Orion Ch 7- Fraud, Internal Control, and Cash

Q 7.1: Which of the following is an objective of a system of internal controls? Select all that apply.
A : to enhance the accuracy and reliability of accounting records
B : to overstate liabilities in order to be conservative
C : to safeguard company assets
D : to reduce the risk of errors

A : to enhance the accuracy and reliability of accounting records D : to reduce the risk of errors

Q 7.2: Which of the following statements regarding auditors is true?

A :
They cannot evaluate the system of internal controls of the company that employs them because they are not independent.

B :
They are hired by CPA firms to audit business firms.

C :
They are employees of the IRS who evaluate the internal controls of companies filing tax returns.

D :
They evaluate the system of internal controls for the companies that employ them.

B : They are hired by CPA firms to audit business firms.

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

A) Should

B) Should not

B) Should not

Q 7.4: Which of the following is best at providing evidence which helps companies enforce the principle of establishing responsibility?

A :
rotating employees’ duties

B :
prenumbered documents

C :
background checks

D :
requiring identifying passcodes in order to carry out activities

D : requiring identifying passcodes in order to carry out activities

Q 7.5: What does the term "bonding" mean when it refers to employees?

A :
They have worked for the company for at least 10 years.

B :
They are allowed to handle cash.

C :
It is impossible for them to steal from the company.

D :
They have been insured against misappropriation of assets.

D : They have been insured against misappropriation of assets.

Q 7.6: Identify the example of poor internal control.

A :
One person should be responsible for handling related transactions.

B :
The accountant should not have physical custody of the asset nor access to it.

C :
A salesperson makes the sale and a different person ships the goods.

D :
The custodian of an asset should not maintain or have access to the accounting records.

A : One person should be responsible for handling related transactions.

Q 7.7: When a company uses prenumbered checks and requires an approved invoice for each check, it is using which internal control?

A :
establishment of responsibility

B :
independent internal verification

C :
documentation procedures

D :
segregation of duties

C : documentation procedures

Q 7.8: When should a bank reconciliation be prepared?

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

B :
when the person who is authorized to sign checks wants a reconciliation

C :
when an employee is suspected of fraud

D :
whenever the bank refuses to lend the company money

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

Q 7.9: Which of the following does NOT affect the cash balance per books?

A :
bank service charges

B :
outstanding checks

C :
NSF checks

D :
notes collected by the bank

B : outstanding checks

Q 7.10: ________ do NOT require journal entries by the depositor.

A :
Collection of a note receivable

B :
An NSF check

C :
Bank service charges

D :
Bank errors

D : Bank errors

Q 7.11: Which of the following would be reported on the balance sheet as a cash equivalent? Select all that apply.
A : six-month Treasury bill
B : money market fund
C : money market savings certificate
D : 60-day certificate of deposit

B : money market fund C : money market savings certificate D : 60-day certificate of deposit

Q 7.12: A company can try to _________
inventory as a way of ensuring it has adequate cash.

A) Reduce

B) Increase

A) Reduce

Q 7.13: A small company that has excess cash should invest it in a company’s stock that is expected to increase in the short term.

A :
True

B :
False

B : False

Q 7.14: What does a check marked NSF mean?

A :
not satisfactorily filled out

B :
no service fee

C :
no signature found

D :
no sufficient funds

D : no sufficient funds

Q 7.15: When would a bank issue a credit memorandum?

A :
for a bank service charge

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

C :
for the cost of printing checks

D :
for an NSF (not sufficient funds) check from a customer

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

Q 7.16: Cash equivalents are highly liquid investments that are both

A :
notes receivable that will be collected within one year.

B :
readily convertible and very close to their maturity dates.

C :
readily convertible and with a market value that is sensitive to changes in interest rates.

D :
money market funds and have a maturity date of one year or less.

B : readily convertible and very close to their maturity dates.

Q 7.17: When a company allows only designated personnel to handle cash receipts, it is applying the internal control principle of

A :
segregation of duties.

B :
independent internal verification.

C :
documentation procedures.

D :
establishment of responsibility.

D : establishment of responsibility.

Q 7.18: A voucher system is a series of prescribed control procedures that are designed to

A :
help small firms that may not have checking accounts.

B :
eliminate the need for a sales journal.

C :
check the credit worthiness of customers.

D :
ensure that disbursements by check are proper.

D : ensure that disbursements by check are proper.

Q 7.19: All of the following are considered cash equivalents EXCEPT

A :
U.S. Treasury bills.

B :
notes receivable.

C :
money market funds.

D :
cheques.

B : notes receivable.

Q 7.20: ________ enhance the accuracy and reliability of the accounting records.

A :
Automated controls

B :
Mechanical and electronic controls

C :
Physical controls

D :
Logical Control

C : Physical controls

Q 7.21: Coins, money on deposit in a bank, and petty cash are all included in the definition of ________.

Cash

Q 7.22: Checks received in the mail should be immediately stamped "For Deposit Only" to prevent unauthorized cashing of the check.

A :
True

B :
False

A : True

Q 7.23: The reconciliation of the cash register tape with the cash in the register _______ an example of independent internal verification.

a) is

b) is not

a) is

Q 7.24: When a company has one bookkeeper preparing the cash deposits while another bookkeeper enters the collections in the journal and ledger, the company is using

A :
segregation of duties.

B :
cash flow procedures.

C :
documentation procedures.

D :
monitoring.

A : segregation of duties.

Q 7.25: Supervisors counting cash receipts daily
an example of independent internal verification.

a) is

b) is not

a) is

Q 7.26: By designating certain personnel to handle cash receipts, a company is following which principle?

A :
independent internal verification

B :
segregation of duties

C :
establishment of responsibility

D :
documentation procedures

C : establishment of responsibility

Q 7.27: Designating the same individual to receive the cash and pay the bills ________
an example of a company following an internal control for cash.

a) is

b) is not

b) is not

Q 7.28: An activity that would NOT contribute to the internal control of cash would be

A :
having one clerk document the cash register tape while another counts and deposits cash.

B :
separating the functions of record keeping and maintaining custody of cash.

C :
giving one clerk access to a cash register tape and the cash.

D :
having one clerk prepare checks and another sign them.

C giving one clerk access to a cash register tape and the cash.

Q 7.29: Like depositing cash daily, limiting access to cash and keeping a limited amount of cash on hand are
_____ _____
procedures for cash.

Internal controls

Q 7.30: Unlike money orders, postdated checks _____
be considered cash.

a) would

b) would not

b) would not

Q 7.31: When a company has one bookkeeper preparing the cash deposits while another bookkeeper enters the collections in the journal and ledger, the company is using a type of
_____ _____
principle called segregation of duties.

internal control

Q 7.32: All of the following are internal control activities except

A :
combining the functions of record keeping and maintaining custody of cash.

B :
recording all cash receipts promptly.

C :
occasionally conducting surprise audits of cash on hand.

D :
limiting the number of persons who have access to cash.

A combining the functions of record keeping and maintaining custody of cash.

Q 7.33: Independent internal verification can include

A :
bonding personnel who handle cash.

B :
storing cash in safes and bank vaults.

C :
authorizing only designated personnel to handle cash receipts.

D :
having a supervisor count cash receipts daily.

D having a supervisor count cash receipts daily.

Q 7.34: When a company has one bookkeeper preparing the cash deposits while another bookkeeper enters the collections in the journal and ledger, the company is using a type of internal control principle called human resource control.

A :
True

B :
False

B False

Q 7.35: A company practices a type of internal control principle over cash receipts called segregation of duties when it

A :
uses mail receipts, cash register tapes or computer records, and deposit slips.

B :
conducts background checks.

C :
has one bookkeeper preparing cash deposits while another enters the collections in the journal and ledger.

D :
authorizes only designated personnel to handle cash receipts.

C : has one bookkeeper preparing cash deposits while another enters the collections in the journal and ledger.

Q 7.36: The definition of cash includes all of the following: coins, money on deposit in a bank, and petty cash.

A :
True

B :
False

A : True

Q 7.37: To prevent unauthorized cashing, ________ should be stamped on a check as soon as it is received in the mail.

A :
For Company Use

B :
For Deposit Only

C :
Do Not Cash

D :
Check Received

B For Deposit Only

Q 7.38: What is the reconciliation of the cash register tape with the cash in the register an example of?

A :
segregation of duties

B :
independent internal verification

C :
other controls

D :
establishment of responsibility

B : independent internal verification

Q 7.39: Combining the functions of record keeping and maintaining custody of cash ______
an internal control activity for cash.

a) is
b) is not

b) is not

Q 7.40: Which of the following is an internal control activity for cash? Select all that apply.
A : designating specific employees to handle cash
B : separating the functions of record keeping and physical custody of cash
C : using hand-written paper receipts instead of cash register tapes
D : locking the cash register tape until a supervisor removes it

A designating specific employees to handle cash B separating the functions of record keeping and physical custody of cash D locking the cash register tape until a supervisor removes it