Question 1

For good controls over cash payments, the person who orders goods from a supplier should always be different from the person who approves the payment.

Accepted Answer

This is known as segregation of duties, which is a key internal control principle to prevent fraud and error. When the person who orders goods is different from the person who approves payment, it reduces the risk of collusion and ensures that there is oversight and accountability in the payment process.

Question 2

A key to strong control over petty cash is to ensure that several persons serve as custodian at one time.

Accepted Answer

Having several custodians for petty cash can actually increase the risk of uncontrolled cash disbursement and mismanagement. It is recommended to have only one or two trusted persons as custodians and to implement a system of checks and balances, such as requiring receipts for all expenditures and conducting regular audits.

Question 3

Which of the following statements describes a purchase order?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as ordered.
D) It is a document authorizing a payment to a supplier.

Accepted Answer

A purchase order is a document issued by a buyer to a supplier, indicating the items, quantities, prices, and other terms and conditions of the goods or services to be purchased. It serves as a contract between the buyer and the supplier, and authorizes the supplier to proceed with the delivery of the goods or services.

Question 4

Cash in the bank is more liquid than a petty cash fund.

Accepted Answer

Petty cash is more liquid than cash in the bank because none of the bank controls are in place.

Question 5

Evaluated Receipts Settlement is ________.
A) a streamlined process that bypasses paper documents altogether
B) a process that eliminates the need for separation of duties
C) a procedure that compresses the payment approval process into a single step by comparing the receiving report to the purchase order
D) an organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records

Accepted Answer

Evaluated Receipts Settlement is a process that compares receiving reports to purchase orders and compresses the payment approval process into a single step. It does not eliminate the need for separation of duties or bypass paper documents altogether. Option D is referring to internal controls.

Question 6

Which of the following is the first step in the purchasing and payment process?
A) The purchaser receives an invoice for the goods shipped by the supplier.
B) The purchaser sends a check to the supplier.
C) The purchaser sends a purchase order to the supplier.
D) The purchase receives the inventory and prepares a receiving report.

Accepted Answer

The first step in the purchasing and payment process is for the purchaser to send a purchase order to the supplier, indicating the goods or services they wish to purchase and the terms of the transaction. This sets the stage for the supplier to fulfill the order and send an invoice, which is then followed by payment from the purchaser. Option A is the second step in the process, option B is the final step in the process, and option D is related to the receiving and inventory management aspects of the process, but not the first step in the purchasing and payment process.

Question 7

A streamlined process that bypasses paper documents altogether and in which computers of retailers communicate directly with the computers of suppliers to automate routine business transactions is known as ________.
A) Real Time Gross Settlement
B) Electronic Data Interchange
C) Electronic Fund Transfer
D) Evaluated Receipts Settlement

Accepted Answer

The process described in the question is Electronic Data Interchange (EDI), which involves the direct communication between the computers of retailers and suppliers to automate business transactions without the need for paper documents. Real Time Gross Settlement (RTGS), Electronic Fund Transfer (EFT), and Evaluated Receipts Settlement (ERS) are all different methods of electronic payment processing, but they do not involve the direct exchange of data between retailers and suppliers in the same way that EDI does.

Question 8

The journal entry to open a new petty cash fund includes a debit to the Petty Cash account and a credit to the Cash account.

Accepted Answer

When opening a new petty cash fund, the petty cash account is debited to increase it, and the cash account is credited to record the transfer of funds from the full cash account to the petty cash account.

Question 9

For the following situation, state whether it represents a strength or weakness in internal control and give the reason for your answer.
Baker Auto Supply purchases merchandise inventory from A & B Company. The accountant places the order, verifies receipt of the merchandise, and records the transaction in the general journal.

Accepted Answer

The answer of For the following situation, state whether it...

Question 10

Which of the following items must be examined by the controller or treasurer before signing a check?
A) the ledger
B) the purchase order
C) the confirmation report
D) the journal entry

Accepted Answer

The purchase order should be examined by the controller or treasurer before signing a check to ensure that the goods or services being paid for were actually ordered and received. The ledger, confirmation report, and journal entry may also be reviewed for accuracy, but do not necessarily need to be examined before signing a check.

Question 11

For the following situation, state whether it represents a strength or weakness in internal control and give the reason for your answer.
The mailroom employee opens all incoming mail. Customers' checks are sent to the treasurer, and remittance advices are sent to the accounting department. The controller compares the daily bank deposit amount from the treasurer and the daily debit to cash from the accounting department.

Accepted Answer

The answer of For the following situation, state whether it...

Question 12

Which of the following statements describes an invoice from a supplier?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as ordered.
D) It is a document authorizing a payment to a supplier.

Accepted Answer

An invoice from a supplier is a statement or bill showing the goods purchased by the buyer and the amount due to the supplier. It is a request for payment for the goods supplied. Option A is incorrect because an order to purchase goods is a purchase order, not an invoice. Option C is incorrect because a report showing that goods have been received in good condition is a receiving report or a goods receipt, not an invoice. Option D is incorrect because a document authorizing payment is a payment authorization or a payment voucher, not an invoice.

Question 13

In a good internal control system, which of the following sets of documents is required for proper approval of a payment to a supplier?
A) a journal entry, a supplier invoice, and a description of the goods being purchased
B) a receiving report, an invoice, and a purchase order
C) a purchase order, a journal entry, and a price catalog
D) a supplier invoice, a bill of lading, and the supplier's financial statements

Accepted Answer

A receiving report, an invoice, and a purchase order are necessary documents for proper approval of a payment to a supplier. A receiving report shows that the goods have been received, an invoice indicates the amount due, and a purchase order shows that the purchase was authorized. Together, these documents ensure that the company is paying for goods that were received and authorized for purchase.

Question 14

A company check for payment must be signed by ________.
A) any employee of the company
B) a bank employee
C) an employee specifically authorized by the company
D) the external auditor

Accepted Answer

A company check must be signed by an employee specifically authorized by the company, usually someone in a finance or accounting position with check-signing authority. It cannot be signed by any employee of the company or a bank employee, and there is no role for the external auditor in signing company checks.

Question 15

A receiving report should be matched with the supplier invoice before a payment to the supplier is approved.

Accepted Answer

Matching the receiving report with the supplier invoice is an important step in ensuring that the goods or services were received as per the order and the supplier is paid only for what was received. This helps in preventing overpayment or paying for goods or services that were not received.

Question 16

For good controls over cash payments, the company officer approving a payment voucher should be the same as the person who ordered the goods, to ensure that the correct amount of cash is paid.

Accepted Answer

While it is important for the approving officer to verify the amount and reason for the payment, it is not necessary for them to be the same person who ordered the goods. Separation of duties can actually improve controls over cash payments.

Question 17

Petty cash is a fund containing a small amount of cash that is used to pay for minor expenditures.

Accepted Answer

Petty cash is indeed a fund containing a small amount of cash used for minor expenses such as office supplies, postage, or refreshments.

Question 18

Which of the following statements describes a receiving report?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as ordered.
D) It is a document authorizing a payment to a supplier.

Accepted Answer

A receiving report is a document that confirms that goods have been received in good condition, as ordered. It is usually prepared by the recipient of the goods and contains information about the quantity, quality, and condition of the items received. It is an important document for accounting and inventory purposes. Options (A), (B), and (D) do not accurately describe a receiving report.

Question 19

Which is the most liquid form of asset?
A) cash
B) accounts receivable
C) inventory
D) supplies

Accepted Answer

Cash is the most liquid form of asset as it can be easily and quickly converted into other forms of assets or used to pay off liabilities. Accounts receivable, inventory, and supplies may take longer to convert into cash and are less liquid.

Question 20

Before signing a check, the controller or the treasurer should examine the purchase order, the invoice, and the receiving report to determine that the company received the goods and that the company is paying only for the goods received.

Accepted Answer

This statement is correct and describes a key control procedure for ensuring the accuracy and validity of disbursements. By verifying that the purchase order, invoice, and receiving report all match and that the goods were received and accepted by the company, the controller or treasurer can ensure that payments are made only for valid and authorized transactions.

Quiz 8: Internal Control and Cash

For good controls over cash payments, the person who orders goods from a supplier should always be different from the person who approves the payment.

A key to strong control over petty cash is to ensure that several persons serve as custodian at one time.

Which of the following statements describes a purchase order?

Cash in the bank is more liquid than a petty cash fund.

Evaluated Receipts Settlement is ________.

Which of the following is the first step in the purchasing and payment process?

A streamlined process that bypasses paper documents altogether and in which computers of retailers communicate directly with the computers of suppliers to automate routine business transactions is known as ________.

The journal entry to open a new petty cash fund includes a debit to the Petty Cash account and a credit to the Cash account.

Which of the following items must be examined by the controller or treasurer before signing a check?

Which of the following statements describes an invoice from a supplier?

In a good internal control system, which of the following sets of documents is required for proper approval of a payment to a supplier?

A company check for payment must be signed by ________.

A receiving report should be matched with the supplier invoice before a payment to the supplier is approved.

For good controls over cash payments, the company officer approving a payment voucher should be the same as the person who ordered the goods, to ensure that the correct amount of cash is paid.

Petty cash is a fund containing a small amount of cash that is used to pay for minor expenditures.

Which of the following statements describes a receiving report?

Which is the most liquid form of asset?

Before signing a check, the controller or the treasurer should examine the purchase order, the invoice, and the receiving report to determine that the company received the goods and that the company is paying only for the goods received.