Question 1

Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system.

Accepted Answer

The answer of Collusion may result when one individual circumvents...

Question 2

The petty cash fund eliminates the need for a bank checking account.

Accepted Answer

The petty cash fund is a small amount of cash kept by a company to pay for minor expenses without having to write a check. It does not eliminate the need for a bank checking account, which is used for larger payments and deposits.

Question 3

Which one of the following is not an objective of a system of internal controls?

Accepted Answer

Overstating liabilities is not an objective of a system of internal controls. The other options are all common objectives of internal controls.

Question 4

Internal controls are concerned with

Accepted Answer

Internal controls are policies and procedures put in place by an organization to safeguard its assets, ensure the accuracy of its financial records, and promote operational efficiency. It is not concerned with preparing income tax returns or the extent of government regulations, and it applies to both manual and computerized accounting systems.

Question 5

A voucher system is used by many large companies as a means of controlling cash receipts.

Accepted Answer

A voucher system is primarily used to control cash disbursements and manage payables, not cash receipts.

Question 6

To obtain maximum benefit from a bank reconciliation the reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.

Accepted Answer

It is important to have separation of duties when it comes to cash handling and reconciliation in order to prevent fraud or errors. Assigning the task of bank reconciliation to an employee who has no other responsibilities related to cash helps to ensure that there is no conflict of interest and that the process is carried out accurately and objectively.

Question 7

A bank reconciliation is generally prepared by the bank and sent to the depositor along with cancelled checks.

Accepted Answer

A bank reconciliation is typically prepared by the depositor to compare their own records with the bank's records and identify any discrepancies. The bank may provide cancelled checks and other information to help with this process, but they generally do not prepare the reconciliation themselves.

Question 8

In general documents should be prenumbered and all documents should be accounted for.

Accepted Answer

Prenumbering documents and keeping track of all documents ensures organization and accountability.

Question 9

The duties of approving an item for payment and paying the item should be done by different departments or individuals.

Accepted Answer

Separation of duties is a key control in financial management to prevent fraud or errors. In this case, having different departments or individuals responsible for approving and paying an item adds a layer of accountability and oversight to the payment process.

Question 10

If a company deposits all its receipts in the bank and pays all its bills by check then the monthly bank statement balance will always agree with the company's record of its checking account balance.

Accepted Answer

The monthly bank statement balance may not necessarily agree with the company's record of its checking account balance due to factors such as outstanding checks, deposits in transit, bank fees, and errors.

Question 11

Internal control consists of the plan of organization and all of the related methods and measures adopted within a business to (a) safeguard its assets and (b) enhance the accuracy and reliability of its accounting records.

Accepted Answer

Internal control is indeed a plan of organization and related methods to safeguard assets and enhance accounting records accuracy and reliability.

Question 12

A debit memorandum could show the collection of a note receivable by the bank.

Accepted Answer

A debit memorandum is used by a bank to notify a company that the bank is decreasing the company's bank account for various reasons, but the collection of a note receivable typically results in a credit to the account, not a debit.

Question 13

All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.

Accepted Answer

All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account. This is necessary to ensure that the Cash account accurately reflects the true balance of the company's cash on hand.

Question 14

The custodian of the petty cash fund has the responsibility of recording a journal entry every time cash is used from the fund.

Accepted Answer

The custodian of the petty cash fund is responsible for disbursing cash and maintaining the petty cash voucher receipts, but recording journal entries is typically the responsibility of the accounting department.

Question 15

Cash register overages are deposited in the petty cash fund and cash shortages are made-up from the petty cash fund.

Accepted Answer

Cash register overages and shortages are typically handled through the store's cash management system and should not be directly deposited or withdrawn from the petty cash fund.

Question 16

Cash equivalents are highly liquid investments that can be converted into a specific amount of cash.

Accepted Answer

Cash equivalents are investments that can be easily converted into a specific amount of cash and are highly liquid, such as money market funds, treasury bills, and short-term government bonds.

Question 17

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

Accepted Answer

A deposit ticket is not a negotiable instrument and cannot be transferred to another party by endorsement. It is simply a record of the deposit made by the account holder.

Question 18

Personnel who handle cash receipts should have the option of taking a vacation or not.

Accepted Answer

Mandatory vacation policies for personnel who handle cash receipts are a common internal control measure to help detect fraud or errors, as it allows for the duties of the absent employee to be covered by someone else, potentially revealing any discrepancies.

Question 19

Cash which is restricted for a specific use should be separately reported.

Accepted Answer

Cash which is restricted for a specific use should be separately reported to ensure that it is not used for other purposes. This can include funds earmarked for things like capital improvements, debt service, or specific programs or initiatives. Separately reporting these funds helps ensure transparency and accountability in financial reporting.

Question 20

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

Accepted Answer

Checks from customers who pay their accounts promptly are not outstanding checks. Outstanding checks are checks that have been written and recorded in the company's books, but have not yet cleared the bank.

Quiz 8: Fraud, Internal Control, and Cash