MGMT 20000 Chapter 4 Review

Preparation of a bank _____ helps maintain control of cash accounts.

reconciliation

When two or more persons work together to circumvent internal control procedures and commit a fraud, this is called _____.

collusion

Which of the following steps are necessary to reconcile the bank balance and the cash account balance. A. Record items that reconcile the bank's cash balance B. Adjust bank's cash balance C. Record items that reconcile the company's cash balance D. Adjust the company's cash balance

B. Adjust bank's cash balance C. Record items that reconcile the company's cash balance D. Adjust the company's cash balance

When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance? (Select all that apply.) A. Outstanding checks B. Charges for NSF checks C. Service charges D. Deposits outstanding

B. Charges for NSF checks C. Service charges

Paying by check helps a business to control cash when the _____. (Select all that apply.) A. checks are deposited only at the company's bank B. checks are prenumbered and written sequentially C. check is signed by an authorized manager

B. checks are prenumbered and written sequentially C. check is signed by an authorized manager

The bank will show a customer's deposit on bank statements as a _____. A. debit, because cash is an asset B. credit, because a deposit is a liability from the bank's point of view C. credit, because cash is an asset D. debit, because a deposit is a liability from the bank's point of view

B. credit, because a deposit is a liability from the bank's point of view

List the steps for a bank reconciliation in the correct order. (Drag the items to put them in the proper order with the first step on top.) A. Update the company's Cash account by recording items identified in the previous step B. Adjust the company's cash balance C. Adjust bank's cash balance

C. Adjust bank's cash balance B. Adjust the company's cash balance A. Update the company's Cash account by recording items identified in the previous step

Who has final responsibility for internal controls? A. Auditors B. The SEC C. Management D. The FASB

C. Management

A journal entry that affects a company's Statement of Cash Flows will include an inflow or outflow of _____. (Enter only one word per blank)

cash

The asset that is most easily stolen and susceptible to fraud is _____. (Enter one word per blank)

cash

The accounting term for a situation where two or more people act in coordination to circumvent internal controls is _____ (Enter one word per blank).

collusion

Because cash normally is assumed to be available for spending, it is usually classified on the balance sheet as a(n) _____ _____. (Enter only one word per blank.)

current; asset

A periodic performance review is an example of a(n) _____ control.

detective

The two types of control procedures are preventive and _____. (Enter one word per blank)

detective

A bank statement may not agree with the amount of cash recorded by the company in the cash account because of _____ differences and errors.

timing

Which of the following items will require a journal entry following a bank reconciliation? (Select all that apply.) A. Notes collected by the bank B. Outstanding checks C. NSF checks D. Deposits outstanding

A. Notes collected by the bank C. NSF checks

Which of the following are preventive controls? A. Physical controls B. Reconciliations C. Performance reviews D. Separation of duties

A. Physical controls D. Separation of duties

Which of the following are detective controls? A. Reconciliations B. Proper authorization C. Performance reviews D. Audits E. Physical controls

A. Reconciliations C. Performance reviews D. Audits

Which of the following are errors in accounting for cash? A. Recording a cash collection of $4,000 but depositing $3,000 into the bank. B. Recording a check for $168 for $186 in the cash account. C. The bank charges a service charge for $100 on January 10, but the retail company does not record this charge until the bank statement is received. D. The bank processing a check for $210 as $120.

A. Recording a cash collection of $4,000 but depositing $3,000 into the bank. B. Recording a check for $168 for $186 in the cash account. D. The bank processing a check for $210 as $120.

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance? A. Deposits outstanding B. Collections of funds by the bank C. Charges for NSF checks D. Outstanding checks

B. Collections of funds by the bank

The ending balance in cash is reported in which financial statement(s)? A. The balance sheet only B. The balance sheet and income statement C. The balance sheet and statement of cash flows D. The statement of cash flows only

C. The balance sheet and statement of cash flows

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for A. designing fraud-proof accounting system. B. preparing useful financial statements. C. designing an internal control system. D. auditing internal control systems.

C. designing an internal control system.

The three classifications on the statement of cash flows are cash flows from (Select all that apply.) A. business activities. B. discontinued activities. C. investing activities. D. financing activities. E. operating activities.

C. investing activities. D. financing activities. E. operating activities.

The statement of cash flows classifies items as A. recurring and nonrecurring. B. current and noncurrent. C. operating, investing, and financing. D. operating and nonoperating.

C. operating, investing, and financing.

Separation of duties and E-commerce controls are examples of _____ controls. A. assurance B. communication C. preventive D. detective

C. preventive

High profile accounting scandals in the early 2000s prompted the passage of the: A. PCAOB Auditing Standard No. 2 B. SEC Act of 1933 C. SEC Act of 1934 D. Sarbanes-Oxley Act

D. Sarbanes-Oxley Act

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the A. SEC Reforms Act. B. CPA Investigations Act. C. Investor Protection Act. D. Sarbanes-Oxley Act.

D. Sarbanes-Oxley Act.

The Sarbanes-Oxley Act applies to A. companies that operate internationally. B. any company organized in the United States. C. companies that are formed as partnerships. D. companies that are required to file with the SEC.

D. companies that are required to file with the SEC.

Differences between the bank statement balance and the cash account balance in the accounting records are primarily caused by timing differences and _____. (Enter only one word.)

errors

A(n) _____ is a mistake in accounting, which can be intentional or unintentional. (Enter one word per blank)

errror

When a person intentionally deceives another person or company for personal gain, this is referred to as _____. (Enter one word per blank)

fraud

A small amount of cash on hand to pay for minor purchases is commonly referred to as a(n) _____ _____ fund. (Enter one word per blank.)

petty; cash

One of the most important internal controls for cash is the bank _____.

reconciliation

A(n) _____ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction. (Enter only one word.)

timing

Which of the following items are not included in cash? A. Accounts receivable from customers B. Balance in checking accounts C. Cash in savings account D. Currency and coins

A. Accounts receivable from customers

Which of the following items are included in cash? A. Checks from customers B. Notes receivable from customers C. Balance in checking accounts D. Currency and coins E. Accounts receivable from customers

A. Checks from customers C. Balance in checking accounts D. Currency and coins

The framework for designing an internal control system is provided by the A. Committee of Sponsoring Organizations (COSO) of the Treadway Commission. B. Public Companies Accounting Oversight Board (PCAOB). C. Financial Accounting Standards Board. D. Securities and Exchange Commission Act of 1934.

A. Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Which of the following entries affect a company's cash flows? A. Debit rend expense; credit cash B. Debit accounts receivable; credit revenue C. Debit supplies; credit cash D. Debit equipment; credit notes payable

A. Debit rend expense; credit cash C. Debit supplies; credit cash

Which of the following will cause differences between the bank statement balance and the accounting balance for cash? A. Errors B. Checks that are processed the same day as they are written C. Timing differences D. Debit card payments by customers

A. Errors C. Timing differences

Which of the following led to the passage of the Sarbanes-Oxley Act of 2002? A. High profile accounting scandals during the early 2000s B. The increasing incidence of financial statement misstatements C. The increasing complexity of U.S. GAAP D. The likely adoption of global accounting standards in the U.S.

A. High profile accounting scandals during the early 2000s

What is the primary purpose of a bank reconciliation? A. To ensure the bank balance per reconciliation is equal to the company balance per reconciliation B. To ensure that the cash receipts of the period were received D. To ensure that the cash disbursements of the period were properly authorized

A. To ensure the bank balance per reconciliation is equal to the company balance per reconciliation

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called A. checks outstanding. B. deposits outstanding. C. electronic funds transfers. D. NSF checks.

A. checks outstanding.

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a A. debit to Cash. B. debit to Accounts Receivable. C. debit to Check Receivable. D. debit to Sales.

A. debit to Cash.

The two most common sources of occupational fraud are: A. financial statement manipulation B. personal tax evasion C. employee misrepresentation to outside stakeholders D. misuse of company resources

A. financial statement manipulation D. misuse of company resources

Which of the following are common controls over cash receipts? (Select all that apply.) A. opening mail daily and making a detailed list of checks received B. reducing the amount of total sales to customers C. placing one trusted employee in charge of all cash-related activities D. having two different employees take custody of the checks and make the deposit

A. opening mail daily and making a detailed list of checks received D. having two different employees take custody of the checks and make the deposit

Internal control consists of plans to (Select all that apply.) A. safeguard company assets. B. provide accurate and reliable accounting information. C. report management errors to the police. D. report misuse of company assets to investors.

A. safeguard company assets. B. provide accurate and reliable accounting information.

A bank reconciliation is a procedure used to determine if the cash balance in the bank statement equals A. the ending balance of cash in the accounting records. B. the total cash debits recorded in the accounting period. C. the cash flows from operating activities. D. purchases for the period.

A. the ending balance of cash in the accounting records.

In a bank reconciliation, which of the following will require a journal entry by the company? A. Both the adjustments to the bank balance and adjustments to the cash balance in the accounting records B. Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books C. Adjustments to the bank balance for items recorded on the books but not yet on the bank statement

B. Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

Which of the following are internal controls for checks? A. The person who handles cash receipts should also handle writing checks for purchases. B. Checks for large amounts should require two signatures. C. The employee who writes the check should reconcile the bank statement. D. Checks should be sequentially prenumbered.

B. Checks for large amounts should require two signatures. D. Checks should be sequentially prenumbered.

True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check. A. True B. False

B. False

True or false: Variability in operating cash flows is unimportant as long as the total cash flows over a three-year period is sufficiently positive. A. True B. False

B. False

Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated? A. Opening the mail and making a list of checks received B. Opening the mail and deposit of checks in the bank C. Depositing checks into the bank and recording receipts in the accounting records D. Accepting credit cards and accepting cash

B. Opening the mail and deposit of checks in the bank C. Depositing checks into the bank and recording receipts in the accounting records

Smith's operating cash flows in millions were $100, $150, $80 during the past three years; while Jones' operating cash flows in millions were $105, $115, $110 during the same period. From the perspective of operating cash flows, which company would likely be perceived as riskier? A. Jones B. Smith C. both are about the same

B. Smith

What would cause a bank statement not to agree with the cash balance in the accounting records? A. The company wrote checks that have cleared the bank. B. The bank made an error in recording a deposit made by the company. C. The company made an error in recording a deposit. D. Deposits outstanding that have been recorded on the company's records, but not on the bank's. E. The bank paid interest that the company has not recorded.

B. The bank made an error in recording a deposit made by the company. C. The company made an error in recording a deposit. D. Deposits outstanding that have been recorded on the company's records, but not on the bank's. E. The bank paid interest that the company has not recorded.

Who is responsible for providing an opinion on management's assessment of internal control? A. Audit committee B. The company's auditors C. SEC staff auditors D. The CEO and CFO

B. The company's auditors

In a bank reconciliation, a deposit outstanding is A. deducted from the bank balance. B. added to the bank balance. C. added to the book balance. D. deducted from the book balance.

B. added to the bank balance.

Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's: (Select all that apply.) A. statement of stockholders' equity B. balance sheet C. income statement D. statement of cash flows

B. balance sheet D. statement of cash flows

The asset that is most susceptible to employee fraud is A. investments. B. cash. C. equipment. D. accounts receivable.

B. cash.

The bank will show a customer's withdrawal as a _____. A. credit, because a withdrawal increases its liability from the bank's point of view B. debit, because a withdrawal decreases its liability from the bank's point of view C. debit, because cash is an asset D. credit, because cash is an asset

B. debit, because a withdrawal decreases its liability from the bank's point of view

When a company finds out that an NSF check was written to the company, the company must _____ the balance in the cash account. A. increase B. decrease

B. decrease

In a bank reconciliation, an outstanding check is _____. A. deducted from the book balance B. deducted from the bank balance C. added to the bank balance D. added to the book balance

B. deducted from the bank balance

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are A. NSF checks. B. deposits outstanding. C. electronic funds transfers. D. checks outstanding.

B. deposits outstanding.

The amount of cash in the balance sheet reflects the A. cash inflows to the company from selling goods and services. B. ending cash on the balance sheet date. C. amount of cash spent during the period. D. cash expected to be used in the following year.

B. ending cash on the balance sheet date.

A petty cash fund is used for A. larger items purchased that were not in the budget. B. small amounts of cash needed for low-cost items. C. routine purchases of inventory and required necessities.

B. small amounts of cash needed for low-cost items.

If a company records a transaction before the bank records the same transaction, this is called a/an _____ difference. A. control B. timing C. reconciliation D. internal

B. timing

A non-sufficient funds check requiring an adjustment to the cash balance was written: A. by the bank preparing the bank statement used in the reconciliation B. to the company preparing the bank reconciliation C. by the company preparing the bank reconciliation

B. to the company preparing the bank reconciliation

Two types of control activities are A. operating and investing controls. B. asset and liability controls. C. preventive and detective controls. D. investor and creditor controls.

C. preventive and detective controls.

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as A. security controls. B. general controls. C. protective controls. D. internal controls. E. corporate regulations.

D. internal controls.

The most common source of occupational fraud is: A. employee misrepresentation B. false advertisement C. financial statement manipulation D. misuse of company resources

D. misuse of company resources

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational _____.

fraud