Financial Accounting Chapter 6 Terms-Questions

1. Which of the following is not one of the policies and procedures that make up an internal control system?

C. Guarantee a return to investors.

2. Managers place a high priority on internal control systems because the systems assist managers in all of the following except:

E. Assuring that no loss will occur.

3. Principles of internal control include all of the following except:

B. Maintaining security by having one person track and record assets.

4. A properly designed internal control system:

A. Lowers the company’s risk of loss.

5. Two clerks sharing the same cash register is a violation of which internal control principle?

A. Establish Responsibilities

6. Which internal control principle prescribes the use of pre-numbered printed checks?

B. Maintain adequate records

7. Internal control policies and procedures have limitations not including:

E. Establishing Responsibilities

8. Internal control systems are:

D. Required by Sarbanes-Oxley (SOX) to be documented and certified if the company’s stock is traded on an exchange (a public company).

9. Cash equivalents:

A. Are short-term, highly liquid investment assets.

10. Cash equivalents:

C. Are readily converted to a known cash amount.

13. Basic bank services do not include:

E. Petty cash management

14. The three parties involved with a check are:

B. The maker, the payee, and the bank

15. A bank statement provided by the bank includes:

C. The beginning and the ending balance of the depositor’s account.

16. A bank does not issue a debit memorandum to notify the depositor if which of the following?

E. A deposit to their account.

17. The number of day’s sales uncollected:

A. Is used to evaluate the liquidity of receivables.

18. The number of day’s sales uncollected is used to:

D. Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.

19. All of the following are true of the number of day’s sales uncollected ratio except:

A. Is most effective in evaluating the cash sales of a company.

22. An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

D. Cash over and short

23. Internal control procedures for cash receipts do not require that:

B. All collections for sales are received immediately upon making the sales.

24. The cash over and short account:

B. Is used to record the income effects of errors in making change and/or processing petty cash transactions.

25. A voucher is an internal document or file:

C. Used to accumulate information needed to control cash disbursements and to ensure that transactions are properly recorded.

26. Which of the following procedures would weaken control over cash receipts that arrive through the mail?

C. For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank.

27. At the end of the day, the cash register tape shows $1,000 in cash sales but the count of cash in the register is $1,010. The proper entry to account for this excess is:

C. Debit Cash $1,010; credit Sales $1,000; credit Cash Over and Short $10.

28. A key factor in a voucher system includes all of the following except:

E. It is not necessary if the supplier provides both receiving report and invoice with the merchandise shipped.

29. Spencer Co. decides to establish a petty cash fund with a beginning balance of $200. The company decides that any purchases under $25 can be processed through petty cash instead of the voucher system. The journal entry to record establishing the account is:

C. Debit Petty Cash $200 and Credit Cash $200.

30. The entry to record reimbursement of the petty cash fund for postage expense should include:

A. A debit to Postage Expense.

31. When a petty cash fund is in use:

A. Expenses paid with petty cash are recorded when the fund is replenished.

32. When reimbursing the petty cash fund:

D. Appropriate expense accounts are debited.

34. A company wants to decrease its $200 petty cash fund to $175. The entry to reduce the fund is:

B. Debit to Cash $25; Credit to Petty Cash $25.

35. On a bank reconciliation, an unrecorded debit memorandum for printing checks is:

C. Deducted from the book balance of cash.

36. A debit memorandum on a bank statement indicates:

C. A decrease in the bank’s liability account.

38. An analysis that explains differences between the checking account balance according to the depositor’s records and the balance reported on the bank statement is a(n):

B. Bank reconciliation

39. On a bank reconciliation, the amount of an unrecorded bank service charge should be:

B. Deducted from the book balance of cash.

40. If a check that was outstanding on last period’s bank reconciliation was not among the cancelled checks returned by the bank this period, in preparing the period’s reconciliation, the amount of this check should be:

D. Deducted from the bank balance of cash as an outstanding check.

41. If a check correctly written and paid by the bank for $749 is incorrectly recorded in the company’s books for $794, how should this error be treated on the bank reconciliation?

D. Add $45 to the book balance.

45. A seller (or provider) of goods or services to a business organization is known as a:

A. Vendor

46. The internal document prepared by a department manager that informs the purchasing department of its merchandise be purchased is the:

A. Purchase Requisition

47. The itemized statement of goods prepared by a vendor listing the customer’s name, items sold, sales prices, and terms of the sale is called the:

C. Invoice

48. The internal document prepared to notify the appropriate persons that goods ordered have been received, describing the quantities and condition of the goods is the:

D. Receiving Report

49. A voucher system is a set of procedures and approvals:

E. Designed to control cash disbursements and the acceptance of obligations.

50. Internal controls are crucial to companies that convert from the U.S. GAAP to IFRS because of all of the following risks except:

C. Controls are significantly different across the globe.