Deck 10: Internal Control and Cash

Question 1

Two individuals at a retail store work the same cash register.You evaluate this situation as

A)a violation of establishment of responsibility.
B)a violation of separation of duties.
C)supporting the establishment of responsibility.
D)supporting internal independent verification.

Answer 1

B

Question 2

A deposit ticket is a negotiable instrument that can be transferred to another party by endorsement.

Answer 2

False

Question 3

A company stamps checks received in the mail with the words "For Deposit Only".This endorsement is called

A)a blank endorsement.
B)a rubber stamp.
C)a restrictive endorsement.
D)an operational endorsement.

Answer 3

B

Question 4

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

Question 5

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

Question 6

Which of the following is an example of an irregularity in the accounting process?

A)An employee steals inventory.
B)Towards the end of the month, the bookkeeper puts bills in a drawer to be recorded in the next month instead of recording the expenses and liabilities in the accounting records when incurred.
C)The store manager refuses to take vacations.
D)The bookkeeper borrows cash on Fridays and repays it on Monday.

Question 7

Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of

A)inadequate internal control.
B)duplication of effort.
C)external verification.
D)segregation of duties.

Question 8

From an internal control standpoint, the asset most susceptible to improper diversion and use is

A)prepaid insurance.
B)cash.
C)buildings.
D)land.

Question 9

In a voucher system, vouchers are prepared in the accounts receivable department.

Question 10

Related buying activities include all of the following except

A)authorizing payment.
B)billing the customer.
C)ordering merchandise.
D)receiving the goods.

Question 11

A highly automated computerized system of accounting eliminates the need for internal control.

Question 12

A business's assets need to be safeguarded from employee theft and unauthorized use.

Question 13

A system of internal control

A)is infallible.
B)can be rendered ineffective by employee collusion.
C)invariably will have costs exceeding benefits.
D)is premised on the concept of absolute assurance.

Question 14

Segregation of duties means that employees should duplicate efforts so that one employee can evaluate the work of the other.

Question 15

Internal controls are concerned with

A)only manual systems of accounting.
B)the extent of government regulations.
C)safeguarding assets.
D)preparing income tax returns.

Question 16

Electronic Funds Transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another.

Question 17

Postage stamps on hand are considered to be

A)cash.
B)petty cash.
C)cash equivalents.
D)a prepaid expense.

Question 18

The independent internal verification principle involves each of the following except the ______________ of data prepared by other employees.

A)comparison
B)reconciliation
C)review
D)segregation

Question 19

Checks from customers who pay their accounts promptly are called outstanding checks.

Question 20

Related selling activities include all of the following except

A)making a sale.
B)billing the customer.
C)ordering the merchandise.
D)shipping the goods.

Question 21

Having different individuals receive cash, record cash receipts, and hold the cash is an example of

A)establishment of responsibility.
B)segregation of duties.
C)documentation procedures.
D)independent internal verification.

Question 22

An application of good internal control over cash disbursements is

A)following payment, the approved invoice should be stamped "paid".
B)blank checks should be stored in the treasurer's desk.
C)each check should be compared with the approved invoice after the check is issued.
D)check signers should record the cash disbursements.

Question 23

Which one of the following would not cause a bank to debit a depositor's account?

A)Bank service charge
B)Collection of a note receivable
C)Wiring of funds to other locations
D)Checks marked NSF

Question 24

Examples of ______________________________ include safes, vaults and safety deposit boxes for cash and business documents.

Question 25

When opening a bank checking account, a signature card

A)indicates to whom money is to be paid.
B)indicates each person authorized to sign checks on the account.
C)is attached to all pre-printed checks.
D)is required only when dealing with an out-of-state bank.

Question 26

Allowing only the treasurer to sign checks is an example of

A)documentation procedures.
B)separation of duties.
C)other controls.
D)establishment of responsibility.

Question 27

If a check correctly written and paid by the bank for $438 is incorrectly recorded on the company's books for $483, the appropriate treatment on the bank reconciliation would be to

A)add $45 to the bank's balance.
B)add $45 to the book's balance.
C)deduct $45 from the bank's balance.
D)deduct $438 from the book's balance.

Question 28

Designating personnel who are authorized to sign checks is an example of

A)establishment of responsibility.
B)documentation procedures.
C)independent internal verification.
D)segregation of duties.

Question 29

Deposits in transit

A)have been recorded on the company's books but not yet by the bank.
B)have been recorded by the bank but not yet by the company.
C)have not been recorded by the bank or the company.
D)are checks from customers which have not yet been received by the company.

Question 30

Allowing only designated personnel to handle cash receipts is an example of

A)establishment of responsibility.
B)segregation of duties.
C)documentation procedures.
D)independent internal verification.

Question 31

Which of the following would be deducted from the balance per bank on a bank reconciliation?

A)Outstanding checks.
B)Deposits in transit.
C)Service charge.
D)Electronic funds transfer to supplier.

Question 32

All of the following would involve a debit memorandum except

A)a bank service charge.
B)an NSF check.
C)the cost of printing checks.
D)interest earned.

Question 33

The use of remittance advices for mail receipts is an example of

A)documentation procedures.
B)other controls.
C)physical controls.
D)independent internal verification.

Question 34

Each of the following items affect the cash balance per books except

A)bank service charges.
B)notes collected by the bank.
C)NSF checks.
D)outstanding checks.

Question 35

Bank errors

A)occur because of time lags.
B)must be corrected by debits.
C)are infrequent in occurrence.
D)are corrected by making an adjusting entry on the depositor's books.

Question 36

Control over cash disbursements is generally more effective when

A)all bills are paid in cash.
B)disbursements are made by the accounts payable subsidiary clerk.
C)payments are made by check.
D)all purchases are made on credit.

Question 37

Zebb Company developed the following reconciling information in preparing its September bank reconciliation: $\begin{array}{llcc} \text {Cash balance per bank, 9 / 30 } &\$12,000 \\ \text {Note receivable collected by bank } &6,000\\ \text { Outstanding checks } &9,000\\ \text {Deposits in transit } &4,500\\ \text {Bank service charge } &75\\ \text { NSF check } &1,200\\\end{array}$

Determine the cash balance per books (before adjustments) for Zebb Company.

A)$8,775.
B)$16,500.
C)$2,775.
D)$12,000.

Question 38

A bank reconciliation should be prepared

A)whenever the bank refuses to lend the company money.
B)when an employee is suspected of fraud.
C)to explain any difference between the depositor's balance per books with the balance per bank.
D)by the person who is authorized to sign checks.

Question 39

Which of the following would be deducted from the balance per books on a bank reconciliation?

A)outstanding checks.
B)deposits in transit.
C)NSF check.
D)Collection of note by bank.

Question 40

Internal control consists of the related methods and measures adopted to ____________ its assets and enhance the ______________ and ______________ of its accounting records.

Question 41

_________________________ are company employees who evaluate on a continuous basis the effectiveness of its system of internal controls.

Question 42

There are three parties to a check: (1)_______________, (2)______________, and the (3)______________.

Question 43

A voucher is recorded in the ________________ and filed according to the date on which it is to be paid.