Question 1

Information typically confirmed on liabilities to the bank includes the:

Accepted Answer

All of the given options (interest rate, existence of security and amount of the loan) are typically confirmed on liabilities to the bank.

Question 2

Which of the following misstatements would result in the improper payment of cash or failure to receive cash not normally discovered as part of the audit of the bank reconciliation?

Accepted Answer

All of the above misstatements could result in the improper payment of cash or failure to receive cash, and may not be discovered through the bank reconciliation audit. Payment to an employee for more hours than worked could result in an overpayment of cash. Payment of raw materials that were not received could result in an overpayment of cash. Duplicate payment of a vendor's invoice could result in an overpayment of cash.

Question 3

Cash balance is important in the audit because of:

Accepted Answer

Cash balance is critical to the audit since there is a high potential for both fraud and error to occur. Misappropriation of funds can occur at any level of an organization, and errors can result from simple mistakes or failure to record transactions accurately. As a result, auditors should give extra attention to the cash accounts and balances to ensure that the client's books and records are accurate and any potential issues are identified and addressed.

Question 4

Which of the following misstatements will normally be discovered as part of the audit of the bank reconciliation?

Accepted Answer

The audit of the bank reconciliation will normally uncover unrecorded debits or credits to the bank account, such as payments on loans debited directly to the bank account but not entered in the client's records. However, misstatements related to purchases or payroll would not necessarily be identified through the bank reconciliation process.

Question 5

Who should prepare the bank reconciliation?

Accepted Answer

Bank reconciliations should be prepared by someone independent of handling cash receipts and cash payments to ensure checks and balances, reducing the risk of errors or fraud.

Question 6

Which of the following misstatements would normally be discovered as part of the audit of the bank reconciliation?

Accepted Answer

The audit of the bank reconciliation is designed to identify discrepancies between the company's records and the bank's records. It would uncover cash received but improperly recorded in the current year (A), deposits in transit that have been recorded but not yet cleared by the bank (B), and direct debits for loan payments that have not been recorded in the client's books (C).

Question 7

Which one of the following errors would be LEAST likely to be discovered during the tests of the bank reconciliation?

Accepted Answer

Payment to an employee for more hours than he or she worked is not related to the bank reconciliation process and would not be discovered during the tests of the bank reconciliation. The other options are all related to reconciling the bank balance with the accounting records and could be discovered during the testing process.

Question 8

Cash account is primarily affected by which transactions in the acquisitions and payment cycle?

Accepted Answer

The answer of Cash account is primarily affected by which...

Question 9

The general cash account is considered significant in almost all audits:

Accepted Answer

The general cash account is considered significant in almost all audits, even when the ending balance is immaterial. This is because cash is a highly liquid and easily misappropriated asset, and even small amounts can add up over time. Therefore, auditors will typically perform substantive procedures on the general cash account regardless of the balance size.

Question 10

The test that proves the bank reconciliation to additions and subtractions, including all reconciling items, is an attempt to satisfy which audit objective?

Accepted Answer

The detail tie-in objective ensures that the details in the account balances agree with the total amounts in the financial statements, which is what the bank reconciliation process aims to verify.

Question 11

Cash account is primarily affected by which transactions in the acquisition and payment cycle?

Accepted Answer

Cash account is primarily affected by transactions involving the receipt and disbursement of cash. Payment of dividends and issuance of shares do not directly affect the cash account.

Question 12

Information typically confirmed on liabilities to the bank includes the:

Accepted Answer

Typically, information confirmed on liabilities to the bank includes the date of the loan, amount of the loan, and loan due date. Therefore, all of the above options are the best choice(s).

Question 13

Cash account is primarily affected by which transactions in the payroll and personnel cycle?

Accepted Answer

The cash account is primarily affected by disbursements, not sales or collections, in the payroll and personnel cycle.

Question 14

Which of the following cycles does NOT affect cash in bank?

Accepted Answer

The inventory and warehousing cycle primarily involves the management of inventory levels and does not directly affect cash in the bank, unlike the other cycles which involve financial transactions.

Question 15

Which of the following misstatements will NOT normally be discovered as part of the audit of the bank reconciliation?

Accepted Answer

The audit of the bank reconciliation primarily focuses on identifying discrepancies between the company's records and the bank's records regarding cash transactions. Misstatements such as payment for raw materials not received, improper payments of officers' personal expenditures, and payment to an employee for more hours than worked would not normally be discovered through this process, as these issues relate to internal control and authorization procedures rather than the reconciliation of the bank statement itself.

Question 16

Cash account is primarily affected by which transactions in the sales and collection cycle?

Accepted Answer

The cash account is primarily affected by collections in the sales and collection cycle, as this is when cash is actually received from customers.

Question 17

Cash account is primarily affected by which transactions in the payroll and personnel cycle?

Accepted Answer

The cash account is primarily affected by the payment of salaries to employees and the payment of payroll taxes to the government. These transactions will result in outflows of cash from the organization and will therefore impact the organization's cash balance.

Question 18

Which of the following procedures can test the audit objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger?

Accepted Answer

Adding the unpresented cheques list and the list of deposits in transit will reconcile the cash in bank balance stated on the bank reconciliation with the general ledger balance. This procedure can test whether the cash in bank foots correctly and agrees with the general ledger. The other options do not directly relate to this audit objective.

Question 19

Cash account is primarily affected by which transactions in the capital acquisition and repayment cycle?

Accepted Answer

Both the issue of new shares and payment of dividends involve cash transactions and will impact the cash account in the capital acquisition and repayment cycle. When shares are issued, cash is received from the investors, increasing the cash balance. Similarly, when dividends are paid to shareholders, cash is paid out, decreasing the cash balance. Therefore, both A and B will affect the cash account in the capital acquisition and repayment cycle.

Question 20

Which of the following is NOT a 'cash equivalent'?

Accepted Answer

Marketable securities are not considered cash equivalents as they carry a certain level of risk and may not be easily converted to cash. Time deposits, money market funds, and cash management accounts are all considered cash equivalents as they are highly liquid and can be easily converted to cash.

Quiz 16: Audit of transaction cycles and financial statement balances II

Information typically confirmed on liabilities to the bank includes the:

Which of the following misstatements would result in the improper payment of cash or failure to receive cash not normally discovered as part of the audit of the bank reconciliation?

Cash balance is important in the audit because of:

Which of the following misstatements will normally be discovered as part of the audit of the bank reconciliation?

Who should prepare the bank reconciliation?

Which of the following misstatements would normally be discovered as part of the audit of the bank reconciliation?

Which one of the following errors would be LEAST likely to be discovered during the tests of the bank reconciliation?

Cash account is primarily affected by which transactions in the acquisitions and payment cycle?

The general cash account is considered significant in almost all audits:

The test that proves the bank reconciliation to additions and subtractions, including all reconciling items, is an attempt to satisfy which audit objective?

Cash account is primarily affected by which transactions in the acquisition and payment cycle?

Information typically confirmed on liabilities to the bank includes the:

Cash account is primarily affected by which transactions in the payroll and personnel cycle?

Which of the following cycles does NOT affect cash in bank?

Which of the following misstatements will NOT normally be discovered as part of the audit of the bank reconciliation?

Cash account is primarily affected by which transactions in the sales and collection cycle?

Cash account is primarily affected by which transactions in the payroll and personnel cycle?

Which of the following procedures can test the audit objective of determining that cash in bank, as stated on the reconciliation, foots correctly and agrees with the general ledger?

Cash account is primarily affected by which transactions in the capital acquisition and repayment cycle?

Which of the following is NOT a 'cash equivalent'?