Accounting Chapter 4: Cash and Internal Controls

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

detective

The Sarbanes-Oxley Act applies to

companies that are required to file with the SEC.

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

Internal control consists of plans to (Select all that apply.)

safeguard company assets. provide accurate and reliable accounting information.

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.

False Wrong: True Reason: Variability is usually associated with riskiness.

Which of the following items will require a journal entry following a bank reconciliation? (Select all that apply.)

Notes collected by the bank NSF checks

A bank reconciliation compares the company's cash records with the bank statement and discovers differences in those amounts due to

timing differences and errors.

A check that is NSF (nonsufficient funds) is a check that

cannot be paid because the account does not contain enough funds.

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding.

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

fraud

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as

internal controls

The acronym NSF stands for

nonsufficient funds

Which of the following are common controls over cash receipts? (Select all that apply.)

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

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

reconciliation

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

reconciliation

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 are not included in cash?

Accounts receivable from customers

What would cause a bank statement not to agree with the cash balance in the accounting records?

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

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.)

1. Adjust bank's cash balance 2. Adjust company's cash balance 3. Update company's cash account by recording items identified in the previous step

Which of the following items are included in cash?

Balance in checking accounts Currency and coins Checks from customers

The framework for designing an internal control system is provided by the

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

Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?

Depositing checks into the bank and recording receipts in the accounting records Opening the mail and deposit of checks in the bank Wrong: Opening the mail and making a list of checks received - Reason: The individual who opens the mail should make a list of the checks. Depositing checks into the bank and recording receipts in the accounting records Accepting credit cards and accepting cash - Reason: In retail stores, the same individual will accept both cash and credit cards.

Which of the following steps are necessary to reconcile the bank balance and the cash account balance.

Record items that reconcile the company's cash balance Adjust the company's cash balance Adjust bank's cash balance

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the

Sarbanes-Oxley Act.

The asset that is most susceptible to employee fraud is

cash

A bank reconciliation reconciles the bank statement with the company's

cash account in the balance sheet.

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for

designing an internal control system.

Two types of control activities are

preventive and detective controls

A petty cash fund is used for

small amounts of cash needed for low-cost items.

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.)

statement of cash flows balance sheet

In a bank reconciliation, which of the following will require a journal entry by the company?

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

The ending balance in cash is reported in which financial statement(s)?

The balance sheet and statement of cash flows

If a company records a transaction before the bank records the same transaction, this is called a/an ______ difference.

timing

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

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collections of funds by the bank Wrong: Deposits outstanding - Reason: These should be added to the bank balance. Charges for NSF checks - Reason: NSF checks are subtracted from the book balance. Outstanding checks - Reason: Outstanding checks are subtracted from the bank 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.)

Service charges Charges for NSF checks Wrong: Outstanding checks - Reason: Outstanding checks are subtracted from the bank balance. Deposits outstanding - Reason: These should be added to the bank balance.

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?

Smith Wrong: both are about the same Reason: Smith, because its operating cash flows show more variability Jones Reason: Smith, because its operating cash flows show more variability

The asset that is most easily stolen and susceptible to fraud is

cash

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding. Wrong: NSF checks. - Reason: NSF checks are processed by the bank and will be on the bank statement as a decrease in cash. electronic funds transfers. - Reason: EFT transactions will appear on the bank statement. deposits outstanding. - Reason: deposits are not cash disbursements

When a person intentionally deceives another person or company for personal gain, this is referred to as ___.

fraud