978-1337276337 Test Bank Chapter 6 Part 3

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102. Which of the following is a sound internal control procedure for cash disbursements?

a. Making copies of purchase orders for the receiving department so they know how many items to be expected upon

delivery.

b. Using presigned checks to facilitate payment within the cash discount period.

c. Comparing purchase requisitions, purchase orders, receiving reports, and invoices.

d. Requiring the signature of the purchasing department supervisor on checks.

103. An internal control system consists of all of the following policies and procedures except those necessary to ensure

a. the safeguarding of an entity’s assets.

b. that cash on hand and on deposit in checking accounts is beyond the minimal amount for ongoing operations.

c. the reliability of an entity’s accounting records.

d. the accomplishment of an entity’s overall objectives.

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104. Which of the following situations 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 ordering inventory and receiving it from the shipper.

105. The group within an organization that is responsible for monitoring and evaluating the internal control system is

called the

a. audit committee.

b. internal audit staff.

c. board of directors.

d. accounting staff.

106. Which of the following statements does not describe the responsibilities of a company’s internal audit staff?

a. Internal auditors ensure that the company’s financial statements have been presented fairly.

b. Internal auditors focus on the efficiency with which the organization is run.

c. Internal auditors help ensure that the company’s policies and procedures are followed.

d. Internal auditors periodically review both accounting and administrative controls.

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107. Which of the following is considered one of the six most important internal control procedures?

a. Computerized accounting systems

b. The board of directors

c. Proper authorizations

d. Verification by government agencies

108. Which of the following is not a generally recognized internal control procedure?

a. Establishing of clear lines of authority to carry out specific tasks

b. Physically counting inventory in a perpetual inventory system

c. Reducing the cost of hiring seasonal employees

d. Limiting access to computerized accounting records

109. Which of the following is not a generally recognized internal control procedure?

a. Internal review by the audit committee of the board of directors

b. Independent verification of the work of one employee by another employee

c. Independent review and appraisal by internal auditors

d. Segregation of duties

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110. Allowing only certain employees to order goods and services for the company is an example of what internal control

procedure?

a. Segregation of duties

b. Safeguarding of assets and records

c. Independent verification

d. Proper authorizations

111. Which internal control procedure is followed when management authorizes the purchasing department to order goods

and services for the company?

a. Segregation of duties

b. Safeguarding of assets and records

c. Independent verification

d. Proper authorizations

112. Which internal control procedure is followed when the work of one department acts as a check on the work of

another?

a. Segregation of duties

b. Safeguarding assets and records

c. Independent verification

d. Proper authorizations

113. Which internal control procedure is followed when storage areas are secured with limited access?

a. Segregation duties

b. Safeguarding assets and records

c. Independent verification

d. Proper authorizations

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114. Which internal control procedure is followed when a physical count of inventory is performed in a perpetual

inventory system?

a. Segregation of duties

b. Safeguarding assets and records

c. Independent verification

d. Proper authorizations

115. Which of the following is not considered a business (source) document?

a. Time card

b. Purchase order

c. Sales invoice

d. Schedule listing all of the insurance policies in force

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116. Having only one person authorized to both prepare and sign checks is a violation of what internal control procedure?

a. Proper authorizations

b. Independent review and appraisal

c. Independent verification

d. Segregation of duties

117. Which of the following statements regarding limitations on internal control is true?

a. Companies can design a system of internal control that is foolproof.

b. A well-designed internal control system is a luxury that few companies can afford.

c. An entity’s size has little effect on the degree of control that it can obtain.

d. Human errors can weaken an internal control system.

118. Administrative controls are

a. concerned with efficient operations and adherence to managerial policies.

b. concerned with the reliability of the financial statements.

c. the responsibility of the company’s auditors.

d. concerned primarily with safeguarding assets.

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119. Segregation and rotation of duties is most effective in

a. increasing cost of goods sold.

b. assisting management in overriding controls.

c. preventing collusion.

d. misappropriating company assets.

120. Which internal control procedure is violated when the cashier at the checkout stand also records the daily receipts in

the journal?

a. Segregation of duties

b. Independent review and appraisal

c. Independent verification

d. Proper authorizations

121. Which of the following documents is used in the control of cash receipts?

a. Purchase requisitions

b. Receiving reports

c. Canceled checks from customers

d. Bank deposit slips

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122. Each of the following documents is used in the control of cash receipts except

a. cash register tapes.

b. prenumbered customer receipts.

c. canceled checks from customers.

d. bank deposit slips.

123. Each of the following documents is used in the control of cash disbursements except

a. purchase requisitions.

b. purchase orders.

c. receiving reports.

d. cash register tapes.

124. Which of the following documents is used in the control of cash disbursements?

a. Income statement

b. Bank deposit slips

c. Receiving reports

d. Cash register tapes

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125. The following set of items describes activities completed by a company in purchasing and paying for merchandise.

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

Although the department supervisor can indicate a preferred supplier or vendor on purchase requisitions, the purchasing

department has the responsibility for making the final decision on a vendor.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

126. The following set of items describes activities completed by a company in purchasing and paying for merchandise.

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

The receiving department compares the quantity received with the quantity printed on the receiving report when the

purchase order was prepared.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

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127. The following set of items describes activities completed by a company in purchasing and paying for merchandise.

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

All documents attached to an invoice approval form are canceled before a check is signed.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

128. The following set of items describes activities completed by a company in purchasing and paying for merchandise.

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

The clerk in the accounting department records both purchases and payments of invoices.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

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129. The following set of items describes activities completed by a company in purchasing and paying for merchandise.

For each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

Checks are issued by designated officers in the finance department.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

130. The following set of items describes activities completed by a company in collecting cash for merchandise sales. For

each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

A single employee in the mailroom opens the mail, counts the money received, and prepares a control list of the amount

received.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

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131. The following set of items describes activities completed by a company in collecting cash for merchandise sales. For

each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

An employee in the accounting department records cash receipts from customers and prepares a bank deposit slip.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

132. The following set of items describes activities completed by a company in collecting cash for merchandise sales. For

each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

Cash register tapes are picked up on a regular basis each day by an employee from the accounting department.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

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133. The following set of items describes activities completed by a company in collecting cash for merchandise sales. For

each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

An employee from the accounting department compares the control list and the cash register tapes with the bank deposit

slip.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

134. The following set of items describes activities completed by a company in collecting cash for merchandise sales. For

each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

Monthly statements, indicating the current balance due, are mailed to customers.

a. Adheres to sound internal control procedures

b. Violates sound internal control procedures

c. Neither strengthens nor violates internal control

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135. Which of the following is not a procedure in the approval of a specific invoice for payment?

a. The purchase requisition, purchase order, receiving report, and invoice are compared.

b. An accounting department employee must verify the mathematical accuracy of the amounts that appear on the

invoice.

c. The purchasing department prepares a voucher to request payment.

d. All of these are procedures in the approval of a specific invoice for payment.

136. The form sent by the seller to the buyer as evidence of a sale is called a(n)

a. invoice approval form.

b. invoice.

c. receiving report.

d. purchase order.

137. The department in an organization that is responsible for preparing the invoice approval form to document all of the

information about a particular purchase is the

a. human resources department.

b. purchasing department.

c. receiving department.

d. accounting department.

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138. Which of the following is another term for the invoice approval form?

a. a receiving report

b. an invoice

c. a voucher

d. a remittance advice

139. A voucher is usually supported by

a. a supplier’s invoice.

b. a purchase order.

c. a receiving report.

d. all of these.

140. The notification accompanying a check that indicates the specific invoice being paid is called a

a. remittance advice.

b. voucher.

c. debit memorandum.

d. credit memorandum.

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Completion

141. Typically the classification known as “readily available” refers to investments that are converted into cash in

__________ months or less.

142. The IFRS definition of cash equivalents is very similar to that used by __________.

143. __________ are those investments that are readily convertible into known amounts of cash and that have an original

maturity to the investor of three months or less.

144. __________ describes a form used by the accountant to reconcile or resolve any differences between the balance

shown on the bank statement for a particular account with the balance shown in the accounting records.

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145. A check written by a company but not yet presented to the bank for payment is called a(n) __________.

146. Additions on a bank statement for such items as interest paid on the account and notes collected by the bank for the

customer are called __________.

147. A check that is returned or “bounces” because of insufficient funds is called a(n) __________.

148. An amount has been recorded as an increase to the company’s Cash account, but has not yet been reflected on the

bank statement is called a(n) __________.

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149. Deductions on a bank statement for items such as NSF checks and bank service charges are called __________.

150. If a company records a $310 receipt as $130, this type of error is called a(n) __________.

151. The audit committee of the board of directors provides direct contact between the __________ and the __________.

152. The __________ is the body created by the Sarbanes-Oxley Act that was given the authority to set auditing standards

in the United States.

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153. The __________ is a subset of the board of directors that acts as a direct contact between the stockholders and the

independent accounting firm.

154. A(n) __________ is a report required by section 404 of the Sarbanes-Oxley Act.

155. __________ controls within a company are more concerned with the efficient operation of the business and

adherence to management policies than with the accurate reporting of financial information.

156. __________ controls primarily concern safeguarding assets and ensuring the reliability of the financial statements.

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157. __________ are the crucial link between economic transactions entered into by an entity and the accounting records

of those events.

158. A(n) __________ is a form that a department uses to initiate a request to order merchandise.

159. A(n) __________ is a form sent by the purchasing department to the supplier.

160. A(n) __________ is a form sent by the seller to the buyer as evidence of a sale.