Deck 4: Internal Control Cash

Question 1

An intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that party is:

A)collusion.
B)fraud.
C)phishing.
D)lapping.

Answer 1

B

Question 2

Proper segregation of duties increases the chances for fraud and promotes the accuracy of accounting records.

Answer 2

False

Question 3

Fraud is the ultimate unethical act in business because:

A)the perpetrators usually do so for their own short-term economic gain at the expense of others.
B)fraud is illegal.
C)fraud violates the rights of many for the temporary betterment of a few.
D)of all of the above.

Answer 3

D

Question 4

A system of handling cash receipts by mail whereby customers remit payments directly to the bank, rather than through the company's mail is a(n):

A)imprest system.
B)lock-box system.
C)phishing system.
D)online banking system.

Question 5

To maintain effective internal control, employees responsible for handling cash should have access to the accounting records.

Question 6

Which characteristic will NOT be found in an effective system of internal control?

A)Competent, reliable, and ethical personnel
B)A combination of duties
C)A separation of duties
D)Documents and records

Question 7

According to a recent survey taken by the Association for Certified Fraud Examiners (ACFE), occupational fraud and abuse results in losses equal to approximately __________ of total business revenue.

A)45%
B)10%
C)6%.
D)an unknown amount

Question 8

The three elements that are present in almost all cases of fraud are collectively known as the:

A)fraud triangle.
B)imprest system.
C)fraud system.
D)fraud rationalization.

Question 9

The three main components of the fraud triangle are:

A)rationalization, opportunity and greed.
B)opportunity, motive and lack of ethics.
C)motive, opportunity and rationalization.
D)none of the above.

Question 10

In the Amex Product story, Melissa Price, the employee who committed the fraud:

A)was one of Amex's most trusted employees.
B)never took a day of vacation for 10 years.
C)had begun to wear better clothes and drive nice cars.
D)did all of the above.

Question 11

The primary way that fraud is prevented and detected is through a proper system of:

A)checks and balances.
B)management directives.
C)internal control.
D)internal and external audits.

Question 12

__________ is the most common fraud, but __________ is the most expensive fraud.

A)Fraudulent financial reporting, misappropriation of assets
B)Misappropriation of assets, fraudulent financial reporting
C)Misappropriation of assets, cooking the books
D)Cooking the books, misappropriation of assets

Question 13

Internal controls are the primary means by which fraud, as well as unintentional financial statement errors, are prevented.

Question 14

The type of fraud committed by employees of an entity who steal money from the company and cover it up through erroneous entries in the books is called:

A)misappropriation of assets.
B)fraudulent financial reporting.
C)embezzlement.
D)collusion.

Question 15

Lapping is a fraudulent scheme to steal cash through misappropriating certain customer payments and posting payments from other customers to the affected accounts to cover it up.

Question 16

Which of the following is a limitation of internal control?

A)Operational efficiency
B)Employee collusion
C)Accurate and reliable accounting records
D)Safeguarding company assets

Question 17

Factors that would lead an employee to commit a lapping scheme include:

A)a proper separation of duties.
B)not allowing the bookkeeper to access to cash.
C)appropriately monitoring the activities of employees who handle cash.
D)allowing employees to not take time off for earned vacations.

Question 18

All of the following are purposes of internal control EXCEPT:

A)to promote operational inefficiency.
B)to encourage adherence to company policies.
C)to ensure accurate and reliable accounts records.
D)to safeguard assets.

Question 19

Internal controls help to prevent fraud.

Question 20

The company's ___________ have/has the primary responsibility for establishing and maintaining a company's system of internal control.

A)external auditors
B)internal auditors
C)top management
D)stockholders

Question 21

Exception reporting is used in operating and cash budgets to keep company profits and cash flow in line with management's plans.

Question 22

If a company is too small to separate the cash handling from the cash recording, they must hire external auditors.

Question 23

Internal auditors are hired to determine whether or not the company's financial statements agree with generally accepted accounting principles.

Question 24

Three of the five components of internal control are:

A)control environment, risk assessment and control policies.
B)monitoring of controls, information database and risk assessment.
C)monitoring of controls, risk assessment and control environment.
D)risk assessment, control procedures and information database.

Question 25

Internal controls are so critical to a company that Congress passed the:

A)Sarbanes-Oxley Act of 2002.
B)Kemp-Oxley Act of 2002.
C)Economic Stimulus Law of 2008.
D)Public Company Accounting Oversight Board Act of 2002.

Question 26

The "tone at the top":

A)is a component of control procedures.
B)starts with the owners and top managers.
C)
C)means that owners and top managers must behave honorably to set a good example for employees.
D)is both B and

Question 27

The means by which accounting information enters and exits a company is the:

A)control environment.
B)information database.
C)monitoring of controls.
D)information system.

Question 28

All employees should have a background check before being hired, and should be properly trained and supervised.

Question 29

Collusion is the method widely used to defeat the adequate segregation of duties.

Question 30

Internal controls are designed to accomplish five objectives-comply with legal requirements, promote operational efficiency, safeguard assets, encourage employees to follow company policy and:

A)prevent embezzlement.
B)prevent collusion.
C)ensure accurate, reliable external audits.
D)ensure accurate, reliable accounting records.

Question 31

SOX created a new body to oversee the audits of public companies called the:

A)Securities and Exchange Commission.
B)Association of Certified Public Accountants.
C)Public Company Accounting Oversight Board.
D)Association of Certified Fraud Examiners.

Question 32

A key factor in the control environment of many companies is a corporate code of ethics.

Question 33

A plan of organization and a system of procedures, implemented by company management and the board of directors, is called:

A)the budget.
B)the audit.
C)internal control.
D)the Sarbanes -Oxley Act.

Question 34

Requiring employees to take annual vacations is a part of which characteristic of internal control?

A)Assignment of responsibilities
B)Separation of duties
C)Proper authorization
D)Competent and reliable personnel

Question 35

An examination of the company's financial statements and its accounting system, including its controls, is:

A)a monitoring system.
B)a budgeting system.
C)an audit.
D)none of the above.

Question 36

A fidelity bond is a(n):

A)employment contract for a specified period of time.
B)insurance policy that reimburses a company for employee theft.
C)contract prohibiting former employees from working for a competitor.
D)promise by a company to safeguard customers' personal information.

Question 37

Internal control is so important to an organization that cost/benefit relationship can be ignored.

Question 38

If a company uses a sophisticated IT system, the basic attributes of internal control are the same as under a manual system.

Question 39

Encryption limits access to hardware and software or to data within a database.

Question 40

Hints of where fraud, mistakes or financial harm can occur in a company is called:

A)the control environment.
B)risk assessment.
C)control procedures.
D)the tone at the top.

Question 41

A company's policy is to have all sales to customers on account approved by a separate credit department. This is an example of the control procedure of:

A)limited access.
B)proper approvals.
C)adequate records.
D)compliance monitoring.

Question 42

The chief accounting officer of a business is the:

A)staff accountant.
B)treasurer.
C)controller.
D)mail clerk.

Question 43

In a bank reconciliation, outstanding checks would be added to the book balance.

Question 44

The journal entry for a note collected by the bank with interest requires a credit to Cash and a debit to both Notes Receivable and Interest Revenue.

Question 45

Processing cash receipts under a lock-box system is an example of the control procedure of:

A)limited access.
B)proper approvals.
C)adequate records.
D)compliance monitoring.

Question 46

A malicious program that enters program code without consent and performs destructive actions in the victim's computer files or programs is a(n):

A)encryption device.
B)phishing expedition.
C)computer virus.
D)Trojan horse.

Question 47

Examples of tools for monitoring compliance with management's policies include:

A)controller reports.
B)operating budgets and cash budgets.
C)segregation of duties.
D)all of the above.

Question 48

An electronic barrier around computerized data files to protect local networks of computers from unauthorized access is a(n):

A)encryption device.
B)firewall.
C)security wall.
D)access device.

Question 49

There are two records of a business's cash-the cash account in the company's general ledger and the bank statement.

Question 50

Three key duties must always be separated under a good system of internal controls:

A)asset handling, record keeping and transaction approval.
B)asset handling, hiring and safeguarding of assets.
C)asset handling, recordkeeping and safeguarding of assets.
D)record keeping, transaction analysis and transaction approval.

Question 51

The rule that all major groups of transactions should be supported by hard copy documents or electronic records is part of the control procedure of:

A)limited access.
B)segregation of duties.
C)adequate records.
D)proper approvals.

Question 52

An internal control system can be circumvented by:

A)collusion, encryption and management override.
B)collusion, management override and segregation of duties.
C)collusion, management override and human limitations.
D)nothing, if it is a good internal control system.

Question 53

A malicious computer program that hides inside a legitimate program and works like a virus is a(n):

A)encryption device.
B)phishing expedition.
C)computer virus.
D)Trojan horse.

Question 54

When preparing a bank reconciliation, deposits in transit are subtracted from the balance shown on the bank statement.

Question 55

Proper separation of duties and physical safeguards to protect assets from theft are part of a company's:

A)information system.
B)control procedures.
C)control monitoring.
D)personnel maintenance.

Question 56

The processing of a transaction so that no one person or group of persons can process the transaction completely without being checked by another person or group is part of the control procedure of:

A)information systems.
B)monitoring of controls.
C)control procedures.
D)control processing.

Question 57

The journal entry for a NSF check involves a credit to Accounts Receivable.

Question 58

Creating bogus websites for the purpose of stealing unauthorized data is a(n):

A)encryption device.
B)phishing expedition.
C)computer virus.
D)Trojan horse.

Question 59

Alpha Company has an account at First Bank. Alpha writes a check payable to Beta Company. In this transaction, Alpha Company is the:

A)payee.
B)payer.
C)drawer.
D)maker.

Question 60

The person to whom a check is paid is referred to as the drawee.

Question 61

In a bank reconciliation, a NSF check is:

A)added to the bank balance.
B)added to the book balance.
C)deducted from the book balance.
D)deducted from the bank balance.

Question 62

When preparing a bank reconciliation, which of the following items should be subtracted from the bank balance?

A)Deposits in transit
B)Bank service charges
C)EFT cash receipts
D)Outstanding checks

Question 63

Herbert Company deposited $25,000 in its bank on the same day as-but after-the bank prepared Herbert Company's bank statement. The deposit should appear on the bank reconciliation as a(n)__________ and is called a(n)__________.

A)addition to the bank balance; outstanding deposit
B)addition to the bank balance; deposit in transit
C)deduction to the bank balance; deposit in transit
D)deduction to the bank balance; outstanding deposit

Question 64

A bank charge of $40 for imprinting checks would appear on the bank reconciliation as a(n)__________ to (or from)the ____????______ balance.

A)addition; bank
B)deduction; bank
C)addition; book
D)deduction; book

Question 65

In a bank reconciliation, items recorded by the bank, but not yet recorded by the company, include:

A)deposits in transit.
B)bank collections.
C)outstanding checks.
D)both deposits in transit and outstanding checks.

Question 66

Gamma Company has an account at First Bank. Gamma writes a check payable to Delta Company. In this transaction, Delta Company is the:

A)payee.
B)payer.
C)drawer.
D)maker.

Question 67

Which of the following items will cause a difference between the book balance and the bank balance?

A)Timing deposits
B)Bank collections
C)Canceled checks
D)Outstanding voided checks

Question 68

In a bank reconciliation, items recorded by the company, but not yet been recorded by the bank, include:

A)interest.
B)outstanding checks.
C)NSF checks.
D)bank service charges.

Question 69

If a bookkeeper mistakenly records a disbursement as $36 instead of the correct amount of $63, the error should be shown on the bank reconciliation as a:

A)$27 addition to the books.
B)$27 deduction from the books.
C)$36 addition to the books.
D)$36 deduction from the books.

Question 70

The checks that have been paid by the bank on behalf of the depositor, which are included with the bank statement, are called:

A)outstanding checks.
B)canceled checks.
C)checks in transit.
D)NSF checks.

Question 71

Checks written by a company, but not yet paid by the bank, appear on the bank reconciliation as __________ and are called __________.

A)deductions from the bank balance; checks in transit
B)deductions from the bank balance; outstanding checks
C)additions to the bank balance; checks in transit
D)additions to the bank balance; check items

Question 72

In a bank reconciliation, an EFT cash payment is:

A)added to the bank balance.
B)added to the book balance.
C)deducted from the book balance.
D)deducted from the bank balance.

Question 73

Differences between the amount of cash reported on a company's bank statement and the balance in the company's Cash account before the bank reconciliation are primarily due to:

A)errors in the accounting process by the company.
B)errors made by the bank.
C)differences between the cash basis and accrual basis of accounting.
D)the timing difference in recording transactions.

Question 74

A bank deposit of $450 recorded by the bank as $500 should appear on a bank reconciliation as a(n):

A)deduction from the book balance of $50.
B)addition to the book balance of $50.
C)deduction from the bank balance of $50.
D)addition to the bank balance of $50.

Question 75

In a bank reconciliation, an EFT cash receipt is:

A)added to the bank balance.
B)added to the book balance.
C)deducted from the book balance.
D)deducted from the bank balance.

Question 76

A bank collected $200 on behalf of its customer. The $200 should appear on the bank reconciliation as:

A)added to the bank balance.
B)added to the book balance.
C)deducted from the book balance.
D)having no impact on the book balance.

Question 77

Interest paid by the bank to a company's account should appear on the bank reconciliation as:

A)added to the bank balance.
B)added to the book balance.
C)deducted from the book balance.
D)having no impact on the book balance.

Question 78

If a bookkeeper mistakenly records a disbursement as $810 instead of the correct amount of $180, the error should be shown on the bank reconciliation as a(n):

A)$180 addition to the books.
B)$180 deduction from the books.
C)$630 addition to the books.
D)$630 deduction from the books.

Question 79

The person who prepares the bank reconciliation:

A)should also be responsible for cash receipts.
B)should also be responsible for cash disbursements.
C)should be responsible for both cash receipts and cash disbursements.
D)should have no other cash duties.

Question 80

When preparing a bank reconciliation, which of the following items should be added to the book balance?

A)EFT receipts
B)Deposits in transit
C)Collection items
D)Both EFT receipts and collection items