Chapter 7 Orion

When would a bank issue a credit memorandum?

for the collection of a note receivable for the depositor by the bank

What does a check marked NSF mean?

no sufficient funds

A small company that has excess cash should invest it in a company’s stock that is expected to increase in the short term.

False

A company can try to _________ inventory as a way of ensuring it has adequate cash.

reduce

Which of the following would be reported on the balance sheet as a cash equivalent? Select all that apply.

money market fund & 60-day certificate of deposit & money market savings certificate

Cash equivalents are highly liquid investments that are both

readily convertible and very close to their maturity dates

All of the following are considered cash equivalents EXCEPT

notes receivable

________ do NOT require journal entries by the depositor.

Bank errors

Which of the following does NOT affect the cash balance per books?

Outstanding checks

When should a bank reconciliation be prepared?

to explain any difference between the depositor’s balance per books and the balance per bank

When a company uses prenumbered checks and requires an approved invoice for each check, it is using which internal control?

documentation procedures

A voucher system is a series of prescribed control procedures that are designed to

ensure that disbursements by check are proper

When a company allows only designated personnel to handle cash receipts, it is applying the internal control principle of

documentation procedures

Identify the example of poor internal control.

One person should be responsible for handling related transactions.

What does the term "bonding" mean when it refers to employees?

They have been insured against misappropriation of assets.

________ enhance the accuracy and reliability of the accounting records.

External controls

Which of the following violates the principle of establishing responsibility?

having one person be responsible for one task

The custodian of a company asset _____________ have access to the accounting records for that asset.

should not

Which of the following statements regarding auditors is true?

They are hired by CPA firms to audit business firms.

Which of the following is an objective of a system of internal controls?

to reduce the risk of errors & to enhance the accuracy and reliability of accounting records & to safeguard company assets