Question 1

Which of the following is a poor internal accounting control feature?

Accepted Answer

Combining authorization with custodianship is a poor internal accounting control feature because it allows the same individual to both authorize transactions and have custody of the related assets, increasing the risk of fraud or errors.

Question 2

Procedures requiring that the recording of asset transactions be separated from the custody of those assets:

Accepted Answer

Separating the recording of asset transactions from the custody of those assets is a fundamental internal control principle designed to prevent theft and errors. This is especially important for highly liquid assets like cash, where the risk of misappropriation is higher.

Question 3

In establishing an effective internal control structure, management should:

Accepted Answer

An effective internal control structure requires a good control environment, an effective accounting system, and the integration of control procedures into both the control environment and accounting system. All these elements work together to ensure the reliability of financial reporting, compliance with laws and regulations, and the efficient and effective operation of the organization.

Question 4

The Sarbanes-Oxley Act (SOX) mandates that all publicly traded US corporations must:

Accepted Answer

The Sarbanes-Oxley Act (SOX) requires all publicly traded U.S. corporations to maintain an adequate system of internal controls, mandates that top management certify the accuracy of financial information, and requires outside auditors to attest to the adequacy of the internal control systems.

Question 5

Internal auditing is a company function that:

Accepted Answer

Internal auditing is primarily focused on providing independent appraisals regarding the company's financial statements, its internal control systems, and its operations to add value and improve the organization's operations. It does not typically involve auditing financial statements to express an opinion (which is the role of external auditors) or preparing income tax returns.

Question 6

A compensating balance refers to:

Accepted Answer

A compensating balance is a minimum balance that a bank requires a borrower to maintain in an account as part of a loan agreement. This balance is not directly available for the company's use but serves as a form of security for the bank.

Question 7

From the viewpoint of good internal accounting control, which of the following individuals would be the proper person to prepare bank reconciliations for a company that receives cash payments both through the mail and from customers in person?

Accepted Answer

To ensure good internal accounting control, the task of preparing bank reconciliations should be segregated from the duties of handling cash or recording cash transactions. This separation of duties helps to prevent and detect errors or fraud. Individuals who open mail, receive payments in person, or deposit cash receipts are directly involved in handling cash, making them inappropriate choices for preparing bank reconciliations.

Question 8

Which of the following features should not be included in a good system of internal accounting control over cash?

Accepted Answer

The separation of duties is a key principle in internal controls to prevent fraud and errors. Having the same person prepare monthly bank reconciliations and make daily bank deposits violates this principle, as it does not provide an independent check on the accuracy of the cash handling and recording process.

Question 9

Which of the following is not a feature of good internal accounting control over cash?

Accepted Answer

Paying most bills with paper currency and coins to minimize bank service charges is not a feature of good internal accounting control over cash. Good internal control systems typically encourage the use of traceable transactions, such as checks or electronic payments, which provide a record and are more secure than using cash.

Question 10

The Cash amount properly shown on the year-end balance sheet is the

Accepted Answer

The correct cash amount to be shown on the year-end balance sheet is the balance in the general ledger account after entries from the year-end bank reconciliation have been posted. This ensures that all reconciling items have been accounted for, presenting the true cash balance.

Question 11

Identify the principle of internal control that is violated in the following situation: Marvin Company is a very small business. Sam Jones, one of the two office clerks, opens the mail each day and removes the cash receipts that come in the mail. Sam then records the receipts in the cash records and the customer's account and deposits the cash in the bank.

Accepted Answer

Dividing responsibility for related transactions (also known as segregation of duties) is violated here because Sam Jones is responsible for opening mail, recording receipts, and depositing cash, which concentrates too much responsibility in one person's hands and increases the risk of errors or fraud.

Question 12

The following adjustment is necessary upon discovery of a "NSF" check during a bank reconciliation:

Accepted Answer

When a "NSF" (Non-Sufficient Funds) check is discovered during a bank reconciliation, the company needs to reverse the initial entry that recognized the check as cash. This involves increasing Accounts Receivable to reflect that the customer's payment was not successful and decreasing Cash to correct the cash balance.

Question 13

At May 31, Robinson Company has outstanding checks totaling $9,800. The bank reconciliation for May should show these checks as a(n):

Accepted Answer

Outstanding checks are checks that have been written by the company but have not yet been cleared by the bank. Therefore, they are deducted from the balance per bank statement to reconcile the company's book balance with the bank's balance.

Question 14

First State Bank collected a note for Smith Company. This collection, not yet recorded in Smith's books, appears on the bank reconciliation as a(n):

Accepted Answer

The collection of a note by the bank on behalf of Smith Company is an addition to the balance per general ledger because it represents funds that have been added to Smith's account but not yet recorded in their books.

Question 15

In reconciling the July bank statement, the vice president discovered that the bookkeeper had recorded a check written for $353 as $533 in the cash disbursements journal. For the bank reconciliation, the $180 error should be:

Accepted Answer

The error occurred in the company's books, not the bank statement. Therefore, to correct the overstatement in the cash disbursements journal, $180 should be added back to the balance per general ledger.

Question 16

The following information pertains to Rodriguez Company:

Rodriguez should show the following reconciled cash balance from the bank reconciliation on its balance sheet:

Accepted Answer

The answer of The following information pertains to Rodriguez Company:

...

Question 17

Williams Inc.'s June bank statement shows a June 30 balance of $9,050. Prior to reconciliation, its books show a cash balance of $9,210. The information below pertains to Williams:

The reconciled cash balance at June 30 on the bank reconciliation should be:

Accepted Answer

The answer of Williams Inc.'s June bank statement shows a...

Question 18

In preparing its bank reconciliation at March 31, Chioda Company has the following information:
 What is the proper cash balance at March 31 for balance sheet purposes?

Accepted Answer

The answer of In preparing its bank reconciliation at March...

Question 19

The bank statement reported an ending balance of $14,620 after deducting $220 in service charges and an addition of $4,500 for a note collected by the bank on the company's behalf. The company books reported an ending balance of $9,690, and determined that deposits in transit equal $5,600 and outstanding checks equal $6,250.
What is the adjusted cash balance?

Accepted Answer

The adjusted cash balance is calculated by starting with the bank statement balance, then adjusting for items known to the company but not yet reflected in the bank statement. Starting with the bank's reported balance of $14,620, we don't need to adjust for the service charges or the note collected by the bank, as these are already reflected in the bank's balance. We then adjust for the deposits in transit by adding $5,600 and subtract the outstanding checks of $6,250. Therefore, the adjusted cash balance is $14,620 + $5,600 - $6,250 = $13,970.

Question 20

Discuss and differentiate between prevention control and detection control. Provide an example of each.

Accepted Answer

The answer of Discuss and differentiate between prevention control and...

Quiz 5: Internal Control and Cash