Question 1

Companies should set maximum purchase limits on debit cards and credit cards as part of internal controls.

Accepted Answer

Setting maximum purchase limits can help prevent unauthorized purchases and can also limit the financial impact of fraud or errors on the company.

Question 2

The amount of cash reported in a company's balance sheet includes the balance of accounts receivable if cash collection is highly likely in the near future.

Accepted Answer

Accounts receivable is a separately reported asset from cash.

Question 3

The amount of cash reported in a company's balance sheet does not include cash equivalents, defined as short-term investments that have a maturity date no longer than three months from the date of purchase.

Accepted Answer

Cash equivalents are included in the cash balance.

Question 4

Differences in the company's cash balance and the bank's cash balance occur because of either timing differences or errors.

Accepted Answer

Timing differences can occur when there is a delay between when a company records a transaction in its books and when the bank records the same transaction in its system. Errors can occur due to mistakes in recording transactions or discrepancies between the company's records and the bank's records.

Question 5

The amount of cash reported in a company's balance sheet includes items acceptable for deposit in bank accounts, such as checks received from customers.

Accepted Answer

The amount of cash reported in a company's balance sheet includes all items acceptable for deposit in bank accounts, including checks received from customers.

Question 6

Management needs to monitor the internal control system, just like any other system. Any control deficiencies spotted by employees should be reported immediately to management.

Accepted Answer

Monitoring the internal control system is a key responsibility of management, and any deficiencies should be reported and addressed promptly.

Question 7

Allowing the employee who authorizes purchases to also prepare the check is an example of good internal control.

Accepted Answer

A single employee should not perform both of these tasks.

Question 8

Common examples of cash equivalents are money market funds, Treasury bills, and certificates of deposit.

Accepted Answer

This is a true statement. Cash equivalents are short-term investments that can easily be converted to cash and have low risk, such as money market funds, Treasury bills, and certificates of deposit.

Question 9

When customers pay for services with a debit card, the company should debit Cash and credit Service Revenue.

Accepted Answer

When customers pay for services with a debit card, the company receives cash which increases the Cash account (debit) and provides a service which generates revenue that increases the Service Revenue account (credit). Therefore, the correct journal entry would be to debit Cash and credit Service Revenue.

Question 10

Effective internal controls ensure a company's success and survival.

Accepted Answer

Effective internal controls improve the company's likelihood of success and survival, but do not provide a guarantee.

Question 11

When customers pay for services with a check, the company should debit Accounts Receivable and credit Service Revenue.

Accepted Answer

The debit should be to Cash.

Question 12

Separation of duties occurs when two or more people act in coordination to circumvent internal controls.

Accepted Answer

This is the act of collusion.

Question 13

Whether a customer uses cash, a check, or a debit card to make a purchase, the company records the transaction as a cash sale.

Accepted Answer

The company records a transaction as a cash sale regardless of the specific method of payment used by the customer.

Question 14

The amount of cash reported in a company's balance sheet includes currency, coins, and balances in savings and checking accounts, as well as items acceptable for deposit in these accounts, such as checks received from customers.

Accepted Answer

The statement is true. The amount of cash reported in a company's balance sheet includes currency, coins, balances in savings and checking accounts, and items acceptable for deposit in these accounts, such as checks received from customers.

Question 15

An example of a bank error that causes the company's balance and bank's balance of cash to differ is the purchase of supplies with a check.

Accepted Answer

This is an example of a timing difference.

Question 16

A bank reconciliation matches the balance of cash in the bank account with the balance of cash in the company's own records.

Accepted Answer

A bank reconciliation is a process where you compare the balance of cash in the bank statement with the balance of cash in the company's own records to ensure they match. This helps identify any discrepancies or errors that need to be corrected.

Question 17

When a company pays for services received using a check, it should credit Accounts Payable until the check is paid by the bank.

Accepted Answer

The credit is to the Cash account.

Question 18

Recording all cash receipts as soon as possible is considered a good internal control.

Accepted Answer

Recording all cash receipts as soon as possible helps to ensure that all transactions are accounted for and minimizes the risk of errors or fraud. It also helps to provide a more accurate and up-to-date picture of the organization's financial position.

Question 19

Opening mail and making a list of checks received once per week is considered a good internal control over cash receipts.

Accepted Answer

These tasks should be performed each day.

Question 20

When a company pays for services received using a credit card, it should credit Accounts Payable.

Accepted Answer

When a company pays for services received using a credit card, it should credit its Accounts Payable account to reflect the reduction in the amount owed.

Quiz 4: Cash and Internal Controls