separation of duties

Question 80

The bonding of employees is an example of which feature of a good system of internal control?

A)Authorization of transactions
B)Sound personnel policies
C)Separation of duties
D)Limited access to assets