Question 1

The stronger the system of internal control,the higher the accuracy of the company's accounting records and financial reports.

Accepted Answer

A strong system of internal control helps ensure that financial information is recorded accurately and reported correctly, leading to higher accuracy in accounting records and financial reports.

Question 2

When a bank collects a note on behalf of a company,the bank is likely to issue a debit memo.

Accepted Answer

When a bank collects a note on behalf of a company, it is likely to issue a credit memo, indicating the company's account has been credited/increased due to the collection.

Question 3

On a bank reconciliation,bank service charges for the month are added to the cash balance per the company records.

Accepted Answer

Bank service charges are deducted from the cash balance per the company's records because they represent amounts the bank has charged the company, thus reducing the company's available cash balance.

Question 4

When a bank pays interest on a company's checking account balance,the bank will likely issue a credit memo.

Accepted Answer

When a bank pays interest on a company's checking account balance, it will credit the account and issue a credit memo to inform the company of the interest amount added to their account.

Question 5

Cash equivalents typically appear in the long-term investments section of a balance sheet.

Accepted Answer

Cash equivalents are typically grouped with current assets on the balance sheet, not long-term investments.

Question 6

Money market accounts with original maturities of less than 90 days are cash equivalents.

Accepted Answer

Money market accounts with original maturities of less than 90 days are considered cash equivalents as they are highly liquid and have low risk of value fluctuations.

Question 7

Collections of accounts receivable are considered to be cash equivalents.

Accepted Answer

Collections of accounts receivable are not considered to be cash equivalents as they still need to be collected and may not have the same level of liquidity as actual cash.

Question 8

In a sound system of internal control,cash receipts should be deposited daily.

Accepted Answer

Depositing cash receipts daily is a key component of a strong internal control system for managing cash. This helps prevent loss or misappropriation of funds and ensures accurate recording of cash transactions. Delaying deposits could increase the risk of errors or fraud.

Question 9

When reconciling a bank account,the company must prepare an adjusting entry for deposits in transit.

Accepted Answer

Deposits in transit are already recorded in the company's cash account but not yet reflected in the bank statement; thus, no adjusting entry is needed for them in the company's records.

Question 10

A check written by a company but not yet presented to the bank for payment is called a check in transit.

Accepted Answer

A check written by a company but not yet presented to the bank for payment is referred to as an outstanding check. A check in transit typically refers to a check that has been sent out but not yet received and processed by the recipient.

Question 11

On a bank reconciliation,interest earned for the month is added to the cash balance per the company records.

Accepted Answer

Interest earned is a cash receipt and should be added to the cash balance per the company records on the bank reconciliation.

Question 12

The establishment of a petty cash fund has no effect on the company's total cash balance.

Accepted Answer

The establishment of a petty cash fund involves the transfer of a small amount of cash from the company's total cash balance to a separate fund designated for small expenses. The total cash balance remains the same.

Question 13

On a bank reconciliation,outstanding checks are added to the cash balance per the bank statement.

Accepted Answer

Outstanding checks are subtracted from the cash balance per the bank statement, not added.

Question 14

When reconciling a bank account,the company has to prepare an adjusting entry for outstanding checks.

Accepted Answer

Outstanding checks are accounted for in the bank reconciliation process by adjusting the bank statement balance, not by making an adjusting entry in the company's books.

Question 15

As a result of the bank reconciliation process,a company will prepare an adjusting entry for a debit memo but not for a credit memo.

Accepted Answer

During the bank reconciliation process, a company prepares adjusting entries for both debit and credit memos to reflect any changes made by the bank that have not yet been recorded in the company's books.

Question 16

Petty Cash is NOT considered to be a cash equivalent.

Accepted Answer

Petty cash is a small amount of cash that is kept on hand for small expenses and is not considered to have the same level of liquidity and stability as cash equivalents such as money market funds, treasury bills, or commercial paper.

Question 17

A debit memo may be issued in the monthly bank statement in order for the bank to notify a company that a service charge has been assessed on the company's account.

Accepted Answer

This is a correct statement about debit memos in bank statements.

Question 18

An accounting system must be computerized in order to ensure the company has proper internal control.

Accepted Answer

An accounting system does not necessarily have to be computerized to have proper internal control. Proper internal control can be achieved through various methods, including manual processes and procedures.

Question 19

The key to being classified as a cash equivalent is that the amount must be available to pay debts within a year's time or less.

Accepted Answer

The key to being classified as a cash equivalent is not just availability within a year's time or less, but also that the investment must be highly liquid and subject to an insignificant risk of changes in value.

Question 20

No special internal control procedures are necessary with a petty cash fund because the amount is so small.

Accepted Answer

Petty cash funds still require internal control procedures such as designated custodians, proper documentation, and regular reconciliations to ensure proper use of funds and prevent theft or fraud.

Quiz 4: Internal Control and Cash