Accounting – Chapter 7 HW/Quiz – Flashcards
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Internal controls guarantee the accuracy and reliability of the accounting records.
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False
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Which of the following is not an element of the fraud triangle?
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Segregation of duties ----- The three components of the fraud triangle are opportunity, financial pressure, and rationalization.
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Which of the following is a reason why an organization establishes a system for internal control?
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To ensure compliance with laws and regulations To safeguard its assets To increase efficiency of operations -----
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Segregation of duties reduces the risk of errors and irregularities.
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True
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Which of the following statements is correct?
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The person who has custody of assets should not perform the record keeping for the assets.
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Internal auditors
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evaluate the system of internal controls for the companies that employ them.
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Under which of the following do computer programs that limit unauthorized access to certain files fall?
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Physical controls ----- Examples of physical controls include safes/vaults, guarded warehouses and stockrooms, firewalls on computer access, television monitoring of selected areas and alarm systems.
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Of which of the following is obtaining insurance protection against dishonest employees an example?
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Bonding
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Which one of the following is not one of the principles of internal control?
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Financial performance measures ----- The establishment of responsibility, documentation producures, and independent internal verification are all principles of internal control. Financial performance measures are used to evaluate, but not to enhance the accuracy and reliability of its accounting records and safeguard assets.
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Which of the following was not a result of the Sarbanes-Oxley Act?
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Companies must file financial statements with the Internal Revenue Service. ----- The Sarbanes-Oxley Act requires all publicly traded U.S. companies to maintain an adequte system of internal controls. Corporate executives and boards of directors must ensure that these controls are reliable and effective. Companies that fail to comply are subject to fines and company officers can be imprisoned. The Act does not address reporting to the IRS. In addition this Act created the Public Company Accounting Oversight Board to establish auditing standards and regulate auditor activity.
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Handly Inc. permits only designated personnel such as cashiers to handle cash receipts. What principle is being applied?
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Establishment of responsibility ----- Control is most effective when only one person is responsible for a given task.
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Deposits in transit are added to the cash balance per books on the bank reconciliation.
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False
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Jones Company collected the following information to prepare its May bank reconciliation: Cash balance per books, May 31 $5,300 Deposits in transit 510 Notes receivable with interest collected by bank 580 Bank service charges 30 Outstanding checks 1,800 NSF check 150 How much is the adjusted cash balance per books on May 31?
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$5,700 ----- The book side of the cash reconciliation begins with $5,300 to which adjustments are made for amounts collected by the bank, here the note receivable of $580. Deductions are made for amounts the bank deducted from the account, which include the bank service charges of $30 and the NSF check of $150, to arrive at the adjusted cash balance per books of $5,700. Outstanding check and deposits in transit affect the bank side of the reconciliation.
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For which of the following will an adjusting entry be required as the result of a bank reconciliation?
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NSF checks ----- NSF checks are deductions made by the bank from the company's account that must be removed from the company's accounting records with an adjusting entry that credits Cash and debits Accounts Receivable.
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Which of the following will not require an adjusting entry?
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Deposits in transit ----- Deposits in transit are deposits the company presented to the bank before the end of the month that have not yet been posted to the bank account. They will be posted in the next accounting period. No adjusting entry is needed.
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Why should a bank reconciliation be prepared?
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To explain any difference between the depositor's balance per books and the balance per bank ----- Bank reconciliations should be prepared periodically to explain any difference between the depositor's balance per books with the balance per bank.
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A company has the following items at year end: cash on hand, $1,000; cash in a checking account, $3,000; cash in a savings account, $5,000; postage stamps, $50; and Treasury bills, $10,000 that mature in less than 90 days. How much should the company report as cash and cash equivalents on its balance sheet?
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$19,000
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On which financial statement(s) will cash be reported?
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Balance sheet and the statement of cash flows ----- Companies report cash on two different statements: the balance sheet and the statement of cash flows.
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Which of the following items in a cash drawer at November 30 is not reported as cash on the November 30 balance sheet?
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A customer check dated December 1 ----- A customer check dated December 1 is post-dated. It is not cash to the company until the date of the check arrives.
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Avoiding paying bills too early is an effective cash management principle.
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True
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Which of the following is not a basic principle of cash management?
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Keep inventory levels high ----- Maintaining high inventory levels is not a basic principle of cash management because high inventory levels require cash payments that could otherwise be used to generate a return for the company.
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In the PWC study conducted in 2005, what are the average losses by companies impacted by fraud?
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Losses that average $1,700,000 ----- The average losses per the study are approximately $1,700,000.
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Which one of the following is not an objective of a system of internal controls?
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Fairness of the financial statements.
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Internal controls are concerned with
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safeguarding assets.
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Internal auditors
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evaluate the system of internal controls for the companies that employ them.
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Two individuals at a retail store work the same cash register. You evaluate this situation as
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a violation of establishment of responsibility.
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Mrs. Smith has worked for Bosco Inc. for 20 years without taking a vacation. An internal control feature that would address this situation would be
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human resource controls.
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Which of the following is not an internal control procedure for cash?
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The same individual receives the cash and pays the bills.
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Which of the following is an appropriate internal control activity for cash?
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The amount of cash on hand should be kept to a minimum.
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All of the following are items that would most likely be paid from a petty cash fund except
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administrative wages.
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Which of the following controls would best help detect the removal of a blank check by an employee from the back of a company's checkbook for subsequent misappropriation of funds?
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The use of prenumbered checks.
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A NSF check should appear in which section of the bank reconciliation?
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Deduction from the balance per books.
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Which of the following would be added to the balance per bank on a bank reconciliation?
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Deposits in transit.
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In preparing a bank reconciliation, outstanding checks are
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deducted from the balance per bank.
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For which of the following errors should the appropriate amount be subtracted from the balance per books on a bank reconciliation?
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Check written for $63 recorded as $36.
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Dobler Company gathered the following reconciling information in preparing its June bank reconciliation: Cash balance per books, 6/30 $8,400 Deposits in transit 600 Notes receivable and interest collected by bank 1,480 Bank charge for check printing 50 Outstanding checks 3,000 NSF check 280 The adjusted cash balance per books on June 30 is
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$9,550 ----- $8,400 + $1,480 - $50 - $280 = $9,550
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Of the following employees, who should prepare the bank reconciliation?
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Frank, the purchasing agent, because he does not work in the accounting department.
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Which of the following is an example of a bank reconciliation item that requires an adjusting entry?
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NSF check.
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Russel Company assembled the following information in completing its March bank reconciliation: Balance per bank $11,460 Outstanding checks $2,325 Deposits in transit $3,750 NSF check $240 Bank service charge $75 Cash balance per books $13,200 As a result of this reconciliation, Russel will
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reduce its cash account by $315. ----- $240 + $75 = $315
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A check written by the company for $275 is incorrectly recorded by a company as $257. On the bank reconciliation, the $18 error should be
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deducted from the balance per books.
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Which of the following would not be reported on the balance sheet as a cash equivalent?
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Restricted cash.
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Which of the following is not a basic principle of cash management?
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Restricted cash.
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Which of the following is not a basic principle of cash management?
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Pay all liabilities early.
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The following information was taken from Molina Company cash budget for the month of November: Beginning cash balance $96,000 Cash receipts 116,000 Cash disbursements 160,000 If the company has a policy of maintaining an end-of-the-month cash balance of $80,000, the amount the company would have to borrow is
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$28,000 ----- $80,000 - ($96,000 + $116,000 - $160,000) = $28,000
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Karlin Company gathered the following reconciling information in preparing its April bank reconciliation: Cash balance per books, 4/30 $13,200 Deposits in transit 1,800 Notes receivable and interest collected by bank 4,440 Bank charge for check printing 150 Outstanding checks 9,000 NSF check 840 The adjusted cash balance per books on April 30 is
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$16,650. ----- $13,200 + $4,440 - $150 - $840 = $16,650
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Ron Jones has been a trusted employee for over 10 years. He is responsible for ordering merchandise inventory, receiving the inventory items, and authorizing the payment for these items. Which internal control principle, if any, is being violated?
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Segregation of duties.
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At Emerson Company, one bookkeeper prepares the cash deposits while the other bookkeeper enters the collections in the journal and ledger. Which of the following is the best explanation of this type of internal control principle over cash receipts?
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Segregation of duties.
