Question 1

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 represents...

Question 2

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 represents...

Question 3

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 that is used to pay for minor expenditures.

Question 4

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 ensures that the goods have been received as per the purchase order and the supplier has charged the correct amount. This helps in avoiding overpayment or paying for goods that were not received.

Question 5

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

Having the same person approve the payment voucher and order the goods can lead to conflicts of interest and fraud. Good controls require separation of duties to ensure checks and balances.

Question 6

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

Accepted Answer

A receiving report verifies that the goods were received and a purchase order authorizes the purchase, while an invoice documents the amount owed. This set of documents provides proper approval for a payment to a supplier. A journal entry and a price catalog are not necessary for this process, and a bill of lading and the supplier's financial statements are not directly related to approving payments.

Question 7

Which of the following statements describes a receiving report?

Accepted Answer

A receiving report is a document used to confirm that goods have been received and are in good condition. It is typically used to verify that the goods received match what was ordered and that they are not damaged or defective.

Question 8

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 9

Evaluated Receipts Settlement is ________.

Accepted Answer

Evaluated Receipts Settlement (ERS) is a procedure in which the payment approval process is compressed into a single step by comparing the receiving report to the purchase order. This eliminates the need for a separate invoice, making the process more streamlined. However, it still requires separation of duties and proper documentation. Option A is incorrect because ERS does not bypass paper documents, but rather eliminates the need for a separate invoice. Option B is incorrect because separation of duties is still required. Option D is incorrect because it refers to internal controls in general, which is not specific to ERS.

Question 10

A company check for payment must be signed by ________.

Accepted Answer

A company check for payment must be signed by an employee specifically authorized by the company. This is typically a person with the authority to access and manage the company's bank accounts. It is not sufficient for any employee of the company to sign the check. Additionally, a bank employee or external auditor would not have the authority to sign the company's checks.

Question 11

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

It is important for the controller or treasurer to examine the purchase order, invoice, and receiving report to ensure that the company is paying only for goods received and that they have received the goods they are paying for. This helps to prevent fraudulent activity and ensure proper financial management.

Question 12

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 ________.

Accepted Answer

The 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 Electronic Data Interchange (EDI). Real Time Gross Settlement (RTGS) is a type of electronic funds transfer system where the transfer of money or securities takes place from one bank to another in real-time and on a gross basis. Electronic Fund Transfer (EFT) is a generic term that covers a wide range of electronic payment mechanisms. Evaluated Receipts Settlement (ERS) is a method of payment where payment is made based on the evaluation of goods received, without the need for invoicing.

Question 13

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

Accepted Answer

The key to strong control over petty cash is to ensure that only one person serves as a custodian at one time. This minimizes the risk of discrepancies or theft.

Question 14

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

Accepted Answer

An invoice from a supplier is a statement or bill sent by the supplier to the buyer that shows the goods purchased and the amount due to be paid. It is not an order to purchase goods, a report on goods received, or a document authorizing payment.

Question 15

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

Accepted Answer

The purchase order should be examined before signing a check to ensure that the payment being made is for a valid purchase and that the amount being paid is correct. The ledger, confirmation report, and journal entry may also be important in the process of verifying the payment, but they may not necessarily need to be examined before signing the check.

Question 16

Which of the following statements describes a purchase order?

Accepted Answer

A purchase order is a document issued by a buyer to a seller, indicating the type, quantity, and price of goods or services that the buyer wishes to purchase. It is essentially an order to purchase goods from a supplier.

Question 17

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

This is correct. When opening a new petty cash fund, the journal entry includes a debit to the Petty Cash account (to increase it) and a credit to the Cash account (to decrease it).

Question 18

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 a basic principle of internal control to prevent fraud and errors. If the same person places and approves orders and payments, there is a higher risk of collusion or manipulation of the process for personal gain. Separation of duties is a key element of a strong control environment.

Question 19

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

Accepted Answer

The first step in the purchasing and payment process is for the purchaser to send a purchase order to the supplier. This order outlines the details of the goods or services being purchased, such as quantity, price, and delivery date. The supplier will then use this order as a reference when preparing the shipment and invoice.

Question 20

Which is the most liquid form of asset?

Accepted Answer

Cash is the most liquid form of asset as it can be easily converted into any other asset or used for immediate payments. Accounts receivable, inventory, and supplies cannot be easily converted into cash and may take time to generate cash.

Quiz 8: Internal Control and Cash