chapter 8 MC

The objectives of internal control are to
control the internal organization of the accounting department personnel and equipment
Correct Response provide reasonable assurance that operations are managed to achieve goals, financial reports are accurate, and laws and regulations are complied with
prevent fraud, and promote the social interest of the company
provide control over "internal-use only" reports and employee internal conduct

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

Which one of the following below is not an element of internal control?
risk assessment
monitoring
information and communication
behavior analysis

behavior analysis

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

monitoring

Which one of the following below is not a factor that influences a business’s control environment?
management’s philosophy and operating style
organizational structure
proofs and security measurers
personnel policies

proofs and security measurers

Which one of the following below reflects a weak internal control system?
all employees are well supervised
a single employee is responsible for comparing a receiving report to an invoice
all employees must take their vacations
a single employee is responsible for collecting and recording of cash

a single employee is responsible for collecting and recording of cash

A firm’s internal control environment is not influenced by
management’s operating style
organizational structure
personnel policies
monitoring policies

monitoring policies

A necessary element of internal control is
database
systems design
systems analysis
information and communication

information and communication

An element of internal control is
risk assessment
journals
subsidiary ledgers
controlling accounts

risk assessment

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.
internal auditors
independent accountants
Board of Director’s audit committee
Board of trustees

Board of trustees

The cash account in the depositor’s ledger is a(n)
asset with a debit balance
asset with a credit balance
liability with a debit balance
liability with a credit balance

asset with a debit balance

The debit balance in Cash Short and Over at the end of an accounting period is reported as
an expense on the income statement
income on the income statement
an asset on the balance sheet
a liability on the balance sheet

an expense on the income statement

A special form on which is recorded pertinent data about a liability and the particulars of its payment is called a(n)
invoice
voucher
debit memorandum
remittance advice

voucher

Which of the following should not be considered cash by an accountant?
money orders
bank checking accounts
postage stamps
travelers’ checks

postage stamps

The notification accompanying a check that indicates the specific invoice being paid is called a
remittance advice
voucher
debit memorandum
credit memorandum

remittance advice

EFT
means Efficient Funds Transfer
can process certain cash transactions at less cost than by using the mail
makes it easier to document purchase and sale transactions
means Effective Funds Transfer

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

A voucher is usually supported by
a supplier’s invoice
a purchase order
a receiving report
all of the above

all of the above

The term cash includes
coins, currency (paper money), checks
money orders, and money on deposit that is available for unrestricted withdrawal
short-term receivables
a and b
all of the above

a and b

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

independent internal verification

Under the voucher system, every transaction is recorded at the time of
requisitioning
ordering
incurring
paying

incurring

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

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

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

is normally prepared in the Accounting Department

There are three parties to a check. The drawer is
a written document signed by the depositor
is the one who signs the check ordering payment by the bank
the bank on which the check is drawn
the party to whom payment is to be made
none of the above

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

On the bank’s accounting records, customers’ accounts are normally shown as
debit balances
expenses
an asset
a liability

a liability

Which one of the following would not cause a bank to debit a depositor’s account?
Bank service charge
Collection of a note receivable
Checks marked NSF
Wiring of funds to other locations

Collection of a note receivable

Credit memorandums from the bank
decrease a bank customer’s account
are used to show a bank service charge
show that a company has deposited a customer’s NSF check
show the bank has collected a note receivable for the customer

show the bank has collected a note receivable for the customer

A bank statement
is a credit reference letter written by the depositor’s bank.
lets a depositor know the financial position of the bank as of a certain date.
is a bill from the bank for services rendered.
shows the activity that increased or decreased the depositor’s account balance.

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

A debit or credit memorandum describing entries in the depositor’s bank account may be enclosed with the bank statement. An example of a credit memorandum is
deposited checks returned for insufficient funds
a promissory note left for collection
a service charge
notification that a customer’s check for $375 was recorded by the depositor as $735 on the deposit ticket

a promissory note left for collection

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
deducted from the balance per depositor’s records
deducted from the balance per bank statement
added to the balance per bank statement
added to the balance per depositor’s records

added to the balance per depositor’s records

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

signature card

A check drawn by a depositor for $180 in payment of a liability was recorded in the journal as $810. What entry is required in the depositor’s accounts?
debit Accounts Payable; credit Cash
debit Cash; credit Accounts Receivable
debit Cash; credit Accounts Payable
debit Accounts Receivable; credit Cash

debit Cash; credit Accounts Payable

A check drawn by a depositor for $180 in payment of a liability was recorded in the journal as $810. This item would be included on the bank reconciliation as a(n)
addition to the balance per the depositor’s records
addition to the balance per the bank statement
deduction from the balance per the bank statement
deduction from the balance per the depositor’s records

addition to the balance per the depositor’s records

Accompanying the bank statement was a debit memorandum for bank service charges. On the bank reconciliation, the item is
a deduction from the balance per depositor’s records
an addition to the balance per bank statement
a deduction from the balance per bank statement
an addition to the balance per depositor’s records

a deduction from the balance per depositor’s records

The bank reconciliation
should be prepared by an employee who records cash transactions
is part of the internal control system
is for information purposes only
is sent to the bank for verification

is part of the internal control system

Journal entries based on the bank reconciliation are required in the depositor’s accounts for
outstanding checks
deposits in transit
bank errors
book errors

book errors

A bank reconciliation should be prepared periodically because
the depositor’s records and the bank’s records are in agreement
the bank has not recorded all of its transactions
any differences between the depositor’s records and the bank’s records should be determined, and any errors made by either party should be discovered and corrected
the bank must make sure that its records are correct

any differences between the depositor’s records and the bank’s records should be determined, and any errors made by either party should be discovered and corrected

A check drawn by a depositor in payment of a voucher for $725 was recorded in the journal as $257. This item would be included in the bank reconciliation as a(n)
deduction from the balance per the depositor’s records
addition to the balance per the bank statement
deduction from the balance per the bank statement
addition to the balance per the depositor’s records

deduction from the balance per the depositor’s records

Accompanying the bank statement was a debit memorandum for bank service charges. What entry is required in the depositor’s accounts?
debit Miscellaneous Administrative Expense; credit Cash
debit Cash; credit Other Income
debit Cash; credit Accounts Payable
debit Accounts Payable; credit Cash

debit Miscellaneous Administrative Expense; credit Cash

What entry is required in the depositor’s accounts to record outstanding checks?
debit Accounts Receivable; credit Cash
debit Cash; credit Accounts Receivable
debit Cash; credit Accounts Payable
none

none

Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. This item would be included on the bank reconciliation as a(n)
deduction from the balance per depositor’s records
addition to the balance per bank statement
deduction from the balance per bank statement
addition to the balance per depositor’s records

deduction from the balance per depositor’s records

Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. What entry is required in the depositor’s accounts?
debit Other Income; credit Cash
debit Cash; credit Other Income
debit Cash; credit Accounts Receivable
debit Accounts Receivable; credit Cash

debit Accounts Receivable; credit Cash

Which of the following items that appeared on the bank reconciliation did not require an adjusting entry?
bank service charges
deposits in transit
NSF checks
A check for $520, recorded in the check register for $250.

deposits in transit

Receipts from cash sales of $9,500 were recorded incorrectly in the cash receipts journal as $5,900. What entry is required in the depositor’s accounts?
debit Sales; credit Cash
debit Cash; credit Accounts Receivable
debit Cash; credit Sales
debit Accounts Receivable; credit Cash

debit Cash; credit Sales

A check drawn by a depositor in payment of a voucher for $725 was recorded in the journal as $257. What entry is required in the depositor’s accounts?
debit Accounts Payable; credit Cash
debit Cash; credit Accounts Receivable
debit Cash; credit Accounts Payable
debit Accounts Receivable; credit Cash

debit Accounts Payable; credit Cash

Receipts from cash sales of $9,500 were recorded incorrectly in the cash receipts journal as $5,900. This item would be included on the bank reconciliation as a(n)
deduction from the balance per depositor’s records
addition to the balance per bank statement
deduction from the balance per bank statement
addition to the balance per depositor’s records

addition to the balance per depositor’s records

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the depositor. This item is a(n)
deduction from the balance per depositor’s records
addition to the balance per bank statement
deduction from the balance per bank statement
addition to the balance per depositor’s records

addition to the balance per depositor’s records

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the customer. What entry is required in the depositor’s accounts?
debit Notes Receivable; credit Cash
debit Cash; credit Miscellaneous Income
debit Cash; credit Notes Receivable
debit Accounts Receivable; credit Cash

debit Cash; credit Notes Receivable

The amount of deposits in transit is included on the bank statement as a(n)
deduction from the balance per the depositor’s books
deduction from the balance per bank statement
addition to the balance per bank statement
addition to the balance per depositor books

addition to the balance per bank statement

The amount of the outstanding checks is included on the bank reconciliation as a(n)
deduction from the balance per depositor’s records
addition to the balance per bank statement
deduction from the balance per bank statement
addition to the balance per depositor’s records

deduction from the balance per bank statement

Which of the following would be deducted from the balance per books on a bank reconciliation?
Service charges
Outstanding checks
Deposits in transit
Notes collected by the bank

Service charges

The amount of cash to be reported on the balance sheet at June 30 is the
total of the cash column in the cash receipts journal as of June 30
adjusted balance appearing in the bank reconciliation for June 30
total of the cash column in the cash payments journal as of June 30
balance as of June 30 on the bank statement

adjusted balance appearing in the bank reconciliation for June 30

During the month, a company was informed that a check they had issued was accidentally destroyed. On the bank reconciliation, the company would
deduct the amount from the balance per the depositor’s records
deduct the amount from the balance per the bank statement
Add the amount to the balance per the bank statement
Add the amount to the balance per the depositor’s records

Add the amount to the balance per the depositor’s records

Which of the following would be added to the balance per books on a bank reconciliation?
Service charges
Outstanding checks
Deposits in transit
Notes collected by the bank

Notes collected by the bank

A bank reconciliation should be prepared
whenever the bank refuses to lend the company money.
to explain any difference between the depositor’s balance per books with the balance per bank.
when an employee is suspected of fraud.
by the person who is authorized to sign checks.

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

Which of the following would be subtracted from the balance per bank on a bank reconciliation?
Outstanding checks
Deposits in transit
Notes collected by the bank
Service charges

Outstanding checks

Which of the following would be subtracted from the balance per books on a bank reconciliation?
Outstanding checks
Deposits in transit
Notes collected by the bank
Service charges

Service charges

Entries are made to the Petty Cash account when
making payments out of the fund.
recording shortages in the fund.
replenishing the petty cash fund.
establishing the fund.

establishing the fund.

The type of account and normal balance of Petty Cash is a(n)
revenue, credit
asset, debit
liability, credit
expense, debit

asset, debit

A $100 petty cash fund has cash of $18 and receipts of $80. The journal entry to replenish the account would include a
credit to Petty Cash for $84.
debit to Cash for $80.
debit to Cash Over and Short for $2.
credit to Cash for $80

debit to Cash Over and Short for $2

he debit recorded in the journal to reimburse the petty cash fund is to
Petty Cash
Accounts Receivable
Cash
various accounts for which the petty cash was disbursed

various accounts for which the petty cash was disbursed

A $100 petty cash fund has cash of $16 and receipts of $80. The journal entry to replenish the account would include a credit to
Cash for $80.
Cash Over and Short for $4.
Petty Cash for $84.
Cash for $84.

Cash for $84.

A $100 petty cash fund contains $92 in petty cash receipts, and $6.50 in currency and coins. The journal entry to record the replenishment of the fund would include a
credit to Petty Cash for $93.50
credit to Cash for $92
debit to Cash Short and Over for $1.50
credit to Cash Short and Over for $1.50

debit to Cash Short and Over for $1.50

A $100 petty cash fund has cash of $16 and receipts of $86. The journal entry to replenish the account would include a
credit to Petty Cash for $86.
debit to Cash for $86.
credit to Cash Over and Short for $2.
credit to Cash for $80

credit to Cash Over and Short for $2

A minimum cash balance required by a bank is called
cash in bank
cash equivalent
compensating balance
EFT

compensating balance

Cash equivalents include
checks
coins and currency
money market accounts and commercial paper
stocks and short-term bonds

money market accounts and commercial paper

Which of the following would not be included with the Cash and Equivalents on the Balance Sheet?
Commercial Paper
Short-Term Receivables
Certificates of Deposit
Municipal Securities
Money Market Mutual Funds

Short-Term Receivables

Cash equivalents
are illegal in some states
will be converted to cash within two years
will be converted to cash within 90 days
will be converted to cash within 120 days

will be converted to cash within 90 days

During a bank reconciliation process,
Outstanding checks and deposits in transit are added to the bank statement balance.
Outstanding checks are subtracted and deposits in transit are added to the bank statement balance.
Outstanding checks and deposits in transit are subtracted from the bank statement balance.
Outstanding checks are added and deposits in transit are subtracted to the bank statement balance.

Outstanding checks are subtracted and deposits in transit are added to the bank statement balance.

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 $450 is "NSF". The bank also informs you that due to the amount of activity on your business account the monthly service charge is $40.
During a bank reconciliation:
subtract both values from balance according to bank.
add both values from balance according to books.
add both values from balance according to bank.
subtract both values from balance according to books.

subtract both values from balance according to books.