Accounting, CH 4,6

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

False

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

False

The accountant must make journal entries for all items in the bank section of the bank reconciliation. T/F?

False

The accountant must make journal entries for all items in the book section of the bank reconciliation. T/F?

True

The stronger the system of internal control, the higher the accuracy of the company's accounting records and financial reports. T/F?

True

When the same payment for postage is made out of the petty cash fund, no journal entry is recorded at the time of payment. T/F?

True

A best practice in an internal control system is to pay all amounts with a ________, because it provides a paper trail of the payment, which includes proof that the payment was made.

a check

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

False

A company's internal control system must be designed and maintained by its external auditors. T/F?

False

A good system of internal control requires that the physical custody of assets be separated from the accounting for those assets. This concept is known as safeguarding of assets and records. T/F?

False

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

False

If a company has an internal audit function, it does not need to have external auditors. T/F?

False

If a company hires honest employees and its top management acts with integrity, no internal control procedures will be necessary. T/F?

False

When reconciling a bank account, the company must be prepared an adjusting entry for deposits in transit. T/F?

False

As part of a sound system of internal controls, all disbursements (with the exception of petty cash) should be made by check. T/F?

True

Internal control over financial reporting is concerned with ensuring the reliability of the financial statements. T/F?

True

Which of the following is NOT one of the five components of internal control? a) analysis of systems access b) monitoring c) control activities d) strategic and business process risk assessment

a) analysis of systems access

At any time, the balance in the petty cash fund can be provided as follows:

actual amounting petty cash fund + total petty cash receipts = original amount in petty cash fund

The December 31 Bank Statement shows the collection of $1,100 receivable from one of the company's customers. The company had not recorded this. How would you treat this while reconciling the company book balance?

add $1,100 as collection of a receivable to the company's balance

When the petty cash fund is established, the company writes a check to itself, cashes the check, and places the money in a safe place. By doing this, the company is transferring money from an __________ account (cash) to _________ account (petty cash).

asset; asset

The account, Petty Cash, is an ______ account and appears on the __________.

asset; balance sheet

An addition to the cash balance on the bank statement for items such as the collection of interest is known as:

credit memorandum

Which of the following is NOT one of the three areas for which internal control systems are intended to provide reasonable assurance? a) financial reporting reliability b) effectiveness and efficiency of operations c) compliance with applicable laws and regulations d) certification that the financial statements are without error

d) certification that the financial statements are without error

Which of the following is not one of the five categories of control activities? a) segregation of duties b) clearly defined authority and responsibility c) checks on recorded amounts d)defalcation and financial reporting

d) defalcation and financial reporting

What is the primary role of internal controls in managing a business? a) to ensure that the financial statements are presented in such a manner as to provide relevant and reliable information to financial statement users and the company's creditors. b) to encourage fraud and collusion among employees. c) to make it impossible for cash to be stolen. d) to place boundaries around employee's activities in order to prevent them from deviating from prudent and effective processes and procedures that are in the best interests of the business.

d) to place boundaries around employee's activities in order to prevent them from deviating from prudent and effective.....

It is very important to understand that the petty cash account is only debited when you record the _______ of the petty cash fund. When the petty cash fund is _______, the accounts paid out of petty cash are debited.

establishment; replenished

A check that has been distributed by the company but has not cleared the bank as of the statement date is known as:

outstanding check

Check written in late December do not appear on a December 31 Bank Statement because they were not cleared by the bank as of March 31. How would you treat this difference while reconciling the bank balance?

subtract them from the bank balance