ADAPTIVE PRACTICE & MC CH 7

A bank reconciliation for Widgets Inc. included the following items: $30 bank service charge; NSF check of $275; bank error of $30; collection of note receivable for $2,300, plus $35 interest. Based on the information, Widgets Inc. will adjust cash by what amount?

$2,030

Which of the following are results of the Sarbanes-Oxley Act?

1) All publicly traded companies must maintain adequate internal controls. 2) The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity. 3) Corporate executives and boards of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.

Which of the following are included in the cash receipts section of a cash budget? Select all that apply.

1) cash sales 2) collections from customers 3) receipts of interest and dividends

The control features of a bank account do inclue:

1) minimizing the amount of cash that must be kept on hand. 2) providing a double record of all bank transactions. 3) safeguarding cash by using a bank as a depository.

Internal control is used in a business to:

1) safeguard its assets. 2) enhance the accuracy and reliability of its accounting records. 3) ensure compliance with laws and regulations.

Which of the following items in a cash drawer at November 30 is not cash?

A NSF check.

What is a deposit slip and when is it used?

A document that accompanies checks and cash when making a bank deposit to provide documentation of the deposit.

Which of the following would be a current liability?

A net negative balance in a bank account

Which of the following is an example of a control that provides reasonable assurance and why?

A retail store installs security cameras to prevent shoplifting because it deters some shoplifters but does not reduce sales by innocent customers.

Acer Manufacturing has prepared the following current assets section on the balance sheet. what amount counts as cash and cash equivalents

ADD cash in bank, cash on hand, treasury bills, money market fund, petty cash fund, commercial paper

Gemini Group utilizes the voucher system. What would be the role of an invoice from a supplier in the system?

Accounts payable would use it to prepare a voucher.

Which of the following control activities is not relevant when a company uses a computerized (rather than manual) accounting system?

All of these control activities are relevant to a computerized system.

An employee has received a vendor invoice and knows that the company needs to write a check to pay the invoice. Which of the following individuals will the employee send information to about this transaction?

An employee in the accounts payable department, who will record a voucher in the voucher register.

Who should prepare a bank reconciliation?

An employee who has no other responsibilities related to cash.

Which of the following is an example of the internal control principle of segregation of duties?

Argon Labs allows scientists to order and receive expensive lab equipment after receiving approval from a supervisor. Invoices are paid by the purchasing department.

Which of the following is an example of the internal control of establishment of responsibility?

Argon Labs limits access to payroll information to the employees who process payroll data.

Which of the following is an example of the internal control of segregation of duties?

At Leo Enterprises, the accountant is in a separate department from the fixed-asset manager.

Which of the following statements correctly describes the reporting of cash?

Cash is listed first in the current assets section.

Which of the following was not a result of the Sarbanes-Oxley Act?

Companies must file financial statements with the Internal Revenue Service.

Andy Accountant works for Tech Corp. A check for $840 was written for computer equipment, but Andy posted the amount as $480 in the check register. Which of the following is the correct adjusting entry in the journal?

Computer Equipment 360 cash 360

Upon receiving the monthly bank statement, John Smith, controller of Cannon Incorporated, noted an NSF check for $325 from Robbins Company. Which adjusting entry will Smith make to update the relevant accounts?

Debit Accounts Receivable - Robbins Company $325; credit Cash $325

________ may be limited in a small business environment because of the inability to

Effective internal control; segregate duties.

Which of the following would be a consequence of company policies that do not require authorization on purchases?

Employees may make personal purchases with company funds.

South Isles Water Park has high revenue from May to September, moderate revenue in April and October, and low revenue from November to March. If the water park wants to build a new water slide, a project costing $147,000, which of the choices would be best for them to choose for this major cash expenditure?

February

Which of the following is a key characteristic of risk assessment to prevent fraud?

Identifying factors that create risk and developing a plan to manage the risks.

________ are a good choice for investing temporarily idle cash.

Interest-paying U.S. government securities

What is the purpose of having at least two mail clerks present when mail receipts are opened?

It increases internal controls to ensure that one clerk cannot divert checks for personal use.

Jake's Hardware Store sells most of their merchandise on credit to customers. Jake's has been having difficulty maintaining their minimum cash balance, so they have started offering incentives to customers who pay off their purchases within 10 days. How does this help maintain a higher cash balance?

It reduces the average collection period.

Martin and Jennifer are both interested in learning more about a company's cash. Martin wants to know what the company's cash balance was at the end of their fiscal year. Jennifer wants to know how the company gained and used cash over the past accounting period. Which financial documents should they look at?

Martin should look at the balance sheet, and Jennifer should look at the statement of cash flows.

Michael is preparing the company's cash budget. When preparing the cash disbursements section, he includes inventory, labor, overhead, selling expenses, administrative expenses, depreciation, dividends, and income taxes. What error did Michael make? Will cash disbursements be too high or too low as a result of this mistake?

Michael included depreciation in his estimate, which would make cash disbursements too high.

A(n)________ requires a journal entry by the depositor.

NSF check

Identify the example of poor internal control.

One person should be responsible for handling related activities.

Which of the following cash differences after totaling a cash register and comparing it to the cash register tape would cause the company the most concern and likely initiate an investigation?

The cash register contained $874 from sales and the cash register tape documented $1,142 in sales. largest difference

When reconciling the company's bank statement to their books, an employee identified several checks that the company wrote that were paid by the bank. In addition, the employee found that one check that was written by a customer and deposited several days ago was not added to the company's bank statement balance. What is one potential difference between these checks?

The checks that were paid are canceled checks, whereas the check that was not added to the account was an NSF check.

Which of the following transactions that needs to be reconciled between the bank statement and the books is likely the result of time lag?

The company wrote a check and mailed it to a vendor the day before the end of the bank statement cycle. The check appears on the books but not the bank statement.

What does the term "bonding" mean when it refers to employees?

They have been insured against theft of assets.

What would be the best option for Sporting Apparel which is a large national retail chain that sells athletic clothing, accessories, and equipment?

They should employ internal auditors who in addition to providing audits could evaluate and improve the control systems for the company.

What is one reason that a large national company would maintain multiple bank accounts?

To have more than one source for short-term loans.

In a bank reconciliation, an adjusting entry on the company's books is required for

a bank service charge

The accounting department should only have access to ________ since its function is to

a copy of the list of checks; record the change in cash.

If a check written and paid by the bank for $638 is incorrectly recorded on the company's books at $683, the appropriate treatment on the bank reconciliation would be to

add $45 to the book's balance.

Restricted Cash example

add warranty claims and cleanup cost

In a bank reconciliation, deposits in transit are:

added to the bank balance.

The presence of ________ increases internal control when mail receipts are processed.

at least two mail clerks

Differences between the ________ and the balance in the company's general ledger are caused by time lags, errors by the bank, and errors by the company.

balance on the bank statement

Deposits in transit would be added to the ________ on a bank reconciliation.

balance per bank

In a bank reconciliation, outstanding checks would be subtracted from the ________ section.

balance per bank

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:

bank service charges

You would add $450 to the ________ balance when a check correctly written and paid by the bank for $384 is incorrectly recorded on the company's books for $834.

book

One feature of a cash register is that the sale total is usually clearly visible to the customer. How does this help prevent fraud?

by discouraging the sales clerk from entering a lower amount in the cash register and pocketing the difference

Which of the following is not one of the sections of a cash budget?

cash from operations section

Which statement correctly describes the reporting of cash?

cash is listed first in the current assets section.

Effective ________ is the result of a well-managed cash budget.

cash management

A bank statement lists all ________ and ________, as well as additions and deductions from the bank balance that the company has not recorded.

checks paid; deposits received

How does a company classify a net negative balance in its bank account?

current liability

A check is written to replenish a $100 petty cash fund when the fund contains receipts of $94 and $4 in cash. In recording the check:

debit Cash Over and Short for $2.

Maria Mancini, an accountant for Smith Corporation, opens all mail from Greene National Bank. When she receives a ________ for a(n) ________, cash is reduced.

debit memorandum; NSF check

When viewing a bank statement, it is vital to remember that a bank considers a ________ as a ________ to an account.

deposit; credit

When a company uses prenumbered checks and requires an approved invoice for each check, it is using which internal control?

documentation controls

The use of prenumbered checks in disbursing cash is an application of the principle of:

documentation procedures

Although some risks are inherent, what means of cash disbursements is the most effective and efficient?

electronic funds transfer (EFT)

A voucher system is a series of prescribed control procedures that are designed to

ensure that disbursements by check are proper.

Bellswood Jewelers uses an ID card scanner and six-digit code to allow entry into their jewelry vault. The six-digit code is the same for all employees. However, use of the ID card allows the system to identify who entered the vault. One day, a salesperson sees another salesperson's ID card lying unattended in the break room, and the employee uses the card to enter the vault and steal jewelry worth $36,840. Which principle of control activities was violated in this scenario?

establishment of responsibility

When a company allows only designated personnel to handle cash receipts, it is applying the internal control principle of

establishment of responsibility

Permitting only designated personnel such as cashiers to handle cash receipts is an application of the principle of:

establishment of responsibility.

A cash budget would always ________ depreciation expense.

exclude

The control features of a bank account do not include:

having bank auditors verify the correctness of the bank balance per books.

Mary Moore, ________ for Dexter Company, goes to the bank daily to make deposits.

head cashier

Eric Hansen is a receiving clerk who has just been denied a raise. He has approached his subordinate, who is the new storeroom clerk, about diverting inventory to sell for personal gain. This example of the ________, which may lead to

human element; collusion.

Fred is in the pre-employment verification phase Honesty Enterprises conducts for potential hires. Honesty will require Fred to provide a urine sample and will also check his references. Which principle of control activities is Honesty Enterprises exercising?

human resources controls

Physical controls do not include:

independent bank reconciliations

________ controls enhance the accuracy and reliability of the accounting records.

internal

One advantage large companies enjoy is their ability to employ ________, who assist top management in the evaluation of

internal auditors; control systems.

Which of the following would not be an example of good cash management?

invest temporary excess cash in stock of a small company.

The principles of internal control do not include:

management responsibility

Which of the following would be reported on the balance sheet as a cash equivalent? Select all that apply.

money market fund 60-day certificate of deposit money market savings certificate

Which of the following is considered a cash equivalent?

money market funds

Every year, the fraud prevention task force at Hula International reviews the employee handbook and company procedures to ensure that they are still applicable and up-to-date. This action is part of the _________ component of the internal control system.

monitoring

What does the label NSF mean for a check?

no sufficient funds

Which of the following affects the cash balance per bank?

outstanding checks

________ would be deducted from the balance per bank in a bank reconciliation.

outstanding checks

Which of the following choices contains only items that should be reported as cash on the balance sheet?

petty cash, cash on hand, cash in banks

On the balance sheet, cash is comprised of cash on hand, cash in banks, and

petty cash.

Printing check amounts by machine in indelible ink is an example of

physical controls.

Cash equivalents are highly liquid investments that are both

readily convertible and very close to their maturity dates.

The responsibility for an asset's ________ should be kept separate from the physical custody of that asset.

recordkeeping

Employee fraud can be minimized by

requiring a voucher for all cash disbursements above an incidental amount.

Which of the following would help companies enforce the principle of establishing responsibility?

requiring identifying passcodes in order to carry out activities

The corporate officers at KLM Distributors require the head of the information services department to attend monthly conferences related to emerging technology and potential for fraud. Which aspect of internal control is KLM addressing?

risk assessment

An investment in which there is no chance that the party will default on the promise to pay the principle and interest is a(n) ________ investment.

risk-free

Food Universe, a chain of local grocery stores, utilizes ________ to discourage ________, but this only provides reasonable assurance of loss prevention.

security cameras; shoplifting

In a small-town retail store, the sales clerk is responsible for counting the cash in the cash register and comparing it to the cash register tape. The clerk then takes the cash and tape to the accountant, who verifies the count, prepares the deposit slip for the bank, and records the entry in the journal. Which cash receipt control is the company most in violation of with their current system?

segregation of duties

Insuring that the custodian of an asset does NOT have access to accounting records for that asset is an example of

segregation of duties

Which of the following is not an element of the fraud triangle?

segregation of duties

Which of the following is an example of an electronic funds transfer?

sending payroll data directly to banks for direct deposit to employee accounts

When checks are received in the mail by a retail company, which of the following internal controls provides assurance that the employees will not engage in undetected fraud?

separation of handling cash and recordkeeping

Mary Smith is the treasurer for Mill Company. What is her role in the voucher system?

signing checks

A small business owner has two employees but each employee has a separate cash register drawer. This situation can be viewed as

supporting establishment of responsibility

Which of the following are similar in that they both receive a copy of the deposit slip at the end of a clerk's shift? Select all that apply

the bank and the accounting department

Home and Hardware uses cash registers to ring up all customer purchases. In this situation, what will Home and Hardware use to verify their cash increases from sales?

the cash register tape

: Gemini Group utilizes the voucher system. Which employee would sign the checks?

the treasurer

Why should a bank reconciliation be prepared?

to explain any difference between the company's balance per books and the balance per bank

What is the reason for requiring a voucher on all cash disbursements above an incidental amount?

to minimize employee fraud

If a supplier does not offer a discount for early payment, a company should

use the full payment period before paying bills.

An employee is filling out a voucher with the appropriate information about a liability. Which of the following documents does the employee most likely need to complete this task?

vendor invoice

Which of the following items would most likely be paid from a petty cash fund?

working lunches for employees