Question 1

Which of the following is NOT a component of effective cash management and control for a company's operating cycle?

Accepted Answer

The practice of using surplus cash to purchase bonds or other long-term investments is not a component of effective cash management and control for a company's operating cycle. Effective cash management involves managing cash inflows and outflows, maintaining adequate levels of liquidity, minimizing idle cash, and optimizing the use of cash resources. Investing surplus cash in long-term securities may yield higher returns but does not directly impact the company's operating cycle or short-term cash needs. A, B, and D are all components of effective cash management and control for a company's operating cycle.

Question 2

Match the following terms with their correct definition.
-fund used to pay for small amounts to avoid the time and expense of paying by cheque

Accepted Answer

Petty cash is a small amount of cash on hand used for paying expenses too small to merit writing a check.

Question 3

Match the following terms with their correct definitions.
-procedure that provides physical protection of the company's assets

Accepted Answer

Safeguarding refers to the procedure that provides physical protection of the company's assets, ensuring they are secure from theft, damage, or misuse.

Question 4

Match the following terms with their correct definitions.
-the collection of environmental factors that influence the effectiveness of control procedures

Accepted Answer

The control environment is the set of standards, processes, and structures that provide the basis for carrying out internal control across the organization. It includes the overall attitude, awareness, and actions of directors and management regarding the internal control system and its importance in the entity. The control environment has a pervasive influence on the way business activities are structured, objectives are set, and risks are managed, including the effectiveness of control procedures.

Question 5

Match the following terms with their correct definitions.
-collective term for procedures put into place to ensure that employees operate within the scope of their assigned responsibilities and act for the good of the business

Accepted Answer

An internal control system encompasses the collective measures and procedures designed to safeguard assets, enhance the reliability of financial reports, and ensure compliance with laws and regulations, thereby ensuring that employees act in the best interest of the organization.

Question 6

Match the following terms with their correct definition.
-amounts on deposit with financial institutions and investments primarily held in money market accounts,with original maturities of less than 90 days

Accepted Answer

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less, making them very similar to the description provided.

Question 7

What is the term for cheques presented for payment and paid by the bank?

Accepted Answer

Cancelled cheques are cheques that have been presented for payment and paid by the bank. This means that the funds have been transferred from the account holder's bank account to the payee's account. Certified cheques are cheques that have been guaranteed by the bank for payment, while NSF cheques are cheques that do not have sufficient funds to cover the amount being paid. Outstanding cheques are cheques that have been issued but not yet presented for payment.

Question 8

Match the following terms with their correct definition.
-account used to record any discrepancies between the cash records and the actual amount of cash received

Accepted Answer

B) Cash over and short is the account used to record discrepancies between the recorded amounts in the company's books and the actual amount of cash received. This account helps in tracking any overages or shortages in cash transactions.

Question 9

Which of the following would NOT be considered a cash equivalent?

Accepted Answer

While A, B, and C are all examples of cash equivalents, a common share issued by a corporation is not. A common share represents ownership in a company and is subject to fluctuations in value based on market conditions and the company's performance, making it less liquid and less reliable as a cash equivalent.

Question 10

Match the following terms with their correct definitions.
-risks associated with how the company allocates its resources to meet its objectives

Accepted Answer

Business process risks are risks associated with how the company allocates its resources to meet its objectives.

Question 11

Which of the following assets is considered the most liquid?

Accepted Answer

Cash is considered the most liquid asset because it can be readily converted into other assets. Accounts receivable, inventory, and prepaid insurance may not be easily converted into cash and may take time to liquidate.

Question 12

Which of the following is NOT considered a cash equivalent?

Accepted Answer

All other options are short-term, highly liquid investments that are easily convertible to cash, making them cash equivalents. A 180-day note issued by a local government is not viewed as a cash equivalent because it has a longer maturity and may not be as easily converted to cash without penalty.

Question 13

Which of the following is NOT included in cash and cash equivalents on a company's balance sheet?

Accepted Answer

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. A bank certificate of deposit for one year does not qualify as a cash equivalent because it typically cannot be withdrawn without penalty for a year, making it less liquid than the other options listed.

Question 14

How are cash equivalents reported or disclosed in the financial statements?

Accepted Answer

Cash equivalents are treated as if they are cash on the balance sheet, and therefore are included with cash as a current asset. This is the most common way to report cash equivalents in the financial statements.

Question 15

Which of the following is NOT considered to be a cash equivalent?

Accepted Answer

The answer of Which of the following is NOT considered...

Question 16

Match the following terms with their correct definitions.
-action that reduces the likelihood that records could be used to conceal intentional misstatements,theft,or fraud

Accepted Answer

Segregation of duties is an action that reduces the likelihood that records could be used to conceal intentional misstatements, theft, or fraud by ensuring that no single individual has control over all aspects of a financial transaction.

Question 17

Match the following terms with their correct definition.
-elapsed time between the purchase of goods for resale and the collection of cash from customers

Accepted Answer

The operating cycle is the correct term that describes the elapsed time between the purchase of goods for resale and the collection of cash from customers. It encompasses the entire process from buying inventory, selling it, and finally collecting the cash from sales.

Question 18

What is the term for cash collected and recorded by a company but NOT yet reflected in a bank statement?

Accepted Answer

Deposits in transit refer to cash collected and recorded by a company but not yet reflected in a bank statement. Debit memos refer to amounts deducted from a company's bank account, credit memos refer to amounts added to a company's bank account, and outstanding cheques refer to cheques that have been issued by a company but have not yet been presented for payment by the recipient.

Question 19

Match the following terms with their correct definitions.
-methods and records used to identify,measure,record,and communicate financial information about a business

Accepted Answer

Accounting systems are the methods and records that are used to identify, measure, record, and communicate financial information about a business. This includes all the processes and tools used in financial reporting and analysis.

Question 20

Which of the following is characteristic of internal control?

Accepted Answer

Sound internal control practice dictates that disbursements should be made by cheque as it provides a clear trail of transactions and reduces the risk of fraud or errors.

Answer: C 
 The person handling cash should not also prepare the bank reconciliation as it allows for potential errors or fraud to go unnoticed. Separation of duties is an important internal control practice.

Answers B and D are incorrect as they go against good internal control practices. Large cash balances increase the risk of theft or loss, and substituting petty cash for a chequing account does not provide proper documentation or oversight for disbursements.

Quiz 2: Internal Control and Cash

Which of the following is NOT a component of effective cash management and control for a company's operating cycle?

Match the following terms with their correct definition. -fund used to pay for small amounts to avoid the time and expense of paying by cheque

Match the following terms with their correct definitions. -procedure that provides physical protection of the company's assets

Match the following terms with their correct definitions. -the collection of environmental factors that influence the effectiveness of control procedures

Match the following terms with their correct definitions. -collective term for procedures put into place to ensure that employees operate within the scope of their assigned responsibilities and act for the good of the business

Match the following terms with their correct definition. -amounts on deposit with financial institutions and investments primarily held in money market accounts,with original maturities of less than 90 days

What is the term for cheques presented for payment and paid by the bank?

Match the following terms with their correct definition. -account used to record any discrepancies between the cash records and the actual amount of cash received

Which of the following would NOT be considered a cash equivalent?

Match the following terms with their correct definitions. -risks associated with how the company allocates its resources to meet its objectives