Cornett Accounting Chapter 5

A check drawn by a depositor for $295 in payment of a liability was recorded as $925. This item would be included on the bank reconciliation as a(n) a. addition to the balance per the depositor's records. b. addition to the balance per the bank statement. c. deduction from the balance per the bank statement. d. deduction from the balance per the depositor's records.

A

A check drawn by a depositor for $915 in payment of a liability was recorded as $195. What adjustment is required in the depositor's accounts? a. Decrease Accounts Payable; decrease Cash b. Increase Cash; decrease Accounts Receivable c. Increase Cash; increase Accounts Payable d. Increase Accounts Receivable; decrease Cash

A

Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. This item would be included on the bank reconciliation as a(n) a. deduction from the balance per depositor's records. b. addition to the balance per bank statement. c. deduction from the balance per bank statement. d. addition to the balance per depositor's records.

A

Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. This item would require an adjusting entry including a a. debit to Accounts Receivable. b. debit to Cash. c. debit to Accounts Payable. d. credit to Accounts Payable.

A

Accompanying the bank statement was a debit memorandum for bank service charges. What adjustment is required in the depositor's accounts? a. Increase Miscellaneous Expense; decrease Cash b. Increase Cash; increase Other Income c. Increase Cash; increase Accounts Payable d. Decrease Accounts Payable; decrease Cash

A

An element of internal control is a. risk assessment. b. journals. c. subsidiary ledgers. d. controlling accounts.

A

Employing internal auditors is part of which element of internal control? a. Monitoring b. Control procedures c. Risk assessment d. The control environment

A

Internal control does NOT consist of policies and procedures that a. guarantee the company will not go bankrupt. b. ensure that laws and regulations are being followed. c. protect assets from misuse. d. ensure that business information is accurate.

A

Receipts from cash sales of $5,700 were recorded incorrectly by the depositor as $7,500. This item would be included on the bank reconciliation as a(n) a. deduction from the balance per depositor's records. b. addition to the balance per bank statement. c. deduction from the balance per bank statement. d. addition to the balance per depositor's records.

A

The Sarbanes-Oxley Act of 2002 requires companies and their independent accountants to a. report on the effectiveness of the company's internal controls. b. report on any fraud and theft detected in the company. c. report on the state of the economy and likelihood of fraud. d. report on the financial activities of the company.

A

The framework that has become widely accepted as the standard by which companies design, analyze, and evaluate internal controls is the a. Internal Control Integrated Framework by the Committee of Sponsoring Organizations. b. Internal Control Integrated Framework by the Congress of Special Offerings. c. Internal Control Localized Structure by the Committee of Sponsoring Organizations. d. Internal Control Localized Structure by the Congress of Special Offerings.

A

The purpose of the Sarbanes-Oxley Act of 2002 is to a. restore public confidence and trust in the financial statements of publicly held companies. b. require all companies to prepare financial statements. c. protect companies from demands of investors, stockholders, and creditors. d. do all of these.

A

What adjustment is required in the depositor's accounts to record outstanding checks? a. None b. Increase Cash; decrease Accounts Receivable c. Increase Cash; increase Accounts Payable d. Increase Accounts Receivable; decrease Cash

A

Which of the following is NOT defined as cash? a. Commercial paper b. Checks c. Money orders d. Coins

A

Which of the following would be deducted from the balance per books on a bank reconciliation? a. Service charges b. Outstanding checks c. Deposits in transit d. Notes collected by the bank

A

The bank reconciliation a. should be prepared by an employee who records cash transactions. b. is part of the internal control system. c. is for information purposes only. d. is sent to the bank for verification.

B

A voucher a. is received from customers to explain the purpose of a payment. b. is normally prepared in the Accounting Department. c. system is used to control cash receipts. d. system is an internal control procedure to verify that the assets in the records are the ones the company owns.

B

An element of internal control is a. generally accepted accounting principles. b. control procedures. c. concepts. d. principles.

B

EFT a. means Efficient Funds Transfer. b. can process certain cash transactions at less cost than by using the mail. c. makes it easier to document purchase and sale transactions. d. means Effective Funds Transfer.

B

On the bank's accounting records, customers' accounts are normally shown as a. revenue. b. a liability. c. an asset. d. expenses.

B

The objectives of internal control are to a. control the internal organization of the accounting department personnel and equipment. b. provide reasonable assurance that assets are safeguarded, information is processed accurately, and laws and regulations are complied with. c. prevent fraud and promote the social interest of the company. d. provide control over "internal-use only" reports and employee internal conduct.

B

A bank reconciliation should be prepared periodically because a. the depositor's records and the bank's records are in agreement. b. the bank has not recorded all of its transactions. c. any differences between the depositor's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected. d. the bank must make sure that its records are correct.

C

A minimum cash balance required by a bank is called a. cash in bank. b. cash equivalent. c. compensating balance. d. EFT.

C

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the customer. What adjustment is required in the depositor's accounts? a. Increase Notes Receivable; decrease Cash b. Increase Cash; increase Miscellaneous Income c. Increase Cash; decrease Notes Receivable d. Increase Accounts Receivable; decrease Cash

C

An element of internal control is a. fidelity insurance. b. prepaid insurance. c. monitoring. d. insurance expense.

C

Cash equivalents include a. checks. b. coins and currency. c. money market accounts and commercial paper. d. stocks and short-term bonds.

C

Internal controls are important because they a. prevent fraud and misleading financial statements. b. eliminate fraud. c. deter fraud and prevent theft and other abuses. d. guarantee accurate financial statements.

C

Management's philosophy and operating style would affect which of the following elements of internal control? a. Risk assessment b. Monitoring c. The control environment d. Information and communication

C

Requiring employees to take annual vacations is part of which element of internal control? a. The control environment b. Risk assessment c. Control procedures d. Monitoring

C

The amount of deposits in transit is included on the bank statement as a(n) a. deduction from the balance per the depositor's books. b. deduction from the balance per bank statement. c. addition to the balance per bank statement. d. addition to the balance per depositor books.

C

The amount of the outstanding checks is included on the bank reconciliation as a(n) a. deduction from the balance per depositor's records. b. addition to the balance per bank statement. c. deduction from the balance per bank statement. d. addition to the balance per depositor's records.

C

The business's organizational structure influences which of the following elements of internal control? a. Control procedures b. Risk assessment c. The control environment d. Information and communication

C

When a firm uses internal auditors, it is adhering to which of the following internal control elements? a. Risk assessment b. Proofs and security measures c. Monitoring d. Separating responsibilities for related operations

C

Which of the following should NOT be considered cash by an accountant? a. Money orders b. Bank checking accounts c. Postage stamps d. Travelers' checks

C

A check drawn by a depositor for $810 in payment of a liability was recorded by the depositor as $180. This item would be included on the bank reconciliation as a(n) a. addition to the balance per the depositor's records. b. addition to the balance per the bank statement. c. deduction from the balance per the bank statement. d. deduction from the balance per the depositor's records.

D

A credit memorandum from the bank a. decreases a bank customer's account. b. Is used to show a bank service charge. c. shows that a company has deposited a customer's NSF check. d. shows the bank has collected a note receivable for the customer.

D

A firm's internal control environment is influenced by a. management's operating style. b. organizational structure. c. personnel policies. d. all of these.

D

A special cash fund used to make small payments that occur frequently is called a(n) a. operating expenses fund. b. change fund. c. market fund. d. petty cash fund.

D

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the depositor. This item is a(n) a. deduction from the balance per depositor's records. b. addition to the balance per bank statement. c. deduction from the balance per bank statement. d. addition to the balance per depositor's records.

D

Receipts from cash sales of $7,500 were recorded incorrectly by the depositor as $5,700. What adjustment is required in the bank's accounts? a. Decrease Sales; decrease Cash b. Increase Cash; decrease Accounts Receivable c. Increase Cash; increase Sales d. No adjustment is needed.

D

Risks can be analyzed to a. assess their likelihood of occurring. b. assess their overall significance. c. determine actions that will minimize them. d. do all of these.

D

Separating the custody of assets from accounting for assets is a part of which element of internal control? a. Information and communication b. Monitoring c. The control environment d. Control procedures

D

Which of the following elements of internal control focuses upon locating weaknesses and improving control effectiveness? a. The control environment b. Risk assessment c. Control procedures d. Monitoring

D

Which of the following reflects a weak internal control system? a. All employees are well supervised. b. A single employee is responsible for comparing a receiving report to an invoice. c. All employees must take their vacations. d. A single employee is responsible for the collecting and recording of cash.

D

Which of the following would be added to the balance per books on a bank reconciliation? a. Service charges b. Outstanding checks c. Deposits in transit d. Notes collected by the bank

D

A check for $456 was erroneously charged by the bank as $654. In order for the bank reconciliation to balance, you must deduct $198 from the bank statement balance.

F

A minimum cash balance maintained in a bank account is called a line of credit.

F

A voucher is the notification accompanying the check issued to a creditor that indicates the specific invoice being paid.

F

A voucher system is an example of an internal control procedure over cash receipts.

F

Bank customers are considered owners of the bank so the bank shows their accounts as an asset on the bank's records.

F

For efficiency of operations and better control over cash, a company should maintain only one bank account.

F

In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is added to the balance per depositor's records.

F

In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is deducted from the balance per bank statement.

F

In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank statement.

F

In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per depositor's records.

F

In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per depositor's statement.

F

In preparing a bank reconciliation, the amount of outstanding checks is deducted from the balance per depositor's records.

F

Internal control is enhanced by combining the control of a transaction with the record-keeping function.

F

The bank reconciles its statement to the depositor's records

F

There are two internal control objectives: to ensure accurate financial reports, and to ensure compliance with applicable laws.

F

When the petty cash fund is replenished, the petty cash account is adjusted for the total of all expenditures made since the fund was last replenished.

F

A credit memorandum received with a bank statement means the bank account has been increased.

T

A customer's check received in settlement of an account receivable is considered cash

T

A business that requires that all cash payments be made by check CANNOT use a petty cash system.

T

A debit memorandum from the bank indicates that the bank has deducted an amount from the depositor's account.

T

A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice being paid

T

A voucher is a form where pertinent data about a liability and the particulars of its payment are recorded.

T

A voucher is a written authorization to make a cash payment.

T

A voucher system is an example of an internal control procedure over cash payments.

T

Adding a review of operations by an internal audit staff strengthens internal control.

T

All bank memorandums reported on the bank reconciliation require entries in the depositor's accounts.

T

All organizations face risks, and the assessment of these risks is necessary so that the objectives of internal control can be achieved.

T

Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash.

T

Employee fraud is the intentional act of deceiving an employer for personal gain.

T

For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees.

T

If a business has several bank accounts, it has a separate record for each of them.

T

In a voucher system, paid vouchers are transferred to a paid voucher file.

T

In preparing a bank reconciliation, the amount indicated by a credit memorandum for a note receivable collected by the bank is added to the balance per depositor's records.

T

In preparing a bank reconciliation, the amount of a cancelled check omitted from the depositor's records is deducted from the balance per depositor's records.

T

Information and communication are essential elements of an organization's internal control.

T

Money market accounts, commercial paper, and U.S. Treasury Bills are examples of cash equivalents.

T

Money orders are considered cash.

T

Outstanding checks are checks that have been issued but have NOT cleared the bank.

T

Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the control procedure: separating operations, custody of assets, and accounting.

T

The Sarbanes-Oxley Act of 2002 applies to all publicly held companies.

T

The Sarbanes-Oxley Act of 2002 requires companies to maintain strong and effective internal controls over recording transactions and preparing financial statements.

T

The Sarbanes-Oxley Act requires that financial statements of all public companies report on management's conclusions about the effectiveness of the company's internal control procedures.

T

The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date after all adjusting entries have been entered.

T

The bank often informs the depositor of bank service charges by including a debit memorandum with the monthly bank statement.

T

The bank reconciliation is an important part of the system of internal controls

T

The data needed to adjust the depositor's accounts based on the bank reconciliation are shown as adjustments to the depositor's records.

T

The depositor reconciles the bank's statement to the depositor's records.

T

The internal control environment is enhanced by the hiring and retention of competent, honest employees.

T