70) Which of the following best describes the goal of internal controls?
A) Ensuring the business is profitable.
B) Enhancing the health of employees.
C) Improving the accuracy and the reliability of financial information.
D) Ensuring the compliance with tax regulations.
71) Which of the following is NOT a design feature of effective internal controls?
A) Allow greater reliance by investors on reported financial statements.
B) Prevent fraudulent or errant financial reporting.
C) Ensure the company’s price advantage over competitors.
D) Prevent misuse of company funds by employees.
72) A framework for designing an internal control system is provided by the:
A) Committee of Sponsoring Organizations.
B) Financial Accounting Standards Board.
C) Securities and Exchange Commission.
D) International Accounting Standards Board.
73) The component of internal control that includes the policies and procedures that help ensure
that management’s directives are being carried out is:
A) Monitoring.
B) Information and communication.
C) Risk assessment.
D) Control activities.
74) The component of internal control that identifies internal and external factors that could
prevent a company’s objectives from being achieved is:
A) Monitoring.
B) Information and communication.
C) Risk assessment.
D) Control activities.
75) The component of internal control that includes the formal procedures for reporting control
deficiencies is:
A) Monitoring.
B) Information and communication.
C) Risk assessment.
D) Control activities.
76) The components of internal control do not directly include:
A) Risk assessment.
B) Inflation adjustment.
C) Monitoring.
D) Control activities.
77) Separation of duties refers to:
A) Making each manager personally responsible for his/her department.
B) Keeping functions across different departments separate.
C) Preventing top management and lower-level employees from interacting.
D) Individuals who have physical responsibility for assets should not also have access to
accounting records.
78) What is the concept behind separation of duties in establishing internal controls?
A) The company’s financial accountant should not share information with the company’s tax
accountant.
B) Duties of middle-level managers should be clearly separated from those of top executives.
C) Employee fraud is less likely to occur when access to assets and access to accounting records
are separated.
D) The external auditors of the company should have no contact with managers while the audit is
taking place.
79) Which of the following is not an example of preventive controls?
A) Separation of duties.
B) Physical controls.
C) Proper authorization.
D) Reconciliations.
80) Which of the following is an example of detective controls?
A) Separation of duties.
B) Physical controls.
C) Proper authorization.
D) Reconciliations.
81) Keeping supplies in a locked room with access allowed only to authorized personnel is an
example of which preventive control?
A) Separation of duties.
B) Physical controls.
C) Proper authorization.
D) Employee management.
82) Giving only management the right to make purchases over a certain amount is an example of
which preventive control?
A) Separation of duties.
B) Physical controls.
C) Proper authorization.
D) Employee management.
83) Providing employees with appropriate guidance to ensure they have the knowledge necessary
to carry out their job duties is an example of which preventive control?
A) Separation of duties.
B) Physical controls.
C) Proper authorization.
D) Employee management.
84) Allowing only certain individuals to have passwords to conduct online purchases is an
example of which preventive control?
A) Separation of duties.
B) Physical controls.
C) E-commerce controls.
D) Employee management.
85) Having management periodically determine whether the amount of physical assets of the
company match the accounting records is an example of which detective control?
A) Separation of duties.
B) Reconciliations.
C) Performance reviews.
D) Employee management.
86) Checking actual outcome of individuals or processes against their expected outcome is an
example of which detective control?
A) Separation of duties.
B) Reconciliations.
C) Performance reviews.
D) Employee management.
87) Having an independent party assess each year the adequacy of the company’s internal control
procedures is an example of which detective control?
A) Separation of duties.
B) Reconciliations.
C) Performance reviews.
D) Audits.
88) Which employees are the ones who must take final responsibility for the establishment and
success of internal controls?
A) Top executives.
B) Mid-level managers.
C) Lower-level employees.
D) All employees.
89) Which employees have an impact on the operation and effectiveness of internal controls?
A) Upper management.
B) Mid-level managers.
C) Lower-level employees.
D) All employees.
90) The act of collusion refers to:
A) Top management and lower-level employees working together to share information necessary
for effective internal controls.
B) Two or more people acting in coordination to circumvent internal controls.
C) Management working with an auditor to prevent occupational fraud.
D) Middle-level managers taking full responsibility for effective internal controls.
91) The asset most susceptible to theft is:
A) Equipment.
B) Accounts receivable.
C) Building.
D) Cash.
92) Which of the following is considered cash for financial reporting purposes?
A) Accounts receivable.
B) Investments with maturity dates greater than three months.
C) Checks received from customers.
D) Accounts payable.
93) Cash may not include:
A) Foreign currency.
B) Money orders.
C) Accounts receivable.
D) Undeposited customer checks.
94) The balance of cash reported in the balance sheet would include which of the following?
A) Balance of savings account.
B) Credit card sales.
C) Currency.
D) All of the other answers would be reported in the balance of cash.
95) The term commonly used to refer to short-term investments that have a maturity date no
longer than three months from the date of purchase is:
A) Accounts receivable.
B) Cash equivalents.
C) Accounts payable.
D) Short-term investments.
96) Cash equivalents refer to:
A) Short-term investments that have a maturity date no longer than three months from the date of
purchase.
B) Amounts receivable from customers that have a very high probability of collection.
C) Short-term investments that have increased in value since the date of purchase, and therefore
have generated additional cash for the company.
D) The total amount of cash a company would have if all assets were sold.
97) Common examples of cash equivalents include all of the following except:
A) Money market funds.
B) Treasury bills.
C) Certificates of deposit.
D) Accounts receivable.
98) Which of the following sales would typically be reported as a cash sale?
A) Sale in exchange for office supplies received.
B) Sale in exchange for equipment received.
C) Sale on account.
D) Sale with credit card.
99) Which of the following would NOT be recorded as a cash sale?
A) Customer who pays with a check.
B) Customer who pays with a debit card.
C) Customer who pays with a credit card.
D) A customer who buys on account.
100) Which of the following would NOT represent good controls over cash receipts?
A) Record all cash receipts as soon as possible.
B) The employee that receives cash and checks should also deposit them in the bank.
C) Open mail each day and make a list of checks received with the amount and payer’s name.
D) Verify cash receipts by comparing the bank deposit slip with the accounting records.
101) Which of the following would not be considered good internal control for cash receipts?
A) Allowing customers to pay with a debit card.
B) Requiring the employee receiving cash from customers to also deposit the cash into the
company’s bank account.
C) Recording cash receipts as soon as they are received.
D) Allowing customers to pay with a credit card.
102) When a sale is made to a customer who pays with a check, the company records:
A) A debit to Cash.
B) A debit to Accounts Payable.
C) A debit to Accounts Receivable.
D) No entry until the check clears the bank.
103) When a sale is made to a customer who pays with a debit card, the company records:
A) A debit to Accounts Payable.
B) A debit to Accounts Receivable.
C) A debit to Cash.
D) No entry until the debit card transaction clears the bank.
104) The amount of revenue recorded at the time of a sale will be greatest when the customer
pays with a:
A) Check.
B) Cash.
C) Credit card.
D) The revenue will be the same amount for each of the above payment methods.
105) McGregor Company allows customers to pay with credit cards. The credit card company
charges McGregor 3% of the sale. When a customer uses a credit card to pay McGregor $200 for
services provided, McGregor would:
A) Debit Cash for $200.
B) Credit Service Revenue for $194.
C) Debit Service Fee Expense for $6.
D) Credit Service Revenue for $206.
106) A customer makes a $2,000 purchase at ApplianceWorld, paying with a credit card.
ApplianceWorld is charged a 2% fee by the credit card company. When recording this sale,
ApplianceWorld would:
A) Debit Accounts Receivable for $2,000.
B) Credit Sales Revenue for $2,000.
C) Credit Sales Revenue for $1,960.
D) Credit Deferred Revenue for $2,000.
107) Which of the following would NOT represent good controls over cash disbursements?
A) Make all disbursements, other than very small ones, by check, debit card, or credit card.
B) Require only one signature for checks, especially larger ones.
C) Authorize all expenditures before purchase and verify the accuracy of the purchase itself.
D) The employee who authorizes payment should not also be the employee who prepares the
check.
108) Which of the following would NOT represent good controls over cash disbursements?
A) Periodically verify amounts shown in the debit card and credit card statements against
purchase receipts.
B) The employee verifying the accuracy of the debit card and credit card statements should not
also be the employee responsible for actual purchases.
C) Set maximum purchase limits on debit cards and credit cards.
D) Employees responsible for making cash disbursements should also be in charge of cash
receipts.
109) A bank reconciliation reconciles the bank statement with the company’s:
A) Cash from operating activities.
B) Net cash flow in the statement of cash flows.
C) Cash account in the balance sheet.
D) Net income in the income statement.
110) What is the primary purpose of a bank reconciliation?
A) To ensure that debits equal credits for all cash transactions.
B) To ensure that customers are paying amounts owed on a timely basis.
C) To ensure the bank balance per reconciliation is equal to the company balance per
reconciliation.
D) To ensure cash receipts are greater than cash disbursements.
111) Which of the following items would cause the balance of cash in the bank statement not to
equal the balance of cash in the accounting records?
A) Interest earned on the bank balance that the company has not recorded.
B) Checks written by the company that have not cleared the bank.
C) Cash receipts by the company that have not been deposited in the bank.
D) All of the other answers would cause cash balances to differ.
112) Which of the following items would cause the balance of cash in the bank statement not to
equal the balance of cash in the accounting records?
A) The company purchased supplies using a debit card.
B) The company has cash receipts that have been deposited in the bank.
C) The company deposited a customer check that was found by the bank to have insufficient
funds.
D) The company wrote checks that have cleared the bank.
113) Which of the following items would cause the balance of cash in the bank statement to be
greater than the balance of cash in the accounting records?
A) The company wrote checks that have not cleared the bank.
B) The company purchased supplies using a debit card.
C) The company has cash receipts that have not been deposited in the bank.
D) The company deposited a customer check that was found by the bank to have insufficient
funds.
114) Which of the following is NOT a reason why a bank reconciliation is necessary?
A) The company has transactions that the bank has not recorded.
B) Petty cash has a low balance.
C) The bank has transactions that the company has not recorded.
D) Reconciliations provide a control over cash.
115) A good internal control system would require that the employee who handles cash must not
be involved in:
A) Reconciling the bank statement.
B) The accounts payable function.
C) Hiring decisions.
D) Daily operations of the company.
116) Which of the following is correct with respect to a bank reconciliation?
A) Subtract interest earned from the bank’s balance.
B) Add service charge to the company’s balance.
C) Subtract NSF checks from the company’s balance.
D) Add deposits outstanding to the company’s balance.
117) After preparing the bank reconciliation, an NSF check would result in which of the
following when recording the adjustment to the company’s cash balance?
A) Debit to Service Fee Expense.
B) Credit to Accounts Payable.
C) Credit to Service Revenue.
D) Debit to Accounts Receivable.
118) The following information pertains to a company’s cash balance and bank reconciliation as
of August 31:
Company balance before reconciliation
$
5,000
Checks outstanding
$
2,500
Notes collected by the bank
$
2,200
Service fee
$
50
Deposits outstanding
$
2,000
What is the correct cash balance for the company?
A) $7,150.
B) $5,150.
C) $7,650.
D) $7,250.
119) When preparing a bank reconciliation, a deposit outstanding would be:
A) Added to the company’s cash balance.
B) Added to the bank’s cash balance.
C) Subtracted from the company’s cash balance.
D) Subtracted from the bank’s cash balance.
39
120) Regarding a bank reconciliation, which one of the following is an item recorded by the
company but not by the bank?
A) Checks outstanding.
B) Interest earned.
C) Service charges.
D) NSF checks.
121) Which of the following would NOT need to be accounted for in a bank reconciliation?
A) Deposits recorded by the company but not the bank.
B) Interest recorded by the bank but not the company.
C) NSF checks recorded by the bank but not by the company.
D) Checks written by the company and recorded by the bank.
122) On May 31, Money Corporation’s Cash account showed a balance of $10,000 before the
bank reconciliation was prepared. After examining the May bank statement and items included
with it, the company’s accountant found the following items:
Checks outstanding
$
2,250
Deposits outstanding
1,900
NSF check
100
Service fees
40
Error: Money Corp. wrote a check for $30 but recorded it incorrectly for $300.
What is the amount of cash that should be reported in the company’s balance sheet as of May 31?
A) $9,860.
B) $9,650.
C) $10,130.
D) $10,410.
123) Cash transactions recorded by the bank but not yet recorded by the company include all of
the following except –
A) Service fees.
B) Interest earned.
C) Checks outstanding.
D) NSF checks.