Chapter 7 - Internal Control and Cash
4. The Sarbanes-Oxley Act requires that financial statements of all public companies report on management's conclusions about the effectiveness of the company's internal control procedures.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-01 - LO: 07-01
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.03 - Legal
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Ethics
5. Sarbanes-Oxley requires companies to maintain strong and effective internal controls and thus deter fraud and prevent misleading financial statements.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
Bloom's: Remembering
FNMN.WARD.17.07-01 - LO: 07-01
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.03 - Legal
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Ethics
6. The control environment in an internal control structure is the overall attitude of management and employees about the importance of internal control.
a. True
b. False ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
7. Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the control procedure: separating operations, custody of assets, and accounting.
a. True
b. False ANSWER: False
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-02 - LO: 07-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8. Internal control is enhanced by separating the control of a transaction from the record-keeping function.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
9. A backlog in recording transactions is an example of a warning sign from the accounting system.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
10. Money orders are considered cash.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
11. A customer's check received in settlement of an account receivable is considered cash.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.04 - Cash vs. Accrual
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash ©
Cengage
®
duplicated, or posted to a publicly accessible website, in whole or in part.
2017
Learning
May not be scanned, copied or
12. Businesses who have several bank accounts, petty cash, and cash on hand, would maintain a separate ledger account for each type of cash.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
Bloom's: Remembering
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
13. For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
14. If the balance in Cash Short and Over at the end of a period is a credit, it indicates that cash shortages have exceeded cash overages for the period.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
15. If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as an "other income" item on the income statement.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy Bloom's: Remembering
Chapter 7 - Internal Control and Cash
publicly
in
in part.
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a
accessible website,
whole or
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.09 - Financial Statements
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
16. An example of good internal controls over cash payments is the taking of all cash discounts offered.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
17. A voucher is a form on which is recorded pertinent data about a liability and the particulars of its payment.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
18. When the voucher system is used, the amount due on each voucher represents the credit balance of an account payable if the voucher is in full payment to a creditor.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
19. A voucher system is an example of an internal control procedure over cash payments.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy Bloom's: Remembering
Chapter 7 - Internal Control and Cash
a publicly accessible website, in whole or in part.
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to
LEARNING OBJECTIVES: FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
20. A voucher is a written authorization to make a cash payment.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
21. The bank often informs the company of bank service charges by including a credit memo with the monthly bank statement.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-04 - LO: 07-04
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
22. Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on the bank's records.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-04 - LO: 07-04
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash ©
a publicly accessible website, in
in part.
2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to
whole or
23. Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-04 - LO: 07-04
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
24. For efficiency of operations and better control over cash, a company should maintain only one bank account.
a. True
b. False
ANSWER: False
DIFFICULTY: Bloom's: Remembering Easy
LEARNING OBJECTIVES:
FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
25. In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank statement.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
26. In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank statement.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Control and Cash
27. In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is added to the balance per company's records.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES:
Bloom's: Remembering
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
28. In preparing a bank reconciliation, the amount of a canceled check omitted from the journal is added to the balance per company's records.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
29. A check for $342 was erroneously charged by the bank as $432. In order for the bank reconciliation to balance, you must add $90 to the bank statement balance.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
30. If an adjustment for an NSF check is made in a company’s bank reconciliation, then the company must have written a bad check during the month.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash
part.
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
31. The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
Bloom's: Remembering
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
32. All bank memos reported on the bank reconciliation require entries in the company's accounts.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
33. The bank reconciliation is an important part of the system of internal controls.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.10 - Internal Control
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
34. The main reason that the bank statement cash balance and the company's cash balance do not initially balance is due to timing differences.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
©
or
to a publicly accessible website, in whole or in part.
Chapter 7 - Internal Control and Cash
2017 Cengage Learning® May not be scanned, copied or duplicated,
posted
35. The bank reconciles its statement to the company's records.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
36. In preparing a bank reconciliation, the amount indicated by a credit memo for a note receivable collected by the bank is added to the balance per company's records.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
37. In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal for an amount larger than the amount of the check is added to the balance per company's records.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
38. A check outstanding for two consecutive months will appear only on the first month's bank reconciliation.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning®
duplicated, or
to a publicly accessible website, in whole or in part.
May not be scanned, copied or
posted
39. After a bank reconciliation is completed, journal entries are prepared for items in the balance per company's records as well as items in the balance per bank statement.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
Bloom's: Remembering
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
40. A business that requires all cash payments be made by check can not use a petty cash system.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-06 - LO: 07-06
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
41. In establishing a petty cash fund, a check is written for the amount of the fund and is recorded as a debit to Accounts Payable and a credit to Petty Cash.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-06 - LO: 07-06
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
42. Expenditures from a petty cash fund are documented by a petty cash receipt.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
7 - Internal
Chapter
Control and Cash
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-06 - LO: 07-06
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
43. The sum of the money on hand and petty cash receipts in a petty cash fund will always be equal to the balance in the petty cash account.
a. True
b. False ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-06 - LO: 07-06
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
44. When the petty cash fund is replenished, the petty cash account is credited for the total of all expenditures made since the fund was last replenished.
a. True
b. False ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-06 - LO: 07-06
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
45. Most companies who have several bank accounts, petty cash, and cash on hand, would list each separately on the balance sheet.
a. True
b. False ANSWER: False
DIFFICULTY: Bloom's: Remembering Easy
LEARNING OBJECTIVES:
FNMN.WARD.17.07-07 - LO: 07-07
ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash
to a publicly accessible website, in whole or in part.
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted
46. A petty cash fund is used to pay relatively large amounts.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-06 - LO: 07-06
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
47. The petty cash fund eliminates the need for a bank checking account.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-06 - LO: 07-06
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
48. A compensating balance occurs when a bank may require a company to maintain a maximum cash balance.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-07 - LO: 07-07
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
49. Cash equivalents include short-term investments that will be converted to cash within 120 days.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-07 - LO: 07-07
ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash ©
publicly accessible website,
in part.
2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a
in whole or
50. Money market accounts, commercial paper, and U. S. Treasury bills are examples of cash equivalents.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-07 - LO: 07-07
ACCT.ACBSP.APC.09 - Financial Statements
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
51. Sarbanes-Oxley applies to
a. publicly held companies
b. not-for-profit organizations
c. privately held businesses
d. all of these
ANSWER: a
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-01 - LO: 07-01
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.03 - Legal
BUSPROG: Ethics
52. "To maintain public confidence and trust in the financial reporting of companies" is the purpose of
a. the FASB
b. the IRS
c. Sarbanes-Oxley
d. GAAP
ANSWER: c
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-01 - LO: 07-01
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.03 - Legal
BUSPROG: Ethics
53. Which one of the following below is not an element of internal control?
a. risk assessment
b. monitoring
c. information and communication
d. cost-benefit considerations
ANSWER: d
DIFFICULTY: Easy Bloom's: Remembering
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
54. Which one of the following is not a factor that influences a business's control environment?
a. management's philosophy and operating style
b. organizational structure
c. proofs and security measures
d. personnel policies
ANSWER: c
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
55. When a firm uses internal auditors, it is adhering to which of the following internal control elements?
a. risk assessment
b. monitoring
c. proofs and security measures
d. information and communication
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-02 - LO: 07-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
56. The objectives of internal control are to
a. control the internal organization of the accounting department personnel and equipment
b. provide reasonable assurance that assets are safeguarded and used for business purposes, business information is accurate, and laws and regulations are complied with
c. prevent fraud, and promote the social interest of the company
d. provide control over "internal-use only" reports and employee internal conduct
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
57. Which one of the following reflects a weak internal control system?
a. all employees are well supervised
b. a single employee is responsible for comparing a receiving report to an invoice
c. all employees must take their vacations
d. a single employee is responsible for collecting and recording of cash
ANSWER: d
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
58. Internal control does not consist of policies and procedures that
a. protect assets from misuse
b. ensure employees and managers comply with laws and regulations
c. guarantee the company will earn a profit
d. ensure that business information is accurate
ANSWER: c
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
59. A firm's internal control environment is not influenced by
a. management's operating style
b. organizational structure
c. personnel policies
d. monitoring policies
ANSWER: d
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
60. An element of internal control is
a. risk assessment
b. journals
c. subsidiary ledgers
d. controlling accounts
ANSWER: a
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
61. A necessary element of internal control is
a. database
b. systems design
c. systems analysis
d. information and communication
ANSWER: d
DIFFICULTY: Easy
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
Bloom's: Remembering
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
62. Which of the following should not be considered cash by an accountant?
a. money orders
b. bank checking accounts
c. postage stamps
d. travelers' checks
ANSWER: c
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
63. The cash account in the company's ledger is a(n)
a. asset with a normal debit balance
b. asset with a normal credit balance
c. liability with a normal debit balance
d. liability with a normal credit balance
ANSWER: a
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.15 - Current Assets Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
64. The portion of an invoice that is returned with payment is a
a. remittance advice
b. voucher
c. debit memo
d. credit memo
ANSWER: a
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
65. The debit balance in Cash Short and Over at the end of an accounting period is reported as
a. an expense on the income statement
b. income on the income statement
c. an asset on the balance sheet
d. a liability on the balance sheet
ANSWER: a
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
66. Procedures designed to protect cash from theft and misuse from the time it is received until it can be deposited in a bank are called
a. accounting controls
b. cash controls
c. FASB controls
d. GAAP controls
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
67. A special form on which is recorded pertinent data about a liability and the particulars of its payment is called a(n)
a. invoice
b. voucher
c. debit memo
d. remittance advice
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
68. EFT
a. means Efficient Funds Transfer
b. can process certain cash transactions at less cost than by using the mail
c. makes it easier to document purchase and sale transactions
d. means Effective Funds Transfer
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
7 - Internal
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to a publicly accessible website, in whole or in part.
Chapter
Control and Cash
2017 Cengage Learning® May not be scanned, copied or duplicated, or posted
69. A voucher is usually supported by
a. a supplier's invoice
b. a purchase order
c. a receiving report
d. all of these
ANSWER: d
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
70. Credit memos from the bank
a. decrease a bank customer's account
b. are used to show a bank service charge
c. show that a company has deposited a customer's NSF check
d. show the bank has collected a note receivable for the customer
ANSWER: d
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-04 - LO: 07-04
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
71. Consider the following information taken from the cash account. Assume cash payments were 80% of collections.
How much was the beginning balance of the cash account?
a. $57,200
b. $92,300
c. $103,350
d. $35,100
ANSWER: a
RATIONALE: Disbursements = 80% of collections = 80% × $115,375 = $92,300
Beginning balance of cash account = Ending balance + Disbursements – Collections =
$80,275 + $92,300 – $115,375 = $57,200
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cash
??
$80,275 Ending
?? Beginning balance $115,375 Collections
Disbursements
balance
DIFFICULTY: Challenging
Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-04 - LO: 07-04
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
72. A bank statement
a. is a credit reference letter written by the company's bank
b. shows a company the financial position of the bank as of a certain date
c. is a bill from the bank for services rendered
d. shows the activity that increased or decreased the company's account balance
ANSWER: d
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-04 - LO: 07-04
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
73. A debit or credit memo describing entries in the company's bank account may be enclosed with the bank statement. An example of a credit memo is
a. deposited checks returned for insufficient funds
b. a promissory note left for collection
c. a service charge
d. notification that a customer's check for $375 was recorded by the company as $735 on the deposit ticket
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
74. A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. This item would be included on the bank reconciliation as a(n)
a. addition to the balance per the company's records
b. addition to the balance per the bank statement
c. deduction from the balance per the bank statement
d. deduction from the balance per the company's records
ANSWER: a
DIFFICULTY: Moderate Bloom's: Remembering
Chapter 7 - Internal Control and Cash ©
website,
part.
2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible
in whole or in
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
75. A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. What entry is required in the company's accounts?
a. debit Accounts Payable; credit Cash
b. debit Cash; credit Accounts Receivable
c. debit Cash; credit Accounts Payable
d. debit Accounts Receivable; credit Cash
ANSWER: c
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
76. A bank reconciliation should be prepared periodically because
a. the company's records and the bank's records are in agreement
b. the bank has not recorded all of its transactions
c. any differences between the company's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected
d. the bank must make sure that its records are correct
ANSWER: c
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
77. The bank reconciliation
a. should be prepared by an employee who records cash transactions
b. is part of the internal control system
c. is for information purposes only
d. is sent to the bank for verification
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash ©
to a publicly accessible website, in
in part.
2017 Cengage Learning® May not be scanned, copied or duplicated, or posted
whole or
78. Journal entries based on the bank reconciliation are required in the company's accounts for
a. outstanding checks
b. deposits in transit
c. bank errors
d. book errors
ANSWER: d
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
79. Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation, the item is
a. a deduction from the balance per company's records
b. an addition to the balance per bank statement
c. a deduction from the balance per bank statement
d. an addition to the balance per company's records
ANSWER: a
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
80. Accompanying the bank statement was a debit memo for bank service charges. What entry is required in the company's accounts?
a. debit Miscellaneous Expense; credit Cash
b. debit Cash; credit Other Income
c. debit Cash; credit Accounts Payable
d. debit Accounts Payable; credit Cash
ANSWER: a
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
81. A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. This item would be included in the bank reconciliation as a(n)
a. deduction from the balance per the company's records
b. addition to the balance per the bank statement
c. deduction from the balance per the bank statement
d. addition to the balance per the company's records
ANSWER: a
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
82. A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. What entry is required in the company's accounts?
a. debit Accounts Payable; credit Cash
b. debit Cash; credit Accounts Receivable
c. debit Cash; credit Accounts Payable
d. debit Accounts Receivable; credit Cash
ANSWER: a
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
83. Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300. This item would be included on the bank reconciliation as a(n)
a. deduction from the balance per company's records
b. addition to the balance per bank statement
c. deduction from the balance per bank statement
d. addition to the balance per company's records
ANSWER: d
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 - Internal Control and Cash
84. Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the company. This item is a(n)
a. deduction from the balance per company's records
b. addition to the balance per bank statement
c. deduction from the balance per bank statement
d. addition to the balance per company's records
ANSWER: d
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
85. Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the customer. What entry is required in the company's accounts?
a. debit Notes Receivable; credit Cash
b. debit Cash; credit Miscellaneous Income
c. debit Cash; credit Notes Receivable and Interest Revenue
d. debit Accounts Receivable; credit Cash
ANSWER: c
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
86. The amount of deposits in transit is included on the bank reconciliation as a(n)
a. deduction from the balance per the company's books
b. deduction from the balance per bank statement
c. addition to the balance per bank statement
d. addition to the balance per company books
ANSWER: c
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash
website,
part.
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible
in whole or in
87. The amount of the outstanding checks is included on the bank reconciliation as a(n)
a. deduction from the balance per company's records
b. addition to the balance per bank statement
c. deduction from the balance per bank statement
d. addition to the balance per company's records
ANSWER: c
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
88. Which of the following items that appeared on the bank reconciliation did not require a journal entry?
a. bank service charges
b. deposits in transit
c. NSF checks
d. a check for $630, recorded in the check register for $360
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
89. What entry is required in the company's accounts to record outstanding checks?
a. debit Accounts Receivable; credit Cash
b. debit Cash; credit Accounts Receivable
c. debit Cash; credit Accounts Payable
d. no entry is required
ANSWER: d
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash
posted to a publicly accessible website, in whole or in part.
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or
90. Accompanying the bank statement was a debit memo for an NSF check received from a customer. This item would be included on the bank reconciliation as a(n)
a. deduction from the balance per company's records
b. addition to the balance per bank statement
c. deduction from the balance per bank statement
d. addition to the balance per company's records
ANSWER: a
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
91. Accompanying the bank statement was a debit memo for an NSF check received from a customer. What entry is required in the company's accounts?
a. debit Other Income; credit Cash
b. debit Cash; credit Other Income
c. debit Cash; credit Accounts Receivable
d. debit Accounts Receivable; credit Cash
ANSWER: d
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
92. The amount of cash to be reported on the balance sheet at June 30 is the
a. total of the cash column in the cash receipts journal as of June 30
b. adjusted balance appearing in the bank reconciliation for June 30
c. total of the cash column in the cash payments journal as of June 30
d. balance as of June 30 on the bank statement
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
93. Which of the following would be deducted from the balance per books on a bank reconciliation?
a. service charges
b. outstanding checks
c. deposits in transit
d. notes collected by the bank
ANSWER: a
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-05 - LO: 07-05
ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
94. Which of the following would be added to the balance per books on a bank reconciliation?
a. service charges
b. outstanding checks
c. deposits in transit
d. notes collected by the bank
ANSWER: d
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
95. Which of the following would be subtracted from the balance per books on a bank reconciliation?
a. outstanding checks
b. deposits in transit
c. notes collected by the bank
d. error by the company in recording a check for $732 as $723
ANSWER: d
DIFFICULTY: Easy
LEARNING OBJECTIVES:
Bloom's: Remembering
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash ©
or duplicated, or posted to a publicly accessible website, in whole or in part.
2017 Cengage Learning® May not be scanned, copied
96. Which of the following would be subtracted from the balance per bank on a bank reconciliation?
a. outstanding checks
b. deposits in transit
c. notes collected by the bank
d. service charges
ANSWER: a
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
97. A bank reconciliation should be prepared
a. whenever the bank refuses to lend the company money
b. to explain any difference between the company's balance per books with the balance per bank
c. by the company's bank
d. by the person who is authorized to sign checks
ANSWER: b
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
98. Minor Company had checks outstanding totaling $19,200 on its April bank reconciliation. In May, Minor Company issued checks totaling $64,900. The May bank statement shows that $47,600 in checks cleared the bank in May. A check from one of Minor Company's customers of $300 was also returned marked "NSF." The amount of outstanding checks on Minor Company's May bank reconciliation should be
a. $28,400
b. $36,800
c. $17,300
d. $36,500
ANSWER: d
RATIONALE: Amount of outstanding checks on the May bank reconciliation = Outstanding checks appearing on the April bank reconciliation + Checks issued in May – Checks cleared in May = $19,200 + $64,900 – $47,600 = $36,500
DIFFICULTY: Moderate
Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash
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© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted
99. Rodgers Company gathered the following reconciling information in preparing its May bank reconciliation. Calculate the adjusted cash balance per books on May 31.
ANSWER: a
RATIONALE: Adjusted cash balance per books on May 31 = Cash balance per books on May 31 + Notes receivable and interest collected by bank – Bank charge for check printing –
check = $5,400 + $650 – $40 – $140 = $5,870
DIFFICULTY: Moderate
Bloom's: Applying
LEARNING
- LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
100. Gunnar Company gathered the following reconciling information in preparing its September bank reconciliation. Calculate the adjusted cash balance per books on September 30.
ANSWER: c
RATIONALE: Adjusted cash balance per books on September 30 = Cash balance per books on September 30 + Notes receivable and interest collected by bank – Bank charge for check printing – NSF check = $2,750 + $630 – $50 – $290 = $3,040
DIFFICULTY: Moderate
Bloom's: Applying
LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash
to a publicly accessible website, in whole or in part.
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted
Cash balance per books, 5/31 $5,400 Deposits in transit 375 Notes receivable and interest collected by bank 650 Bank charge for check printing 40 Outstanding checks 2,400 NSF check 140
$5,870
$6,245
$4,930
a.
b.
c.
d. $3,845
NSF
OBJECTIVES:
FNMN.WARD.17.07-05
Cash balance per books, 9/30 $2,750 Deposits in transit 200 Notes receivable and interest collected by bank 630 Bank charge for check printing 50 Outstanding checks 1,250 NSF check 290
a. $5,130 b. $3,690 c. $3,040 d. $1,590
101. Jamison Company gathered the following reconciling information in preparing its June bank reconciliation:
Using the above information, determine the cash balance per books (before adjustments) for Jamison Company.
a. $8,065
b. $10,565
c. $15,065
d. $6,435
ANSWER: d
RATIONALE: Adjusted balance = Cash balance per bank on June 30 + Deposits in transit –
Outstanding checks = $13,000 + $2,500 – $7,000 = $8,500
Cash balance per books (before adjustment) = Adjusted balance + NSF checks + Bank service charge – Note receivable collected by bank = $8,500 + $1,900 + $35 – $4,000 = $6,435
DIFFICULTY: Challenging
Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
102. Thompson Corporation gathered the following reconciling information in preparing its October bank reconciliation:
Using the above information, determine the cash balance per books (before adjustments) for Thompson Corporation.
a. $11,050
b. $19,450
c. $15,950
d. $11,150
ANSWER: a
RATIONALE: Adjusted balance = Cash balance per bank on October 31 + Deposits in transit –Outstanding checks = $17,000 + $3,000 – $6,500 = $13,500
per books (before adjustments) = Adjusted balance + NSF checks +
– Note
Chapter 7 - Internal Control and Cash
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cash balance per bank, 6/30 $13,000 Note receivable collected by bank 4,000 Outstanding checks 7,000 Deposits in transit 2,500 Bank service charge 35 NSF check 1,900
Cash balance per bank, 10/31 $17,000 Note receivable collected by bank 4,800 Outstanding checks 6,500 Deposits in transit 3,000 Bank service charge 50 NSF check 2,300
Cash
Bank service charge
receivable
$4,800
balance
collected by bank = $13,500 + $2,300 + $50 –
= $11,050
DIFFICULTY: Challenging
Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
103. During a bank reconciliation process,
a. outstanding checks and deposits in transit are added to the bank statement balance
b. outstanding checks are subtracted and deposits in transit are added to the bank statement balance
c. outstanding checks and deposits in transit are subtracted from the bank statement balance
d. outstanding checks are added and deposits in transit are subtracted from the bank statement balance
ANSWER: b
DIFFICULTY: Easy
LEARNING OBJECTIVES:
Bloom's: Remembering
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
104. The following data were gathered to use in reconciling the bank account of Savannah Company:
What is the adjusted balance on the bank reconciliation?
a. $14,470
b. $10,705
c. $15,095
d. $15,720
ANSWER: c
RATIONALE: Adjusted balance from bank section of reconciliation = Balance as per bank + Deposit in transit – Outstanding checks = $16,750 + $2,195 – $3,850 = $15,095 Adjusted balance from company section of reconciliation = Balance as per company records – Bank service charges – NSF check = $16,125 – $80 – $950 = $15,095
DIFFICULTY: Moderate
Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash ©
to a publicly accessible website, in whole or in part.
2017 Cengage Learning® May not be scanned, copied or duplicated, or posted
Balance per bank $16,750 Balance per company records 16,125 Bank service charges 80 Deposit in transit 2,195 NSF check 950 Outstanding checks 3,850
105. In the normal operation of business, you receive a check from a customer and deposit it into your checking account. With your bank statement you are advised that this check for $775 is “NSF.” The bank also informs you that due to the amount of activity on your business account the monthly service charge is $75. During a bank reconciliation, you will
a. subtract both values from balance according to bank
b. add both values to balance according to books
c. add both values to balance according to bank
d. subtract both values from balance according to books
ANSWER: d
DIFFICULTY: Moderate
Bloom's: Applying
LEARNING OBJECTIVES: FNMN.WARD.17.07-05 - LO: 07-05
ACCREDITING STANDARDS: ACCT.ACBSP.APC.11 - Bank Reconciliation
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
106. A $150 petty cash fund has cash of $54 and receipts of $83. The journal entry to replenish the account would include a
a. credit to Petty Cash for $29
b. debit to Cash for $83
c. debit to Cash Short and Over for $13
d. credit to Cash for $54
ANSWER: c
RATIONALE: Cash short and over amount = Petty cash fund – Cash in petty cash fund – Cash receipts = $150 – $54 – $83 = $13
The journal entry to replenish the account would include a debit to Cash Short and Over account for $13
DIFFICULTY: Easy Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-06 - LO: 07-06
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
107. A $135 petty cash fund has cash of $18 and receipts of $120. The journal entry to replenish the account would include a
a. credit to Petty Cash for $120
b. debit to Cash for $120
c. credit to Cash Short and Over for $3
d. credit to Cash for $102
ANSWER: c
RATIONALE: Cash short and over amount = Cash in petty cash fund + Cash receipts – Petty cash fund = $18 + $120 – $135 = $3
The journal entry to replenish the account would include a credit to Cash Short and Over account for $3
DIFFICULTY: Easy
Bloom's: Applying
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 - Internal Control and Cash
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-06 - LO: 07-06
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
108. Entries are made to the petty cash account when
a. making payments out of the fund
b. recording shortages in the fund
c. replenishing the petty cash fund
d. establishing the fund
ANSWER: d
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-06 - LO: 07-06
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
109. The type of account and normal balance of Petty Cash is a(n)
a. revenue, credit
b. asset, debit
c. liability, credit
d. expense, debit
ANSWER: b
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-06 - LO: 07-06
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
110. The debit recorded in the journal to reimburse the petty cash fund is to
a. Petty Cash
b. Accounts Receivable
c. Cash
d. various accounts for which the petty cash was disbursed
ANSWER: d
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-06 - LO: 07-06
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
111. A $200 petty cash fund has cash of $20 and receipts of $177. The journal entry to replenish the account would include a credit to
a. Cash for $20
b. Cash Short and Over for $3
c. Petty Cash for $190
d. Cash for $180
ANSWER: d
RATIONALE: Amount required to replenish the petty cash fund = Petty cash fund – Cash remaining in the petty cash fund = $200 – $20 = $180
The journal entry to replenish the account would include a credit to Cash for $180.
DIFFICULTY: Easy Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-06 - LO: 07-06
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
112. Cash equivalents include
a. checks
b. coins and currency
c. money market accounts and commercial paper
d. stocks and short-term bonds
ANSWER: c
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-07 - LO: 07-07
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.15 - Current Assets Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
113. Cash equivalents
a. are illegal in some states
b. will be converted to cash within two years
c. will be converted to cash within three months
d. will be converted to cash within four months
ANSWER: c
DIFFICULTY: Easy Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-07 - LO: 07-07
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.15 - Current Assets Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
114. A minimum cash balance required by a bank is called
a. cash in bank
b. a cash equivalent
c. a compensating balance
d. an EFT
ANSWER: c
DIFFICULTY: Easy
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
Bloom's: Remembering
FNMN.WARD.17.07-07 - LO: 07-07
ACCT.ACBSP.APC.10 - Internal Control
ACCT.ACBSP.APC.15 - Current Assets Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
115. Which of the following would not be included with the cash and cash equivalents on the balance sheet?
a. commercial paper
b. short-term receivables
c. cash short and over
d. money market mutual funds
ANSWER: b
DIFFICULTY: Moderate
Bloom's: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.07-07 - LO: 07-07
ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements
ACCT.ACBSP.APC.15 - Current Assets Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
116. A company's days' cash on hand is computed by dividing:
a. cash and short-term investments by daily cash operating expenses.
b. cash by total cash operating expenses.
c. cash, short-term investments, and accounts receivable by daily cash operating expenses.
d. average cash over the period by daily cash operating expenses.
ANSWER: a
DIFFICULTY: Bloom's: Remembering Easy
LEARNING OBJECTIVES:
FNMN.WARR.17.07-ADM - LO: ADM
ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG - Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
117. Which is the better choice for evaluating across companies: days' cash on hand or the amount in the company's cash account?
a. The amount in the cash account, because the company with the largest amount of cash is the most liquid
b. Days' cash on hand, because it is calculated as a ratio, which expresses cash relative to the cash requirements of the business
c. Days' cash on hand, because a daily cash amount is more accurate
d. The amount in the cash account, because companies with a lower cash balance are considered a greater credit risk
ANSWER: b
DIFFICULTY: Bloom's: Understanding Moderate
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARR.17.07-ADM - LO: ADM
ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG - Analytic
118. Which of the following statements is true about the days' cash on hand ratio?
a. It is not useful in comparing different businesses to one another.
b. It uses all current assets in the numerator of the ratio.
c. The only operating expense used in the denominator of the ratio is depreciation expense.
d. It may be useful in determining whether a business is able to meet its cash commitments.
ANSWER: d
DIFFICULTY: Bloom's: Understanding Moderate
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARR.17.07-ADM - LO: ADM
ACCT.ACBSP.APC.23 - Financial Statement Analysis
ACCT.AICPA.FN.03 - Measurement
BUSPROG - Analytic
119. Identify each of the following as relating to (a) the control environment, (b) risk assessment, or (c) control procedures.
1. Mandatory vacations
2. Personnel policies
3. Report of outside consultants on future market changes
ANSWER:
1. (c) control procedures
2. (a) the control environment
3. (b) risk assessment
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
2017 Cengage
Chapter 7 - Internal Control and Cash
©
Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
120 List the objectives of internal control and give an example of how each is implemented.
ANSWER: Internal control provides reasonable assurance that
(1) assets are safeguarded and used for business purposes
(2) business information is accurate
(3) employees and managers comply with laws and regulations
Examples are
(1) duties are separated
(2) duties are rotated
(3) reports are submitted to management
There are many other examples that would be correct.
DIFFICULTY: Easy
Bloom's: Understanding
LEARNING OBJECTIVES: FNMN.WARD.17.07-02 - LO: 07-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
121 You began your new job as the accountant at Bolivar Industries during the month of December. During your first month, you found several interesting issues.
1) While looking through the invoices, you found Invoices 213–242, 245–271, and 275–290. It appears that invoices 243, 244, 272, 273, and 274 are missing.
2) During the month, Clerk # 3 issued $250 in refunds as compared to Clerks #1, #2, and #4 who issued less than $50 each.
3) The daily cash receipts and bank deposits reconcile, except on Tuesdays during the month.
4) Business is generally brisk during the holiday season, but two weeks before Christmas there was a sudden increase in slow payments.
Part A: What kind of warning signs could be associated with these issues?
Part B: What control could you put in place regarding cash refunds mentioned in Part A (2)?
ANSWER: Part A:
1) Missing invoices or gaps in transaction numbers could mean that the invoices are being used for fraudulent transactions.
2) An unusually high number of refunds for Clerk #3 could mean that the individual is creating fictitious refunds and pocketing the cash.
3) The difference could mean that receipts are being pocketed before being deposited. Maybe there is a person responsible for making the deposits on Tuesdays that is the culprit.
4) A sudden increase in slow payments could mean that an employee is pocketing the payments.
Chapter 7 - Internal Control and Cash
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part.
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in
or in
Part B:
Surveillance cameras at customer service area. Place supervisor as a second authorizer on refund transactions. Prohibit cash refunds and require exchanges of merchandise instead. Provide employee training.
Incorporate special alerts for critical dollar thresholds through company software. Require information about the original transaction to be part of the refund process.
DIFFICULTY: Challenging
Bloom's: Analyzing
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
122 Two features of internal control are presented in the following sections. Each is followed by a list of four irregularities that occurred in processing data. Identify the one irregularity from each list that would be discovered or prevented by the feature of internal control described.
(a) The sum of the balances of the accounts in the customer's ledger is compared at the end of each month with the balance of the accounts receivable account in the general ledger by a person who has no responsibility for maintaining either the general ledger or the customers ledger.
(1) Five hours of services were rendered but the customer was only billed for four hours.
(2) A cash receipt of $750 was recorded correctly in the accounts receivable controlling account but was posted to the customer's ledger as $75.
(3) A bill for services rendered to Cole Co. was erroneously posted to the account of Coleman Co. in the customer's ledger.
(4) No entry was made in the accounting records for services rendered to a customer.
(b) Both cash and credit charges for services rendered are recorded on prenumbered invoices. At the end of the day, all invoices are accounted for before the duplicate copies of the invoices are routed to the accounting department for entry into the accounts and the cash is sent to the cashier's department for deposit.
(1) Some charge customers complained that the monthly statements of account did not add all amounts correctly.
(2) Some clerks used incorrect hourly rates in preparing invoices.
(3) Some clerks destroyed duplicate copies of cash invoices and misappropriated the cash.
(4) Some charge customers complained that the monthly statement of account did not indicate credits for payments made.
ANSWER:
(a) (2)
(b) (3)
DIFFICULTY: Moderate
Bloom's: Understanding
LEARNING OBJECTIVES:
FNMN.WARD.17.07-02 - LO: 07-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May
duplicated,
to a publicly accessible website, in whole or in part.
not be scanned, copied or
or posted
123. List and define each of the five elements of internal control.
ANSWER: (1) Control Environment. The control environment is the overall attitude of management and employees about the importance of internal controls.
(2) Risk assessment. Risk assessment is the identification of risks faced by an organization so that management can take necessary actions to control them.
(3) Control Procedures. The control procedures are the policies and procedures designed to provide reasonable assurance that the business goals are met and fraud is prevented.
(4) Monitoring. Monitoring locates deficiencies in the internal control system and improves control effectiveness.
(5) Information and Communication. Information and communication to management about the control environment, risk assessment, control procedures, and monitoring elements of internal control are needed by management to guide operations and ensure compliance with reporting, legal, and regulatory requirements.
DIFFICULTY: Easy Bloom's: Understanding
LEARNING OBJECTIVES: FNMN.WARD.17.07-02 - LO: 07-02
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic
124. The following procedures were recently implemented at the Health Station, Inc. For each procedure, indicate whether the internal control over cash represents (1) a strength or (2) a weakness. If it is a weakness, please explain why.
(a) All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts.
(b) The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer’s office for approval.
(c) At the end of each day, all cash receipts are placed in the bank’s night depository.
(d) The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer. ANSWER:
(a) This is a weakness. The mail clerk should prepare an initial listing of cash remittances before forwarding the cash receipts to the cashier. This establishes initial accountability for the cash receipts. The mail clerk should forward a copy of the listing of remittances to the accounts receivable clerk for recording in the accounts.
(b) This is a strength.
(c) This is a strength.
(d) This is a weakness. The bank reconciliation should be prepared by someone not involved with the handling or recording of cash.
Chapter 7 - Internal Control and Cash
Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2017 Cengage
DIFFICULTY: Moderate
Bloom's: Analyzing
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
125. The following procedures were recently implemented at the Pampered Pets, Inc. For each procedure, indicate whether the internal control over cash represents (1) a strength or (2) a weakness. If it is a weakness, please explain why.
(a) At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their registers.
(b) At the end of the day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank.
(c) After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing.
(d) Along with the petty cash receipts for postage, office supplies, etc., several postdated employee checks are in the petty cash fund.
ANSWER:
(a) This is a weakness. Requiring cash register clerks to make up any cash shortages from their own funds gives the clerks an incentive to shortchange customers. That is, the clerks will want to make sure that they don’t have a shortage at the end of the day. In addition, one might also assume that the clerks can keep any overages. This would again encourage clerks to shortchange customers. The shortchanging of customers will create customer complaints, etc.
The best policy is to report any cash shortages or overages at the end of each day. If there is consistently a cash short or over, then corrective action (training, removal, etc.) could be taken.
(b) This is a strength.
(c) This is a strength.
(d) This is a weakness. Employees should not be allowed to use the petty cash fund to cash personal checks. In any case, postdated checks should not be accepted. In effect, postdated checks represent a receivable from the employees.
DIFFICULTY: Moderate
Bloom's: Analyzing
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-02 - LO: 07-02
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash
Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2017
126 The following selected transactions relate to cash collections for a firm that maintains a $100 change fund at all times. Present entries to record the transactions for each of the two days of cash receipts from sales.
(a) Actual cash in cash register, $5,412.36; cash receipts per cash register tally, $5,413.07.
(b) Actual cash in cash register, $3,712.95; cash receipts per cash register tally, $3,712.16.
ANSWER:
DIFFICULTY: Easy
Bloom's: Applying
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
127. The actual cash received during the week ended June 6 for cash sales was $8,276 and the amount indicated by the cash register total was $8,262. Journalize the entry to record the cash receipts and cash sales.
DIFFICULTY: Easy Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 - Internal Control and Cash
(a) Cash 5,412.36 Cash Short and Over 0.71 Sales 5,413.07 (b) Cash 3,712.95 Cash Short and Over 0.79 Sales 3,712.16
Journal Date Description Post. Ref. Debit Credit ANSWER: Journal Date Description Post. Ref. Debit Credit June 16 Cash 8,276 Sales 8,262 Cash Short and Over 14
128 The actual cash received during the week ended October 31 for cash sales was $23,447 and the amount indicated by the cash register total was $23,457. Journalize the entry to record the cash receipts and cash sales.
DIFFICULTY: Easy
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
Bloom's: Applying
FNMN.WARD.17.07-03 - LO: 07-03
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
129 Consider the following information from the cash account. Assume cash payments were 84% of collections. Cash
$245,000 Collections ?? Disbursements
$80,275 End balance
How much was the beginning balance of the cash account?
ANSWER: $245,000 × 84% = $205,800
Beg. Cash = $41,075 ($80,275 + $205,800 – $245,000)
DIFFICULTY: Bloom's: Applying Easy
LEARNING OBJECTIVES: FNMN.WARD.17.07-04 - LO: 07-04
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.15 - Current Assets Reporting
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal
Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Control and
Journal Date Description Post. Ref. Debit Credit ANSWER: Journal Date Description Post. Ref. Debit Credit Oct. 31 Cash 23,447 Cash Short and Over 10 Sales 23,457
?? Beg. balance
130 Describe the features of a voucher system and list typical supporting documents for a voucher.
ANSWER: A voucher system is used to control cash payments. It should provide reasonable assurance that only authorized payments are made and that all cash discounts are taken.
Specifically, a voucher system is a set of procedures for authorizing and recording liabilities and cash payments. Typical supporting documents for a voucher are a supplier's invoice, a purchase order, and a receiving report.
After a voucher is prepared, it is submitted for approval. Once approved, the voucher is recorded in the accounts and filed by due date. Upon payment, the voucher is recorded in the same manner as the payment of an account payable.
DIFFICULTY: Easy
LEARNING OBJECTIVES:
FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
131. The actual cash received during the week ended June 7 for cash sales was $18,632, and the amount indicated by the cash register total was $18,628. Journalize the entry to record the cash receipts and cash sales.
DIFFICULTY: Easy Bloom's: Applying
LEARNING OBJECTIVES:
FNMN.WARD.17.07-03 - LO: 07-03
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.10 - Internal Control
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
Chapter 7 - Internal Control and Cash © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Journal Date Description Post. Ref. Debit Credit ANSWER: Journal Date Description Post. Ref. Debit Credit June 7 Cash 18,632 Sales 18,628 Cash Short and Over 4
