ACG 2021 Chapter 7

55. 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

D. cost-benefit considerations

56. Which one of the following below 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 measurers
D. personnel policies

C. proofs and security measurers

57. When a firm uses internal auditors, it is adhering to which one of the following internal control elements?
A. risk assessment
B. monitoring
C. proofs and security measures
D. separating responsibilities for related operations

B. monitoring

58. The objectives of internal control are to
A. control the internal organization of the accounting department personnel and equipment
B. provide reasonable assurance that operations are managed to achieve goals, financial reports are 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

B. provide reasonable assurance that operations are managed to achieve goals, financial reports are accurate, and laws and regulations are complied with

59. Which one of the following below 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

D. a single employee is responsible for collecting and recording of cash

60. Internal control does not consist of policies and procedures that
A. protect assets from misuse
B. aid management in directing operations toward achieving business goals
C. guarantee the company will not go bankrupt
D. ensure that business information is accurate

C. guarantee the company will not go bankrupt

61. A firm’s internal control environment is not influenced by
A. management’s operating style
B. organizational structure
C. personnel policies
D. monitoring policies

D. monitoring policies

62. An element of internal control is
A. risk assessment
B. journals
C. subsidiary ledgers
D. controlling accounts

A. risk assessment

63. A necessary element of internal control is
A. database
B. systems design
C. systems analysis
D. information and communication

D. information and communication

64. In management’s internal control report that is now required of all public companies, which of the following does not have a direct effect on a company’s internal control system?
A. internal auditors
B. independent accountants
C. Board of Director’s audit committee
D. Board of Trustees

D. Board of Trustees

65. 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

C. postage stamps

66. The cash account in the company’s ledger is a(n)
A. asset with a debit balance
B. asset with a credit balance
C. liability with a debit balance
D. liability with a credit balance

A. asset with a debit balance

67. The notification accompanying a check that indicates the specific invoice being paid is called a
A. remittance advice
B. voucher
C. debit memo
D. credit memo

A. remittance advice

68. 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

A. an expense on the income statement

69. An example of a preventive control is
A. a single person handles the responsibilities for operations, custody of assets, and accounting
B. separation of the Purchasing Department and Accounting Department personnel
C. bonding employees who handle cash
D. accepting payment in currency only

B. separation of the Purchasing Department and Accounting Department personnel

70. 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. preventive controls
D. detective controls

C. preventive controls

71. 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

B. voucher

72. 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

B. can process certain cash transactions at less cost than by using the mail

73. A voucher
A. is received from customers to explain the purpose of a payment
B. is normally prepared in the Accounting Department
C. system is used to control cash receipts
D. system is an internal control procedure to verify that the assets in the ledger are the ones the company owns

B. is normally prepared in the Accounting Department

74. A voucher is usually supported by
A. a supplier’s invoice
B. a purchase order
C. a receiving report
D. all of the above

D. all of the above

75. The reconciliation of the cash register tape with the cash in the register is an example of
A. other controls.
B. independent internal verification.
C. establishment of responsibility.
D. segregation of duties.

B. independent internal verification

76. Which of the following is not an internal control activity for cash?
A. The number of persons who have access to cash should be limited.
B. All cash receipts should be recorded promptly.
C. The functions of record keeping and maintaining custody of cash should be combined.
D. Surprise audits of cash on hand should be made occasionally.

C. The functions of record keeping and maintaining custody of cash should be combined.

77. The term cash includes
A. coins, currency (paper money), checks
B. money orders, and money on deposit that is available for unrestricted withdrawal
C. short-term receivables
D. both a and b

D. both a and b

78. On the bank’s accounting records, customers’ accounts are normally shown as
A. debit balances
B. expenses
C. an asset
D. a liability

D. a liability

79. 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

D. show the bank has collected a note receivable for the customer

80. A bank statement
A. is a credit reference letter written by the company’s bank.
B. lets a company know 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

D. shows the activity that increased or decreased the company’s account balance

81. Which one of the following would not cause a bank to debit a company’s account?
A. Bank service charge
B. Collection of a note receivable
C. Checks marked NSF
D. Wiring of funds to other locations

B. Collection of a note receivable

82. There are three parties to a check. The drawer is
A. a written document signed by the company
B. is the one who signs the check ordering payment by the bank
C. the bank on which the check is drawn
D. the party to whom payment is to be made

B. is the one who signs the check ordering payment by the bank

83. 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

B. a promissory note left for collection

84. Following the completion of the bank reconciliation, an adjusting entry was made that debited cash and credited Interest Revenue. Therefore the bank reconciliation must have included an item that was
A. deducted from the balance per company’s records
B. deducted from the balance per bank statement
C. added to the balance per bank statement
D. added to the balance per company’s records

D. added to the balance per company’s records

85. A person authorized to write checks drawn on a checking account at a bank must sign and have on file with the bank a
A. signature card
B. deposit ticket
C. checkbook
D. bank card

A. signature card

86. 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

A. addition to the balance per the company’s records

87. 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

C. debit Cash; credit Accounts Payable

88. 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

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

89. 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

B. is part of the internal control system

90. 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

D. book errors

91. 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

A. a deduction from the balance per company’s records

92. Accompanying the bank statement was a debit memo for bank service charges. What entry is required in the company’s accounts?
A. debit Miscellaneous Administrative Expense; credit Cash
B. debit Cash; credit Other Income
C. debit Cash; credit Accounts Payable
D. debit Accounts Payable; credit Cash

A. debit Miscellaneous Administrative Expense; credit Cash

93. 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

A. deduction from the balance per the company’s records

94. 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

A. debit Accounts Payable; credit Cash

95. 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

D. addition to the balance per company’s records

96. Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300. What entry is required in the company’s accounts?
A. debit Sales; credit Cash
B. debit Cash; credit Accounts Receivable
C. debit Cash; credit Sales
D. debit Accounts Receivable; credit Cash

C. debit Cash; credit Sales

97. 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

D. addition to the balance per company’s records

98. 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
D. debit Accounts Receivable; credit Cash

C. debit Cash; credit Notes Receivable

99. 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

C. addition to the balance per bank statement

100. 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

C. deduction from the balance per bank statement

101. Which of the following items that appeared on the bank reconciliation did not require an adjusting entry?
A. bank service charges
B. deposits in transit
C. NSF checks
D. A check for $630, recorded in the check register for $360.

B. deposits in transit

102. 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. none

D. none

103. 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

A. deduction from the balance per company’s records

104. 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

D. debit Accounts Receivable; credit Cash

105. 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

B. adjusted balance appearing in the bank

106. 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

A. Service charges

107. 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

d

108. 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. Service charges

D

109. 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

A

110. 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.

B

111. Harris Company had checks outstanding totaling $15,400 on its May bank reconciliation. In June, Harris Company issued checks totaling $64,900. The June bank statement shows that $47,600 in checks cleared the bank in June. A check from one of Harris Company’s customers in the amount of $300 was also returned marked "NSF." The amount of outstanding checks on Harris Company’s June bank reconciliation should be
A. $49,500
B. $63,000
C. $47,600
D. $32,700

D

112. Meredith Company gathered the following reconciling information in preparing its May bank reconciliation:

Cash balance per books, 5/31 $4,500
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

The adjusted cash balance per books on May 31 is
A. $4,970
B. $5,120
C. $8,105
D. $3,295

A

113. Derek Company gathered the following reconciling information in preparing its September bank reconciliation:

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 30
Outstanding checks 1,250
NSF check 290

The adjusted cash balance per books on September 30 is
A. $5,150.
B. $3,710.
C. $3,060.
D. $1,610.

C

114. Jamison Company developed the following reconciling information in preparing its June bank reconciliation:

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

Using the above information, determine the cash balance per books (before adjustments) for the Jamison Company.
A. $8,065
B. $10,565
C. $15,065
D. $6,435

D

115. Thompson Company developed the following reconciling information in preparing its October bank reconciliation:

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

Using the above information, determine the cash balance per books (before adjustments) for the Thompson Company.
A. $11,050
B. $19,450
C. $15,950
D. $11,150

A

116. 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.

B

117. 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 from balance according to books.
C. add both values from balance according to bank.
D. subtract both values from balance according to books.

D

118. A $150 petty cash fund has cash of $44 and receipts of $93. The journal entry to replenish the account would include a
A. credit to Petty Cash for $49.
B. debit to Cash for $93.
C. debit to Cash Over and Short for $13.
D. credit to Cash for $44.

C

119. A $135 petty cash fund has cash of $28 and receipts of $110. The journal entry to replenish the account would include a
A. credit to Petty Cash for $110.
B. debit to Cash for $110.
C. credit to Cash Over and Short for $3.
D. credit to Cash for $82.

C

120. 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.

D

121. 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

B

122. 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

D

123. A $100 petty cash fund contains $91 in petty cash receipts, and $4.75 in currency and coins. The journal entry to record the replenishment of the fund would include a
A. credit to Petty Cash for $95.75.
B. credit to Cash for $90.
C. debit to Cash Short and Over for $4.25.
D. credit to Cash Short and Over for $4.25.

C

124. A $140 petty cash fund has cash of $20 and receipts of $117. The journal entry to replenish the account would include a credit to
A. Cash for $20.
B. Cash Over and Short for $3.
C. Petty Cash for $120.
D. Cash for $120.

D

125. Cash equivalents include
A. checks
B. coins and currency
C. money market accounts and commercial paper
D. stocks and short-term bonds

C

126. Cash equivalents
A. are illegal in some states
B. will be converted to cash within two years
C. will be converted to cash within 90 days
D. will be converted to cash within 120 days

C

127. A minimum cash balance required by a bank is called
A. cash in bank
B. cash equivalent
C. compensating balance
D. EFT

C

128. Which of the following would not be included with the Cash and Equivalents on the Balance Sheet?
A. Commercial Paper
B. Short-Term Receivables
C. Certificates of Deposit
D. Money Market Mutual Funds

B

129. During 2010, Tempo Inc has monthly cash expenses of $115,000. On December 31, 2010, their cash balance is $1,437,500. The ratio of cash to monthly cash expenses is
A. 8.0
B. 12.5
C. 87.5
D. 11.5

B

130. The following data were gathered to use in reconciling the bank account of Savannah Company:

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

What is the adjusted balance on the bank reconcilition?

A. $14,470
B. $10,705
C. $15,095
D. $15,720

C

131. Consider the cash account below.
Additional Information: cash disbursements were 80% of collections.

Cash
?? Beg. Balance
115,375 Collections
?? Disbursements
80,275 End Balance

How much was the Beginning Balance of the Cash Account?
A. $57,200
B. $92,300
C. $103,350
D. $35,100

A