Deck 6: Reporting and Analyzing Cash and Internal Controls

Question 1

An internal control system refers to the policies and procedures companies use to protect assets,ensure reliable accounting,promote efficient operations and urge adherence to company policies.

Answer 1

True

Question 2

Separation of duties divides responsibility for a transaction or a series of transactions between two or more individuals or departments.Separation of duties reduces the risk of error and fraud.

Answer 2

True

Question 3

The use of internal controls provides guaranteed protection against losses due to operating activities.

Answer 3

False

Question 4

Internal control policies and procedures are the same for all companies.

Question 5

The principles of internal control include: establish responsibilities,maintain adequate records,insure assets,separate recordkeeping from custody of assets and perform regular and independent reviews.

Question 6

Internal control systems used to monitor and control operations are a low priority for managers within the company.

Question 7

Technology such as cash registers,check protectors,time clocks and personal identification scanners can increase the strength of internal controls.

Question 8

Liquidity refers to a company's ability to pay its short-term obligations.

Question 9

Bonding does not discourage employees from stealing from the company as employees know that bonding is an insurance policy against loss from theft.

Question 10

Proper internal control means that the responsibility for a task is clearly established and assigned to one person.

Question 11

Once a good system of internal control is in place,it rarely needs review.

Question 12

Internal control in technologically advanced accounting systems depends more on the design and operation of the information system and less on the analysis of its resulting documents.

Question 13

Technologically advanced accounting systems do not need monitoring for errors because computers always process transactions correctly.

Question 14

Good internal control dictates that a person who controls an asset should also maintain the accounting records for that asset.

Question 15

Cash includes currency,coins and the deposits in most checking accounts.

Question 16

Cash equivalents are short-term highly liquid investment assets that are easily converted to cash and have maturities of one year.

Question 17

Collusion is when a person embezzles money from a company and tries to hide the evidence.

Question 18

Two important limitations of internal control systems are (1)human error or human fraud and (2)cost-benefit.

Question 19

A properly designed internal control system is a key part of accounting information systems design,analysis and performance.

Question 20

Maintaining adequate business records is an important internal control principle.

Question 21

On a bank statement,deposits are listed as debits because the bank increases its cash account when the deposit is made.

Question 22

Cancelled checks are checks the bank has paid and deducted from the customer's account during the period.

Question 23

The internal controls of cash receipts aims to ensure that all cash received is properly recorded and deposited.

Question 24

A check involves 3 parties: the maker who signs the check,the payee who is the recipient and the bank on which the check is drawn.

Question 25

A good voucher system includes a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations.

Question 26

Electronic funds transfer (EFT)is the use of electronic communication transfer of cash from one party to another.

Question 27

When evaluating the days' sales uncollected ratio,generally the less time that money is tied up in receivables often translates into increased profitability.

Question 28

The payee is the person who signs a check and authorizes payment.

Question 29

Brouski had $750 million in accounts receivable and $2,900 million in net sales for the current period.Its days' sales uncollected ratio equals 3.9 days.

Question 30

Internal control devices for banking activities include signature cards,deposit tickets,checks and bank statements.

Question 31

The days' sales uncollected ratio reflects on the liquidity of accounts receivable.

Question 32

The importance of cash is highlighted by the inclusion of a statement of cash flows in a complete set of financial statements,which reports on the changes in cash.

Question 33

Money orders,cashier's checks and certified checks are examples of cash equivalents.

Question 34

A company had $12,000 in accounts receivable and $320,000 in net sales for the current period.Its days' sales uncollected is equal to 13.7 days.

Question 35

A company must have a days' sales uncollected ratio of less than 30 days to conclude that is has sufficient liquidity.

Question 36

Controls of cash disbursements are important for companies as most large thefts occur from payment of fictitious invoices.

Question 37

The days' sales uncollected ratio is calculated by dividing accounts receivable by net sales and multiplying this quotient by 365.

Question 38

The days' sales uncollected ratio measures a company's ability to manage its debt.

Question 39

Checking accounts are also called demand deposits.

Question 40

Basic bank services such as bank accounts,bank deposits and checking contribute to the control and safeguarding of cash.

Question 41

A voucher is an internal document or file used to accumulate information to control cash disbursements and to ensure that a transaction is properly recorded.

Question 42

Assume that at the end of the day,the cash register tape shows a balance of $635.However,the cash drawer has a balance of $650,this difference should be debited to Miscellaneous Expense.

Question 43

Deposits in transit are deposits made and recorded by the depositor,but not yet recorded on the bank statement.

Question 44

The journal entry for petty cash reimbursement involves a debit to the appropriate expenses and a credit to Petty Cash.

Question 45

Outstanding checks are checks the bank has paid and deducted from the customer's account during the month.

Question 46

The Petty Cash account is a separate checking account used for small amounts.

Question 47

Cash receipts by mail require only two people: One to open the mail and a second person to deposit the cash in the bank and record the cash receipt in the accounting records.

Question 48

Vouchers should be used only for purchases.Other expenditures do not need to go through the voucher system.

Question 49

An effective voucher system has limited ability in preventing a dishonest employee from colluding with a dishonest supplier to fraudulently acquire cash payments for goods and services not received.

Question 50

A voucher system establishes procedures for verifying,approving and recording obligations for eventual cash disbursement.

Question 51

Receiving and paying for merchandise should be performed by one individual or department to streamline a voucher system and simplify the procedures for purchasing.

Question 52

A voucher system's control over cash disbursements begins when a company incurs an obligation that will result in eventual payment of cash.

Question 53

All disbursements from petty cash should be documented by a petty cash receipt.

Question 54

If the Cash Over and Short account has a debit balance at the end of the period,the amount is reported as miscellaneous revenue.

Question 55

The entry to increase the balance in petty cash from $50 to $75 would be to credit the Petty Cash account in the amount of $25.

Question 56

A bank reconciliation explains any differences between the balance of a checking account on the depositor's records and the balance reported on the bank statement.

Question 57

The clerk who has access to the cash in the cash register should not have access to the cash register tape or file.

Question 58

For good internal controls over cash,all payments should be made from the petty cash,except for very large payments.

Question 59

Assume that cash sales according to the register file total $705 but the amount of cash in the register is $685.This cash shortage of $20 represents a Miscellaneous Expense.

Question 60

The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared.

Question 61

The voucher register is a journal that is used to record all approved vouchers within the company.

Question 62

A bank reconciliation usually yields both an adjusted bank balance and an adjusted book balance.

Question 63

A purchase requisition is a document the purchasing department sends to the vendor to place an order.

Question 64

It is not necessary for businesses to reconcile their checking accounts since banks keep accurate records and provide internal control support for cash.

Question 65

The purposes and principles of internal control are fundamentally the same across the globe.However,cultural differences sometimes suggest different emphasis on the mix of control procedures.

Question 66

Recording a purchase is initiated by an invoice approval,not an invoice.

Question 67

A company's internal control system:

A)Eliminates the risk of loss
B)Monitors and controls business activities
C)Eliminates human error
D)Eliminates the need for audits
E)Is not necessary in large companies

Question 68

A good system of internal control:

A)Urges adherence to prescribed managerial policies
B)Insures profitable operations
C)Eliminates the need for an audit
D)Requires the use of non-computerized systems
E)Is not necessary if the company uses a computerized system

Question 69

In order to streamline the purchasing process,department managers should place orders directly with suppliers.

Question 70

When merchandise is needed,a department manager must inform the purchasing department of this need by preparing and signing a purchase requisition,which lists the merchandise needed and requests that it be purchased.

Question 71

The main principles of internal control include which of the following:

A)Establish responsibilities
B)Maintain minimal records
C)Use only computerized systems
D)Bond all employees
E)Require automated sales systems

Question 72

An NSF check for $17.50 would be recorded as a debit to Cash and a credit to Accounts Receivable.

Question 73

Assume that a buyer receives a shipment of MODEL SD010 with an invoice amount of $780,although $870 worth of goods were received.The purchase order was for $870.Since the difference was in the buyer's favor,the buyer's purchasing department should authorize payment of $780.

Question 74

When two clerks share the same cash register,which internal control principle is violated?

A)Establish responsibilities
B)Maintain adequate records
C)Insure assets
D)Bond key employees
E)Apply technological controls

Question 75

An invoice is an itemized statement of goods prepared by the vendor listing the customer's name,items sold,sales prices and terms of sale.

Question 76

An invoice is a document that is used within a company to notify the appropriate persons that ordered goods have been received and to describe the quantities and condition of the goods.

Question 77

The impact of technology on internal controls includes which of the following:

A)Reduced processing errors
B)Elimination of the need for regular audits
C)Elimination of the need to bond employees
D)More efficient separation of duties
E)Elimination of fraud

Question 78

The steps to reconcile the balance of the bank statement to the adjusted balance include adding outstanding checks,deposits and bank service charges.

Question 79

Pre-numbered printed checks are an example of which internal control principle?

A)Technological controls
B)Maintain adequate records
C)Perform regular and independent reviews
D)Establish responsibilities
E)Divide responsibility for related transactions

Question 80

After preparing a bank reconciliation,adjustments must be made for items reconciling the bank balance and items reconciling the book balance.