Financial Accounting: IFRS, 11e, GE
Harrison/Horngren/Thomas/Tietz/Suwardy
Test Item File
Chapter 5: Internal Control, Cash, and Receivables
5.1-1 Lapping is a fraudulent scheme to steal cash through misappropriating certain customer payments and
posting payments from other customers to the affected accounts to cover it up.
5.1-2 Internal controls help to prevent fraud.
5.1-3 To maintain effective internal control, employees responsible for handling cash should have access to the
accounting records.
5.1-4 Proper segregation of duties increases the chances for fraud and promotes the accuracy of accounting
records.
5.1-5 Internal controls are the primary means by which fraud, as well as unintentional financial statement
errors, are prevented.
5.1-6 An environment of weak internal controls can lead to misapplication of accounting principles.
5.1-7 The type of fraud committed by company managers who make false and misleading entries in the books,
making the financial results of the company appear better than they actually are, is called:
A) misappropriation of assets.
B) fraudulent financial reporting.
C) embezzlement.
D) collusion.
5.1-8 The type of fraud committed by employees of an entity who steal money from the company and cover it
up through erroneous entries in the books is called:
A) misappropriation of assets.
B) fraudulent financial reporting.
C) embezzlement.
D) collusion.
5.1-9 The two most common types of fraud impacting financial statements are:
A) fraudulent financial reporting and e-commerce fraud.
B) misappropriation of assets and embezzlement.
C) fraudulent financial reporting and misappropriation of assets.
D) cooking the books and fraudulent financial reporting.
5.1-10 All of the following are purposes of internal control EXCEPT:
A) to promote operational inefficiency.
B) to encourage adherence to company policies.
C) to ensure accurate and reliable accounts records.
D) to safeguard assets.
5.1-11 The company’s ___________ have/has the primary responsibility for establishing and maintaining a
company’s system of internal control.
A) external auditors
B) internal auditors
C) top management
D) shareholders
5.1-12 Which characteristic will NOT be found in an effective system of internal control?
A) Competent, reliable, and ethical personnel
B) A combination of duties
C) A separation of duties
D) Documents and records
5.1-13 Which of the following is a limitation of internal control?
A) Operational efficiency
B) Employee collusion
C) Accurate and reliable accounting records
D) Safeguarding company assets
5.1-14 In the Amex Product story, Melissa Price, the employee who committed the fraud:
A) was one of Amex’s most trusted employees.
B) never took a day of vacation for 10 years.
C) had begun to wear better clothes and drive nice cars.
D) did all of the above.
5.1-15 Factors that would lead an employee to commit a lapping scheme include:
A) a proper separation of duties.
B) not allowing the bookkeeper to access to cash.
C) appropriately monitoring the activities of employees who handle cash.
D) allowing employees to not take time off for earned vacations.
5.1-16 A system of handling cash receipts by mail whereby customers remit payments directly to the bank, rather
than through the company’s mail is a(n):
A) imprest system.
B) lock-box system.
C) phishing system.
D) online banking system.
5.1-17 An intentional misrepresentation of facts, made for the purpose of persuading another party to act in a
way that causes injury or damage to that party is:
A) collusion.
B) fraud.
C) phishing.
D) lapping.
5.1-18 According to a recent survey taken by the Association for Certified Fraud Examiners (ACFE),
occupational fraud and abuse results in losses equal to approximately __________ of total business
revenue.
A) 45%
B) 10%
C) 6%.
D) an unknown amount
5.1-19 __________ is the most common fraud, but __________ is the most expensive fraud.
A) Fraudulent financial reporting, misappropriation of assets
B) Misappropriation of assets, fraudulent financial reporting
C) Fraudulent financial reporting, misappropriation of assets,
D) Cooking the books, misappropriation of assets.
5.1-20 The three elements that are present in almost all cases of fraud are collectively known as the:
A) fraud triangle.
B) imprest system.
C) fraud system.
D) fraud rationalization.
5.1-21 The three main components of the fraud triangle are:
A) rationalization, opportunity and greed.
B) opportunity, motive and lack of ethics.
C) motive, opportunity and rationalization.
D) none of the above.
5.1-22 Fraud is the ultimate unethical act in business because:
A) the perpetrators usually do so for their own short-term economic gain at the expense of others.
B) fraud is illegal.
C) fraud violates the rights of many for the temporary betterment of a few.
D) of all of the above.
5.1-23 The primary way that fraud is prevented and detected is through a proper system of:
A) checks and balances.
B) management directives.
C) internal control.
D) internal and external audits.
5.1-24 A plan of organization and a system of procedures, implemented by company management and the board
of directors, is called:
A) the budget.
B) the audit.
C) internal control.
D) the Sarbanes –Oxley Act.
5.1-25 Internal controls are designed to accomplish five objectives—comply with legal requirements, promote
operational efficiency, safeguard assets, encourage employees to follow company policy and:
A) prevent embezzlement.
B) prevent collusion.
C) ensure accurate, reliable external audits.
D) ensure accurate, reliable accounting records.
5.1-26 Internal controls are so critical to a company that US Congress passed the:
A) Sarbanes-Oxley Act of 2002.
B) Kemp-Oxley Act of 2002.
C) Economic Stimulus Law of 2008.
D) Public Company Accounting Oversight Board Act of 2002.
5.1-27 SOX created a new body to oversee the audits of public companies called the:
A) Securities and Exchange Commission.
B) Association of Certified Public Accountants.
C) Public Company Accounting Oversight Board.
D) Association of Certified Fraud Examiners.
5.2-1 All cash receipts should be deposited in the bank whenever the cash exceeds a certain amount.
5.2-2 Depository accounts are “one–way” accounts, since local management can write checks on the account
but cannot deposit money into the account.
5.2-3 In a lock-box system, customers send payments into a special post office box.
5.2-4 A lock-box system prevents unauthorized access to cash.
5.2-5 To maintain effective internal control, the majority of all payments in an organization should be made
using checks.
5.2-6 A purchase order informs a vendor of the company’s intention to purchase merchandise.
5.2-7 Once a check is approved for payment and signed by an authorized individual, it should be mailed to the
payee by the department who prepared the check.
5.2-8 When a company receives cash by mail, the bank deposit for the cash receipts should be made by the:
A) mail room clerk.
B) certified public accountant.
C) controller.
D) treasurer.
5.2-9 Which of the following are controls over cash received in a store?
A) The customer should be able to see the amounts entered into the register.
B) The clerk must have access to the cash register tape.
C) A receipt should not be given to the customer.
D) The cash drawer can be opened only when the sales clerk needs change.
5.2-10 A depository bank account does NOT:
A) prevent unauthorized access to cash.
B) allow for more efficient management of cash.
C) allow for cash disbursements.
D) allow any of the above.
5.2-11 ABC Store sells expensive watches. An inventory at the beginning of the day showed 40 watches in the
store. 10 new watches were added to the inventory during the day. The point-of-sale terminal recorded 3
watches sold. An inventory taken at the end of the day should show how many watches still in the store?
A) Cannot be determined from the data
B) 53
C) 27
D) 47
5.2-12 When opening incoming mail, the mailroom employee should compare the amount of the check received
with the amount shown on the:
A) sales invoice.
B) customer order form.
C) purchase order.
D) remittance advice.
5.2-13 When cash is received by mail:
A) the mailroom sends all customer checks to the treasurer, who has the cashier deposit the money in the
bank.
B) the journal entries are made by the controller.
C) the mailroom compares the deposit to the journal entry made.
D) all of the above occur.
5.2-14 A lock-box system:
A) prevents unauthorized access to cash.
B) slows down the time it takes to deposit cash to the bank.
C) is more susceptible to fraud, since employees of the company have access to the cash.
D) can only be used by very large companies.
5.2-15 Payment by check is an important internal control since:
A) the check provides a record of the payment.
B) the check must be signed by an authorized official who should study the evidence supporting the
payment.
C) all checks must be approved by the bank’s internal audit department before they are paid.
D) both A and B are true.
5.2-16 Which of the following is sent by the company who ships the goods to the company who ordered the
goods?
A) An invoice
B) Purchase order
C) Check
D) Receiving report
5.2-17 A purchase order:
A) identifies the need for merchandise and begins the purchasing process.
B) identifies that the merchandise has been received and ends the purchasing process.
C) is sent by the purchasing department to the customer who purchases the item.
D) includes the invoice, receiving report, purchase order and purchase request.
5.2-18 A receiving report is prepared by what department?
A) Accounting
B) Shipping (Receiving)
C) Purchasing
D) Marketing
5.2-19 A payment packet:
A) reports the arrival of items purchased.
B) is sent by the purchasing department to the vendor selling the item.
C) identifies the need for merchandise and begins the purchasing process.
D) includes the invoice, receiving report and purchase order.
5.2-20 Which of the following steps should be performed by the accounting department prior to the approval of a
disbursement?
A) The invoice should be compared with a copy of the purchase order and invoice.
B) The mathematical accuracy of the invoice should be proved.
C) The invoice should be compared with the disbursing report.
D) The check should be processed and signed by the purchasing department supervisor.
5.2-21 Which of the following indicates the order by which documents are prepared in the purchasing process?
A) Purchase order, payment packet, invoice
B) Invoice, receiving report, purchase order
C) Purchase order, receiving report, invoice, payment packet
D) Purchase order, receiving report, payment packet
5.2-22 The following duties should always be segregated.
A) Purchasing of goods and receiving of goods
B) Purchasing of goods and payment of the invoice
C) Purchasing of goods, receiving of goods, and approving and paying for goods
D) All of the above
5.2-23 A small amount of cash on hand for miscellaneous items is referred to as the Petty Cash fund.
5.2-24 A petty cash system is a system where the total of all receipts less the cash in the box equals the amount
of the fund.
5.2-25 The sum of the cash in the petty cash fund and the total of the paid vouchers should equal the opening
balance in the petty cash account at all times.
5.2-26 A fund with a small amount of cash on hand for minor disbursements is called a:
A) petty cash fund.
B) miscellaneous expense fund.
C) slush fund.
D) cash fund.
5.2-27 The entry to establish the petty cash fund is:
A)
B)
C)
D)
5.2-28 An imprest petty cash fund of $400 was established for minor disbursements. At the end of the month,
the fund included petty cash tickets for the purchase of $185 in supplies, $41 for postage, $86 for fuel and
a delivery charge of $65 and cash of $23. How much cash is required to replenish the fund?
A) $ 23
B) $226
C) $312
D) $377
Miscellaneous Expense
Debit
Cash
Credit
Miscellaneous Expense
Debit
Petty Cash
Credit
Petty Cash
Debit
Cash
Credit
Cash
Debit
Petty Cash
Credit
5.2-29 An imprest petty cash fund of $400 was established for minor disbursements. At the end of the month the
fund included petty cash tickets for the purchase of $185 in supplies, $41 for postage, $86 for fuel and a
delivery charge of $65. How much cash is left in the fund if there is no shortage or overage?
A) $ 23
B) $ 88
C) $174
D) $377
5.2-30 An imprest petty cash fund of $400 was established for minor disbursements. At the end of the month the
fund included petty cash tickets for the purchase of $185 in supplies, $41 for postage, $86 for fuel and a
delivery charge of $65. If there is $13 left in the fund, how much cash is required to replenish the fund?
A) $377
B) $236
C) $387
D) $367
5.2-31 At the time of payment, what journal entry is required to record a petty cash disbursement for postage?
A) Debit Postage Expense, credit Petty Cash.
B) Debit Postage Expense, credit Cash.
C) Debit Petty Cash, credit Cash.
D) No journal entry is required.
5.3-1 The person to whom a check is paid is referred to as the drawee.
5.3-2 When preparing a bank reconciliation, deposits in transit are subtracted from the balance shown on the
bank statement.
5.3-3 In a bank reconciliation, outstanding checks would be added to the book balance.
5.3-4 There are two records of a business’s cash—the cash account in the company’s general ledger and the
bank statement.
5.3-5 The journal entry for a NSF check involves a credit to Accounts Receivable.
5.3-6 The journal entry for a note collected by the bank with interest requires a credit to Cash and a debit to
both Notes Receivable and Interest Revenue.
5.3-7 Differences between the bank statement and the company’s Cash account are primarily the result of a
time lag in recording transactions.
5.3-8 The bank reconciliation can be used to control cash.
5.3-9 Alpha Company has an account at First Bank. Alpha writes a check payable to Beta Company. In this
transaction, Alpha Company is the:
A) payee.
B) payer.
C) drawer.
D) maker.
5.3-10 Gamma Company has an account at First Bank. Gamma writes a check payable to Delta Company. In
this transaction, Delta Company is the:
A) payee.
B) payer.
C) drawer.
D) maker.
5.3-11 When preparing a bank reconciliation, which of the following items should be subtracted from the bank
balance?
A) Deposits in transit
B) Bank service charges
C) EFT cash receipts
D) Outstanding checks
5.3-12 When preparing a bank reconciliation, which of the following items should be added to the book balance?
A) EFT receipts
B) Deposits in transit
C) Collection items
D) Both EFT receipts and collection items
5.3-13 The checks that have been paid by the bank on behalf of the depositor, which are included with the bank
statement, are called:
A) outstanding checks.
B) canceled checks.
C) checks in transit.
D) NSF checks.
5.3-14 Differences between the amount of cash reported on a company’s bank statement and the balance in the
company’s Cash account before the bank reconciliation are primarily due to:
A) errors in the accounting process by the company.
B) errors made by the bank.
C) differences between the cash basis and accrual basis of accounting.
D) the timing difference in recording transactions.
5.3-15 Which of the following items will cause a difference between the book balance and the bank balance?
A) Timing deposits
B) Bank collections
C) Canceled checks
D) Outstanding voided checks
5.3-16 A bank charge of $40 for imprinting checks would appear on the bank reconciliation as a(n) __________
to (or from) the __________ balance.
A) addition; bank
B) deduction; bank
C) addition; book
D) deduction; book
5.3-17 Herbert Company deposited $25,000 in its bank on the same day as—but after—the bank prepared
Herbert Company’s bank statement. The deposit should appear on the bank reconciliation as a(n)
__________ and is called a(n) __________.
A) addition to the bank balance; outstanding deposit
B) addition to the bank balance; deposit in transit
C) deduction to the bank balance; deposit in transit
D) deduction to the bank balance; outstanding deposit
5.3-18 Checks written by a company, but not yet paid by the bank, appear on the bank reconciliation as
__________ and are called __________.
A) deductions from the bank balance; checks in transit
B) deductions from the bank balance; outstanding checks
C) additions to the bank balance; checks in transit
D) additions to the bank balance; check items
5.3-19 In a bank reconciliation, a NSF check is:
A) added to the bank balance.
B) added to the book balance.
C) deducted from the book balance.
D) deducted from the bank balance.
5.3-20 In a bank reconciliation, an EFT cash receipt is:
A) added to the bank balance.
B) added to the book balance.
C) deducted from the book balance.
D) deducted from the bank balance.
5.3-21 In a bank reconciliation, an EFT cash payment is:
A) added to the bank balance.
B) added to the book balance.
C) deducted from the book balance.
D) deducted from the bank balance.