MBUS Chapter 6

Which of the following is not a typical document associated with a bank checking account?

Cash register tape

Which of the following is not an example of a common control activity?

Collusion

Which of the following is not one of the nine features of an internal control system?

Customer service comment cards

Preparing a bank reconciliation is a control activity.

True Control activities, the activities usually thought of as "the internal controls," include such things as account reconciliations.

What is the most favorable audit opinion that a company can receive on its financial statements?

Unqualified opinion

Which of the following statements about the materiality concept is not true?

Any error greater than $5,000 is considered material in a financial statement audit.

What account is used to record the amount of cash shortages or overages relative to a petty cash system?

Cash Short and Over

Which of the following is not a motive for the embezzlement of cash by employees?

Cash is a common unit of measurement.

Which of the following is an internal control procedure used to safeguard a company's assets?

Depositing cash receipts in a bank on a timely basis Segregation of duties Preparing a bank reconciliation

Which of the following internal control procedures should be implemented to control cash?

Disbursements by prenumbered checks Depositing cash receipts in the bank on a timely basis Providing copies of written receipts to customers

A bank reconciliation normally begins with the ending cash balance shown on the bank statement and reconciles it to the unadjusted cash account balance on the company's books.

False A bank reconciliation normally begins with the cash balance reported by the bank, which is called the unadjusted bank balance. The adjustments necessary to determine the amount of cash that the depositor actually owns as of the date of the bank statement are then added to and subtracted from the unadjusted bank balance. The final total is the true cash balance.

A bank statement debit memo describes a transaction that increases a customer's account balance.

False A bank statement debit memo describes a transaction that reduces the customer's account balance (the bank's liability).

A credit balance in the Cash Short and Over account represents a shortage of cash and would be treated as an expense.

False A debit balance in the Cash Short and Over account represents a shortage of cash and would be treated as an expense. An overage of cash represents revenue and is recorded by crediting the Cash Short and Over account

All journal entries made related to bank reconciliations include an expense or revenue account.

False Adjusting entries relating to NSF checks involve a debit to Accounts Receivable and a credit to Cash.

Which of the following is not a common feature of an internal control system?

Implementing the most effective marketing plan

Which of the following statements regarding the Securities and Exchange Commission (SEC) is not true?

The SEC is a private professional organization.

Most audits result in unqualified audit opinions.

True Most audits result in unqualified opinions because companies correct any material reporting deficiencies the auditors find before the financial statements are released.

Even a good system of internal controls can be circumvented by collusion among employees.

True Collusion means that two or more employees work together to hide embezzlement by covering for each other. No system can prevent all fraud. However, a good system of internal controls minimizes illegal or unethical activities by reducing temptation and increasing the likelihood of early detection.