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The Sarbanes-Oxley Act requires that all major U.S. corporations
A. prepare bank reconciliations monthly.
B. maintain a petty cash fund.
C. maintain an adequate system of internal control.
D. must file reports with the National Commission on Fraudulent Financial Reporting.
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C
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An organization uses internal controls to enhance the accuracy and reliability of its accounting records and to
A. safeguard its assets.
B. prevent fraud.
C. produce correct financial statements.
D. deter employee dishonesty.
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A
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Which of the following is not an element of the fraud triangle?
A. Rationalization.
B. Financial pressure.
C. Segregation of duties.
D. Opportunity.
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C
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Few internal control systems provide for independent internal verification.
A. True
B. False
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FALSE
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The use of cash register tapes is an example of
A. documentation procedures.
B. other controls.
C. physical controls.
D. independent internal verification.
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A
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Physical controls do not include
A. safes and vaults to store cash.
B. independent bank reconciliations.
C. locked warehouses for inventories.
D. bank safety deposit boxes for important papers.
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B
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The principles of internal control include all of the following except
A. establishment of responsibility.
B. combining of duties.
C. physical controls.
D. independent internal verification.
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C
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Having different individuals receive cash, record cash receipts, and hold the cash is an example of
A. establishment of responsibility.
B. segregation of duties.
C. documentation procedures.
D. independent internal verification.
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B
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Allowing only designated personnel to handle cash receipts is an example of
A. establishment of responsibility.
B. segregation of duties.
C. documentation procedures.
D. independent internal verification.
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A
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Use of remittance advice, cash register tapes and deposit slips are examples of
A. segregation of duties.
B. documentation procedures.
C. physical controls.
D. human resource controls.
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B
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An internal auditor reconciling the bank statement monthly is an example of
A. segregation of duties.
B. independent internal verification.
C. establishment of responsibility.
D. documentation procedures.
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B
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The use of pre-numbered checks in disbursing cash is an application of the principle of
A. establishment of responsibility.
B. segregation of duties.
C. physical controls.
D. documentation procedures.
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D
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Companies use a petty cash fund to pay relatively small amounts.
A. True
B. False
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TRUE
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Entries are made to the Petty Cash account when
A. establishing the fund.
B. making payments out of the fund.
C. recording shortages in the fund.
D. replenishing the Petty Cash fund.
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A
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Making payments from a petty cash fund requires
A. a credit to Cash.
B. a credit to Petty Cash.
C. a debit to various expense accounts.
D. no accounting entry to record a payment when it is made from petty cash.
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D
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A petty cash fund of $200 is replenished when the fund contains $5 in cash and receipts of $192. The entry to replenish the fund would
A. credit Cash Over and Short for $3.
B. debit Cash Over and Short for $3.
C. debit Miscellaneous Expense for $3.
D. credit Petty Cash for $192.
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B
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A bank issues a debit memorandum when it collects a note receivable for a depositor.
A. True
B. False
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FALSE
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A bank may issue a debit memorandum for all of the following except
A. a bank service charge.
B. a NSF (not sufficient funds) check from a customer.
C. the collection of a note receivable by the bank for the depositor.
D. the cost of printing checks.
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C
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The party who issues a check is the
A. payee.
B. payer.
C. maker.
D. bank.
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C
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The lack of agreement between the bank balance and the book balance is due to time lags and errors.
A. True
B. False
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TRUE
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On a bank reconciliation, deposits in transit are
A. added to the bank balance.
B. deducted from the bank balance.
C. added to the book balance.
D. deducted from the book balance.
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A
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In a bank reconciliation, outstanding checks are
A. deducted from the book balance.
B. added to the book balance.
C. added to the bank balance.
D. deducted from the bank balance.
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D
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A disbursement system that uses wire, telephone, or computers to transfer cash balances from one location to another is called a(n)
A. automated system.
B. electronic funds transfer system.
C. internal system.
D. voucher system.
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B
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On a bank reconciliation, collection of a note receivable by the bank is
A. added to the bank balance.
B. deducted from the bank balance.
C. added to the book balance.
D. deducted from the book balance.
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C
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If a check correctly written and paid by the bank for $638 is incorrectly recorded on the company’s books at $683, the appropriate treatment on the bank reconciliation would be to
A. add $45 to the bank balance.
B. add $45 to the book’s balance.
C. deduct $45 from the bank balance.
D. deduct $438 from the book balance.
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B
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Cash equivalents include each of the following except
A. Commercial paper.
B. Money market funds.
C. Petty cash.
D. US Treasury bills.
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C
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When a company has a net negative balance in its bank account, it is
A. not reported on its financial statements.
B. reported as a negative current asset.
C. reported as a current liability.
D. reported as an operating expense on the income statement.
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C
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All of the following are classified as cash except
A. checks.
B. money orders.
C. money on hand.
D. commercial paper.
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D
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Internal control consists of all the related methods and measures adopted within an organization to safeguard its assets and to enhance the accuracy and reliability of its accounting records.
A. True
B. False
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TRUE
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The fraud triangle consists of three factors:
A. Opportunity, rationalization and financial pressure
B. Ability, opportunity, rationalization
C. Rationalization, ability and financial pressure
D. Financial pressure, opportunity and ability
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A
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Which of the following is not required by the Sarbanes-Oxley Act?
A. Companies must file financial statements with the Internal Revenue Service.
B. All publicly traded companies must maintain adequate internal controls.
C. The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity.
D. Corporate executives and board of directors must ensure that controls are reliable and effective and they can be fined or imprisoned for failure to do so.
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A
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Control is most effective when two people are responsible for a given task.
A. True
B. False
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FALSE
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Controls that enhance the accuracy and reliability of the accounting records and relate to the safeguarding of assets are
A. automated controls.
B. external controls.
C. internal controls.
D. physical controls.
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D
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The principles of internal control do not include
A. establishment of responsibility.
B. documentation procedures.
C. management responsibility.
D. independent internal verification.
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C
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Which of the following control activities is relevant when a company uses a computerized (rather than manual) accounting system?
A. Establishment of responsibility.
B. Segregation of Duties.
C. Independent internal verification.
D. All of these control activities are relevant to a computerized system.
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D
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Large companies often assign independent internal verification to the
A. bookkeeper.
B. controller.
C. internal auditors.
D. treasurer.
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C
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Cash is the asset most susceptible to fraudulent activities.
A. True
B. False
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TRUE
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Storing cash in a company safe is an application of which internal control principle?
A. segregation of duties
B. documentation procedures
C. physical controls
D. establishment of responsibility
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C
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Internal control over cash disbursements is more effective when companies pay by check, rather than by cash.
A. True
B. False
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TRUE
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An employee authorized to sign checks should not record
A. owner cash contributions.
B. mail receipts.
C. cash disbursement transactions.
D. sales transactions.
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C
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Bonding employees who handle cash is an example of application of the principle of
A. establishment of responsibility.
B. segregation of duties.
C. human resource controls.
D. independent internal verification.
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C
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A credit balance in Cash Over and Short is reported as a (n)
A. asset.
B. liability.
C. miscellaneous expense.
D. miscellaneous revenue.
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D
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A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $3 in cash. In recording the check, the company should
A. debit Cash Over and Short for $3.
B. debit Petty Cash for $94.
C. credit Cash for $94.
D. credit Petty Cash for $3.
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A
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A company reports a debit balance in Cash Over and Short as a(n)
A. liability.
B. miscellaneous expense.
C. miscellaneous revenue.
D. asset.
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B
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There are two parties to a check: the maker and the payee.
A. True
B. False
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FALSE
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A bank statement
A. lets a depositor know the financial position of the bank as of a certain date.
B. is a credit reference letter written by the depositor’s bank.
C. is a bill from the bank for services rendered.
D. shows the activity that increased or decreased the depositor’s account balance.
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D
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The control features of a bank account do not include
A. having bank auditors verify the correctness of the bank balance per books.
B. minimizing the amount of cash that must be kept on hand.
C. providing a double record of all bank transactions.
D. safeguarding cash by using a bank as a depository.
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A
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All of the following would involve a debit memorandum except
A. a bank service charge.
B. an NSF check.
C. the cost of printing checks.
D. interest earned.
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D
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A company records each reconciling item used to determine the adjusted cash balance per books.
A. True
B. False
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TRUE
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Journal entries are required by the depositor for all of the following except
A. collection of a note receivable.
B. bank errors.
C. bank service charges.
D. a NSF check.
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B
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The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is
A. outstanding checks.
B. deposit in transit.
C. a bank error.
D. bank service charges.
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D
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On a bank reconciliation, bank service charges are
A. added to the bank balance.
B. deducted from the bank balance.
C. added to the book balance.
D. deducted from the book balance.
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D
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Journal entries are required by the depositor for all of the following except
A. collection of a note receivable.
B. an NSF check.
C. bank service charges.
D. bank errors.
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D
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Dewitt Company gathered the following information in preparing its bank reconciliation on May 31: Cash balance per books, May 31, $3,500; Deposits-in-transit, $1,150; Note and interest collected by the bank, $850; Bank service charge, $20; Outstanding checks, $2,500; NSF check, $170. The adjusted cash balance per books at May 31 is
A. $4,160.
B. $3,010.
C. $5,510.
D. $2,460.
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A
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Restricted cash expected to be used within the next year should be
A. reported as a current asset.
B. reported as a noncurrent asset.
C. disclosed in the notes to the financial statements.
D. reported as a reduction of cash.
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A
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Which of the following statements correctly describes the reporting of cash?
A. Cash cannot be combined with cash equivalents.
B. Restricted cash funds may be combined with Cash.
C. Cash is listed first in the current assets section.
D. Restricted cash funds cannot be reported as a current asset.
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C
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Cash equivalents include all of the following except
A. money market funds.
B. commercial paper.
C. U.S. Treasury bills.
D. restricted cash.
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D
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