Deck 5: Sarbanes-Oxley, Internal Control, and Cash

Question 1

Employee fraud is the intentional act of deceiving an employer for personal gain.

Answer 1

True

Question 2

Money orders are considered cash.

Answer 2

True

Question 3

A voucher system is an example of an internal control procedure over cash receipts.

Answer 3

False

Question 4

The Sarbanes-Oxley Act of 2002 requires companies to maintain strong and effective internal controls over recording transactions and preparing financial statements.

Question 5

A customer's check received in settlement of an account receivable is considered cash.

Question 6

A voucher is a written authorization to make a cash payment.

Question 7

If a business has several bank accounts, it will have a separate record for each of them.

Question 8

A voucher system is an example of an internal control procedure over cash payments.

Question 9

Adding a review of operations by an internal audit staff strengthens internal control.

Question 10

Information and communication are essential elements of an organization's internal control.

Question 11

For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees.

Question 12

The internal control environment is enhanced by the hiring and retention of competent, honest employees.

Question 13

The Sarbanes-Oxley Act of 2002 applies to all publicly held companies.

Question 14

A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice being paid.

Question 15

A voucher is a form where pertinent data about a liability and the particulars of its payment are recorded.

Question 16

In a computerized system, paid vouchers are transferred to a paid voucher file.

Question 17

There are only two internal control objectives: to ensure accurate financial reports, and to ensure compliance with applicable laws.

Question 18

All organizations face risks, and the assessment of these risks is necessary so that the objectives of internal control can be achieved.

Question 19

Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the control procedure: separating operations, custody of assets, and accounting.

Question 20

The Sarbanes-Oxley Act requires companies and their independent accountants to report on the effectiveness of the company's internal controls.

Question 21

Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash.

Question 22

The depositor reconciles the bank's statement to the depositor's records.

Question 23

All bank memorandums reported on the bank reconciliation require entries in the depositor's accounts.

Question 24

The data needed to adjust a depositor's books are shown in the "adjustments to the depositor's records" section of a bank reconciliation.

Question 25

For efficiency of operations and better control over cash, a company should maintain only one bank account.

Question 26

Bank customers are considered owners of the bank, so the bank shows their accounts as an asset on the bank's records.

Question 27

Outstanding checks are checks that have been issued but have not cleared by the bank.

Question 28

The amount of the "adjusted balance" appearing on a bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date after all adjusting entries have been entered.

Question 29

In preparing a bank reconciliation, the amount of deposits in transit is deducted from the cash balance per books.

Question 30

In preparing a bank reconciliation, the amount of deposits in transit is deducted from the cash balance per bank.

Question 31

A bank reconciliation is an important part of the system of internal controls.

Question 32

A voucher is the notification accompanying the check issued to a creditor that indicates the specific invoice being paid.

Question 33

In preparing a bank reconciliation, the amount of a canceled check omitted from the depositor's records is deducted from the cash balance per books.

Question 34

In preparing a bank reconciliation, the amount of outstanding checks is added to the cash balance per books.

Question 35

A credit memorandum received with a bank statement means the company's bank account has been increased.

Question 36

Internal control is enhanced by combining the control of a transaction with the record-keeping function.

Question 37

The bank reconciles its statement to the depositor's records.

Question 38

The bank informs the depositor of bank service charges by including a debit memorandum with the monthly bank statement.

Question 39

A check for $456 was erroneously charged by the bank as $654. In order for the bank reconciliation to balance, you must subtract $198 from the bank statement balance.

Question 40

In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is added to the cash balance per books.

Question 41

A business's organizational structure influences which of the following elements of internal control?

A) Control procedures
B) Risk assessment
C) Control environment
D) Information and communication

Question 42

In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is deducted from the cash balance per bank.

Question 43

The framework that has become widely accepted as the standard by which companies design, analyze, and evaluate internal controls is the:

A) Internal Control - Integrated Framework by the Committee of Sponsoring Organizations.
B) Internal Control - Integrated Framework by the Congress of Special Offerings.
C) Internal Control Localized Structure by the Committee of Sponsoring Organizations.
D) Internal Control Localized Structure by the Congress of Special Offerings.

Question 44

A firm's internal control environment is influenced by:

A) management's operating style.
B) organizational structure.
C) personnel policies.
D) all of these.

Question 45

Internal control does not consist of policies and procedures that:

A) guarantee the company will not go bankrupt.
B) ensure that laws and regulations are being followed.
C) protect assets from misuse.
D) ensure that business information is accurate.

Question 46

A business that requires all cash payments be made by check cannot use a petty cash system.

Question 47

Minimum cash balance maintained in the bank account is called line of credit.

Question 48

Which of the following reflects a weak internal control system?

A) All employees are well supervised
B) A single employee is responsible for comparing a receiving report to an invoice
C) All employees must take their vacations
D) A single employee is responsible for the collecting and recording of cash

Question 49

The purpose of the Sarbanes-Oxley Act of 2002 is to:

A) restore public confidence and trust in the financial statements of publicly held companies.
B) require all companies to prepare financial statements.
C) protect companies from demands of investors, stockholders, and creditors.
D) do all of these.

Question 50

Risks can be analyzed to:

A) assess their likelihood of occurring.
B) assess their overall significance.
C) determine actions that will minimize them.
D) do all of these.

Question 51

Money market funds, commercial paper, and U.S. Treasury Bills are examples of cash equivalents.

Question 52

Internal controls are important because they:

A) deter fraud and prevent misleading financial statements.
B) eliminate fraud.
C) ensure that the company maintains a compensating balance.
D) guarantee accurate financial statements.

Question 53

Management's philosophy and operating style would affect which of the following elements of internal control?

A) Risk assessment
B) Monitoring
C) Control environment
D) Information and communication

Question 54

In preparing a bank reconciliation, the amount of outstanding checks is deducted from the cash balance per books.

Question 55

In preparing a bank reconciliation, the amount indicated by a credit memorandum for a note receivable collected by the bank is added to the cash balance per books.

Question 56

An element of internal control is:

A) risk assessment.
B) journals.
C) subsidiary ledgers.
D) controlling accounts.

Question 57

The Sarbanes-Oxley Act of 2002 requires companies and their independent accountants to:

A) report on the effectiveness of the company's internal controls.
B) report on any fraud and theft detected in the company.
C) report on the state of the economy and likelihood of fraud.
D) report on the financial activities of the company.

Question 58

A debit memorandum from the bank indicates that the bank has deducted an amount from the depositor's account.

Question 59

One of the objectives of internal control is to:

A) control the internal organization of the accounting department personnel and equipment.
B) provide reasonable assurance that assets are safeguarded.
C) prevent fraud and promote the social interest of the company.
D) provide control over "internal-use only" reports and employee internal conduct.

Question 60

When the petty cash fund is replenished, the petty cash account is adjusted for the total of all expenditures made since the fund was last replenished.

Question 61

On the bank's accounting records, customers' accounts are normally shown as a(n):

A) revenue.
B) liability.
C) asset.
D) expenses.

Question 62

A voucher:

A) is received from customers to explain the purpose of a payment.
B) is normally prepared in the Accounting Department.
C) system is used to control cash receipts.
D) system is an internal control procedure to verify that the assets in the records are the ones the company owns.

Question 63

The bank reconciliation:

A) should be prepared by an employee who records cash transactions.
B) is part of the internal control system.
C) is for information purposes only.
D) is sent to the bank for verification.

Question 64

An element of internal control is:

A) business.
B) management.
C) monitoring.
D) personnel policies.

Question 65

Receipts from cash sales of $5,700 were recorded incorrectly by the depositor as $7,500. The $1,800 difference would be included on the bank reconciliation as a(n):

A) addition to the cash balance per books.
B) addition to the cash balance per bank.
C) deduction from the cash balance per bank.
D) deduction from the cash balance per books.

Question 66

EFT:

A) means Efficient Funds Transfer.
B) can process certain cash transactions at less cost than by using the mail.
C) makes it easier to document purchase and sale transactions.
D) means Effective Funds Transfer.

Question 67

A check drawn by a depositor for $915 in payment of a liability was recorded in the depositor's book as $195. What adjustment is required in the depositor's accounts?

A) Decrease Accounts Payable; decrease Cash
B) Increase Cash; decrease Accounts Receivable
C) Increase Cash; increase Accounts Payable
D) Increase Accounts Receivable; decrease Cash

Question 68

Accompanying the bank statement was a debit memorandum for bank service charges. What adjustment is required in the depositor's accounts?

A) Increase Miscellaneous Expense; decrease Cash
B) Increase Cash; increase Other Income
C) Increase Cash; increase Accounts Payable
D) Decrease Accounts Payable; decrease Cash

Question 69

Which of the following is not considered as cash?

A) Commercial paper
B) Checks
C) Money orders
D) Coins

Question 70

Employing internal auditors is part of which element of internal control?

A) Monitoring
B) Control procedures
C) Risk assessment
D) Control environment

Question 71

A credit memorandum from the bank :

A) decreases a bank customer's account.
B) is used to show a bank service charge.
C) shows that a company has deposited a customer's NSF check.
D) shows the bank has collected a note receivable for the customer.

Question 72

When a firm uses internal auditors, it is adhering to which of the following internal control elements?

A) Risk assessment
B) Control procedures
C) Monitoring
D) Information and communication

Question 73

Which of the following elements of internal control focuses on locating weaknesses and improving control effectiveness?

A) Control environment
B) Risk assessment
C) Control procedures
D) Monitoring

Question 74

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the depositor. This item would be included on the bank reconciliation as a(n):

A) deduction from the cash balance per books.
B) addition to the cash balance per bank.
C) deduction from the cash balance per bank.
D) addition to the cash balance per books.

Question 75

A bank reconciliation should be prepared periodically because:

A) the depositor's records and the bank's records are in agreement.
B) the bank has not recorded all of its transactions.
C) any differences between the depositor's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected.
D) the bank must make sure that its records are correct.

Question 76

An element of internal control is:

A) generally accepted accounting principles.
B) control procedures.
C) special-purpose fund.
D) electronic funds transfer.

Question 77

Receipts from cash sales of $7,500 were recorded incorrectly by the depositor as $5,700. What adjustment is required in the bank's accounts?

A) Decrease Sales; decrease Cash
B) Increase Cash; decrease Accounts Receivable
C) Increase Cash; increase Sales
D) No adjustment needed

Question 78

Separating the custody of assets from accounting for assets is a part of which element of internal control?

A) Information and communication
B) Monitoring
C) Control environment
D) Control procedures

Question 79

Requiring employees to take annual vacations is part of which element of internal control?

A) Control environment
B) Risk assessment
C) Control procedures
D) Monitoring

Question 80

A check drawn by a depositor for $295 in payment of a liability was recorded in the depositor's book as $925. The $630 difference would be included on the bank reconciliation as a(n):

A) addition to the cash balance per books.
B) addition to the cash balance per bank.
C) deduction from the cash balance per bank.
D) deduction from the cash balance per books.