Question 1

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

Accepted Answer

A voucher system is a process of documenting and approving cash payments through the use of vouchers or authorization forms, which serves as evidence of the transaction. This internal control procedure helps to prevent fraud, errors, and other irregularities by ensuring that all payments are properly authorized and recorded.

Question 2

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

Accepted Answer

A voucher is a document that authorizes a cash payment, often used in business transactions as a means of documenting proof of expenses.

Question 3

There are three internal control objectives and they are to safeguard the company's reputation, ensure accurate financial reports, and ensure compliance with applicable laws.

Accepted Answer

The three primary objectives of internal controls are to ensure efficient and effective operations, reliable financial reporting, and compliance with laws and regulations. Safeguarding a company's reputation, while important, is not typically listed as a primary objective of internal controls.

Question 4

Sarbanes-Oxley requires sole proprietorships to maintain strong and effective internal controls and thus deter fraud and prevent misleading financial statements.

Accepted Answer

Sarbanes-Oxley Act only applies to public companies, not sole proprietorships.

Question 5

Businesses that have several bank accounts, petty cash, and cash on hand would maintain a separate ledger account for each type of cash.

Accepted Answer

Businesses typically maintain separate ledger accounts for each type of cash to better manage and track their cash flow. This helps in accurately recording and reconciling cash transactions and preventing errors or discrepancies.

Question 6

Internal control is enhanced by separating the control of a transaction from the record-keeping function.

Accepted Answer

Separation of duties is a fundamental principle of internal control. It helps to reduce the risk of errors, fraud, and misuse of assets. When a person is responsible for both approving a transaction and recording it in the accounting records, there is a greater risk of errors and irregularities because there is no independent verification of the transaction. By separating these functions, different individuals can be held accountable for different aspects of the transaction, ensuring a higher level of control and accuracy in the accounting system.

Question 7

When the voucher system is used, the amount due on each voucher represents the credit balance of an account payable if the voucher is in full payment to a creditor.

Accepted Answer

This statement is true. The voucher system is a method for recording and paying accounts payable, where a voucher is created for each invoice received from a creditor. The amount due on the voucher represents the credit balance of the account payable, and when the voucher is paid, the balance is reduced.

Question 8

If the balance in Cash Short and Over at the end of a period is a credit, it indicates that cash shortages have exceeded cash overages for the period.

Accepted Answer

If the balance in Cash Short and Over at the end of a period is a credit, it indicates that cash overages have exceeded cash shortages for the period.

Question 9

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

Accepted Answer

The answer of Separating the responsibilities for purchasing, receiving, and...

Question 10

The Sarbanes-Oxley Act requires that financial statements of all public companies report on management's conclusions about the effectiveness of the company's internal control procedures.

Accepted Answer

The Sarbanes-Oxley Act does require that financial statements of all public companies report on management's conclusions about the effectiveness of the company's internal control procedures.

Question 11

The Sarbanes-Oxley Act applies only to companies whose stock is traded on public exchanges.

Accepted Answer

The Sarbanes-Oxley Act applies to all companies that are required to file reports with the Securities and Exchange Commission (SEC), which includes companies whose stock is traded on public exchanges.

Question 12

An example of good internal controls over cash payments is the taking of all cash discounts offered.

Accepted Answer

Taking all cash discounts offered is an example of good internal controls over cash payments because it ensures the company is managing its cash outflows efficiently by reducing the amount paid for purchases, thereby saving money and improving cash flow.

Question 13

If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as "Other Income" on the income statement.

Accepted Answer

A credit balance in Cash Short and Over represents additional cash received beyond what was recorded, and therefore should be reported as "Other Income" on the income statement.

Question 14

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

Accepted Answer

A customer's check received in settlement of an account receivable is considered as a form of cash because it is a readily negotiable instrument that can be deposited and converted into cash by the recipient.

Question 15

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.

Accepted Answer

Separation of duties is a key aspect of strong internal controls, and dividing cash-related duties among different employees helps prevent potential fraud or errors. For example, one employee may be responsible for receiving and depositing cash while another employee is responsible for recording and reconciling cash transactions.

Question 16

The control environment in an internal control structure is the overall attitude of management and employees about the importance of internal control.

Accepted Answer

The control environment refers to the tone set by management regarding the importance of internal control. It includes the overall attitude, awareness, and actions of management and employees towards the internal control system.

Question 17

A backlog in recording transactions is an example of a warning sign from the accounting system.

Accepted Answer

A backlog in recording transactions can lead to inaccurate financial statements, which is a warning sign that something may be wrong with the accounting system. It could also indicate that the accounting staff is overworked, understaffed, or lacking the necessary training to complete the task efficiently.

Question 18

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

Accepted Answer

This statement is true. A voucher is a document that includes details about a liability and the payment made for it. It serves as evidence of transactions and is used for accounting purposes.

Question 19

Money orders are considered cash.

Accepted Answer

Money orders are considered cash equivalents because they are prepaid and cannot bounce like a personal check.

Question 20

Sarbanes-Oxley's purpose is to maintain public confidence and trust in the financial reporting of companies.

Accepted Answer

Sarbanes-Oxley Act, also known as the Public Company Accounting Reform and Investor Protection Act, was enacted in 2002 to protect investors and maintain public confidence by ensuring accurate and reliable financial reporting by companies.

Quiz 8: Internal Control and Cash