chapter 7 accounting

Which one of the following would not cause a bank to debit a depositor's account? a. Bank service charge. b. Collection of a note receivable. c. Wiring of funds to other locations. d. Checks marked NSF.

B. collection of a note receivable

On a bank statement, paid checks are shown as a. credits. b. debits c. assets. d. liabilities.

B. debits

Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry: a. Accounts Receivable Cash b. Cash Accounts Receivable c. Miscellaneous Expense Accounts Receivable d. No adjusting entry is necessary.

A.

Electronic funds transfer (EFT) is a disbursement system that transfers cash from one location to another using a. a telephone. b. a telegraph. c. a computer. d. a telephone, telegraph, or computer.

A. a telephone, telegraph, or computer

In preparing a bank reconciliation, outstanding checks are a. added to the balance per bank. b. deducted from the balance per books. c. added to the balance per books. d. deducted from the balance per bank.

A. added to the balance per bank

A check written by the company for $167 is incorrectly recorded by a company as $176. On the bank reconciliation, the $9 error should be a. added to the balance per books. b. deducted from the balance per books. c. added to the balance per bank. d. deducted from the balance per bank.

A. added to the balance per books

Which of the following is not an internal control activity for cash? a. All payments should be made with currency, not checks. b. Banking facilities should be used as much as possible. c. The amount of cash on hand should be kept to a minimum. d. Employees who have access to cash should be bonded.

A. all payments should be made with currency, not checks

Which of the following was not a result of the Sarbanes-Oxley Act? A. Companies must file financial statements with the Internal Revenue Service. B. All publicly traded companies must maintain adequate internal controls. C. The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity. D. Corporate executives and board of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.

A. companies must file financial statements with the IRS

Which of the following would not be subtracted from the balance per books on a bank reconciliation? a. Outstanding checks. b. NSF checks. c. Check printing charge. d. Service charges.

A. outstanding checks

Reasonable assurance rests on the premise that A. the costs of establishing controls should not exceed their expected benefit. B. bonding will prevent employees from stealing. C. employees are basically honest people. D. a system of internal controls will prevent errors.

A. the costs of establishing controls should not exceed their expected benefit

The reconciliation of the cash register tape with the cash in the register is an example of a. other controls. b. independent internal verification. c. establishment of responsibility. d. segregation of duties.

B. independent internal verification

Handly Inc. permits only designated personnel such as cashiers to handle cash receipts. What principle is being applied? A. Segregation of duties B. Establishment of responsibility C. Independent internal verification D. Rotation of employees

B establishment of responsibility

Of which of the following is obtaining insurance protection against dishonest employees an example? A. Documentation procedures B. Bonding C. Establishing responsibility D. Segregation of duties

B. bonding

Which one of the following is not a control procedure used for over-the-counter receipts? A. Use of a cash register where the amount rung up is clearly visible to the customer B. Pre-numbered checks are used to buy supplies C. Providing the customers with an itemized receipt D. A cash register's tape is locked in the register and only a supervisor can access it

B. pre numbered checks are used to buy supplies

If a check correctly written and paid by the bank for $491 is incorrectly recorded on the company's books for $419, the appropriate treatment on the bank reconciliation would be to a. add $72 to the book's balance. b. subtract $72 from the book's balance. c. deduct $72 from the bank's balance. d. deduct $491 from the book's balance.

B. subtract 72 from the books balance

Which statement regarding negative cash balances is true? a. The amount is offset against other current assets because users need to know net current assets. b. The amount is shown as a current liability because a company cannot have a cash balance below zero. c. The company must obtain a loan to bring the cash balance to zero before financial statements are prepared. d. The negative cash balance is included as a current asset and discussed in a footnote to the financial statements.

B. the amount is shown as a current liability because a company cannot have a cash balance below zero

All of the following are true regarding the management and monitoring of cash except a. companies may have plenty of sales, but insufficient cash to support operations. b. the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company. c. manufacturers may experience a significant lag between the purchase of raw materials and the receipt of cash from customers. d. companies should have sufficient cash to meet payments but minimize the amount of non-revenue-generating cash on hand.

B. the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company

A. are hired by CPA firms to audit business firms. B. are employees of the IRS who evaluate the internal controls of companies filing tax returns. C. evaluate the system of internal controls for the companies that employ them. D. cannot evaluate the system of internal controls of the company that employs them because they are not independent.

C

The principle of establishing responsibility does not include a. one person being responsible for one task. b. authorization of transactions. c. independent internal verification. d. approval of transactions.

C independent internal verification

Which of the following is not a principle of internal control? O A. Segregation of duties O B. Documentation procedures X C. Collusion between employees O D. Bonding of employees

C.

Which of the following items on a bank reconciliation would require an adjusting entry on the company's books? a. An error by the bank. b. Outstanding checks. c. A bank service charge. d. A deposit in transit.

C. a bank service charge

An employee authorized to sign checks should not record a. owner cash contributions. b. mail receipts. c. cash disbursement transactions. d. sales transactions.

C. cash disbursement transactions

Which of the following does not appear as a separate section on the cash budget? a. Cash receipts. b. Cash disbursements. c. Cash sales. d. Financing.

C. cash sales

Maximum benefit from independent internal verification is obtained when a. it is made on a pre-announced basis. b. it is done by the employee possessing custody of the asset. c. discrepancies are reported to management. d. it is done at the time of the audit.

C. discrepancies are reported to the manager

Internal auditors a. are hired by CPA firms to audit business firms. b. are employees of the IRS who evaluate the internal controls of companies filing tax returns. c. evaluate the system of internal controls for the companies that employ them. d. cannot evaluate the system of internal controls of the company that employs them because they are not independent.

C. evaluate the system of internal controls for the companies that employ them

In large companies, the independent internal verification procedure is often assigned to a. computer operators. b. management. c. internal auditors. d. outside CPAs.

C. internal auditors

Which one of the following sections would not appear on a cash budget? a. Cash receipts. b. Financing needed. c. Investing. d. Cash disbursements.

C. investing

Control over cash disbursements is generally more effective when a. all bills are paid in cash. b. disbursements are made by the accounts payable subsidiary clerk. c. payments are made by check. d. all purchases are made on credit.

C. payments are made by check

If employees are bonded a. it means that they are not allowed to handle cash. b. they have worked for the company for at least 10 years. c. they have been insured against misappropriation of assets. d. it is impossible for them to steal from the company.

C. they have been insured against misappropriation of assets

Which of the following is an effective internal control over cash disbursements? A. The use of prenumbered checks B. The storage of blank checks in a secure place C. The separation of authorization of checks and the actual writing of the checks D. All of these answer choices are correct.

D.

For which of the following errors should the appropriate amount be added to the balance per books on a bank reconciliation? a. Check written for $63, but recorded as $36. b. Deposit of $600 recorded by bank as $60. c. A returned $300 check recorded by bank as $30. d. Check written for $57, but recorded as $75.

D. Check written for $57 but recorded as 75

Which one of the following control activities is relevant when a company uses a computerized (rather than manual) accounting system? A. Establishment of responsibility B. Segregation of duties C. Independent internal verification D. All of these answer choices are correct.

D. all these are correct

A NSF check should appear in which section of the bank reconciliation? a. Addition to the balance per books. b. Deduction from the balance per bank. c. Addition to the balance per bank. d. Deduction from the balance per books.

D. deduction from the balance per books

Cash equivalents do not include a. money market accounts. b. commercial paper. c. U.S. Treasury bills. d. long-term investment.

D. long term investment

A bank statement a. lets a depositor know the financial position of the bank as of a certain date. b. is a credit reference letter written by the depositor's bank. c. is a bill from the bank for services rendered. d. shows the activities that increased or decreased the depositor's account balance.

D. shows the activities that increased or decreased the depositors account balance

A debit memorandum would not be issued by the bank for a. a bank service charge. b. the issuance of traveler's checks. c. the wiring of funds. d. the collection of a notes receivable.

D. the collection of a notes receivable

At April 30, Kessler Company has the following bank information: Cash balance per bank $11,500 Outstanding checks $700 Deposits in transit $1,375 Credit memo for interest $25 Bank service charge $50 What is Kessler's adjusted cash balance on April 30? a. $12,150. b. $12,200. c. $10,825. d. $12,175.

Solution: $11,500 − $700 + $1,375 = $12,175

Nilson Company gathered the following reconciling information in preparing its August bank reconciliation: Cash balance per books, 8/31 $21,000 Deposits in transit 900 Notes receivable and interest collected by bank 5,100 Bank charge for check printing 120 Outstanding checks 12,000 NSF check 1,020 The adjusted cash balance per books on August 31 is a. $24,960. b. $24,060. c. $13,800. d. $14,760.

Solution: $21,000 + $5,100 − $120 − $1,020 = $24,960

James Company had checks outstanding totaling $21,600 on its June bank reconciliation. In July, James Company issued checks totaling $155,600. The July bank statement shows that $105,200 in checks cleared the bank in July. A check from one of James Company's customers in the amount of $1,200 was also returned marked "NSF." The amount of outstanding checks on James Company's July bank reconciliation should be a. $50,400. b. $72,000. c. $70,800. d. $28,800.

Solution: $21,600 + $155,600 − $105,200 = $72,000

Schwinn Company assembled the following information in completing its March bank reconciliation: Balance per bank $15,280 Outstanding checks $3,100 Deposits in transit $5,000 NSF check $320 Bank service charge $100 Cash balance per books $17,600 As a result of this reconciliation, Schwinn will a. reduce its cash account by $1,900. b. reduce its cash account by $100. c. increase its cash account by $220. d. reduce its cash account by $420.

Solution: $320 + $100 = $420

2. Clark Company developed the following reconciling information in preparing its September bank reconciliation: Cash balance per bank, 9/30 $30,800 Note receivable collected by bank 16,800 Outstanding checks 25,200 Deposits in transit 12,600 Bank service charge 210 NSF check 3,360 Using the above information, determine the cash balance per books (before adjustments) for the Clark Company. a. $27,370. b. $43,400. c. $4,970. d. $42,000.

Solution: ($30,800 − $25,200 + $12,600) − $16,800 + $210 + $3,360 = $4,970

what is the sarbenes oxley act

all publicly traded US corporations are required to maintain an adequate system of internal control independent outside auditors must attests that the corporation is following them.

what 5 components does internal control have

control environment risk assessment control activities information and communication monitoring

how does system of internal control protect against fraudulent behavior? 3 ways

prevent unauthorized use of data provide reasonable assurance that info is accurate, valid and complete report info that is consistent with overall sustainable accounting practices

The six principles of control activities are as follows.

segregation of duty establishment of responsibility documentation procedure physical controls independent internal verification human resource controls

when does collusion occur

when two people work together to get around the rules and conduct unethical or illegal activities