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Chapter 5
44. A debit memorandum from the bank indicates that the bank has deducted an amount from the depositor's account.
a.
True
b.
False
45. A business that requires all cash payments be made by check cannot use a petty cash system.
a.
True
b.
False
Chapter 5
46. 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.
a.
True
b.
False
47. Minimum cash balance maintained in the bank account is called line of credit.
a.
True
b.
False
Chapter 5
48. Money market funds, commercial paper, and U.S. Treasury Bills are examples of cash equivalents.
a.
True
b.
False
49. 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.
Chapter 5
50. 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.
51. 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.
Chapter 5
52. Internal controls are important because they:
a.
deter fraud and prevent misleading financial statements.
b.
eliminate fraud.
c.
ensure that the company maintains a compensating balance.
d.
guarantee accurate financial statements.
53. Which of the following warning signs could mean receipts are being pocketed before being deposited?
a.
Missing documents or gaps in transaction numbers
b.
An unusual increase in customer refunds
c.
A sudden increase in cash payments
d.
A difference between daily bank and cash balance
Chapter 5
54. Internal control consist of policies and procedures that _____.
a.
involve cost-benefit considerations
b.
deal with human element of controls such as, fatigue, carelessness, etc.
c.
ensure public relations
d.
ensure the accuracy of business information
55. Which of the following scenarios reduces the risk of an employee fraud?
a.
An accountant being responsible for approving payments to a vendor
b.
The bank reconciliation being prepared by an accountant
c.
A sales clerk having access to the cash register
d.
Remittance advices being sent directly to the cashier
Chapter 5
56. Which of the following elements of internal control includes maintaining records of employees documenting their
compensation and promotion?
a.
Risk assessment
b.
Control environment
c.
Monitoring
d.
Control procedures
57. When there are major changes in strategy, senior management, business structure, or operations, evaluations of
controls is usually performed by _____.
a.
internal auditors
b.
management
Chapter 5
c.
supervisors
d.
directors
58. _____, which constitute one of the most important elements of internal control, include separating responsibilities for
related operations.
a.
Control procedures
b.
Risk assessment activities
c.
Risk monitoring procedures
d.
Information and communication activities
59. Which of the following is an element of the control environment?
Chapter 5
a.
Control procedures
b.
Managements' operating styles
c.
Information and communication activities
d.
Risk assessment plans
60. Which element of internal control observes employees' behavior and the accounting system for indicators of control
problems?
a.
Control environment
b.
Risk assessment
c.
Control procedures
d.
Monitoring
Chapter 5
61. 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.
Control environment
d.
Control procedures
62. Which of the following elements of internal control focuses on locating weaknesses and improving control
effectiveness?
a.
Control environment
b.
Risk assessment
c.
Control procedures
d.
Monitoring
Chapter 5
63. When a firm uses internal auditors, it is adhering to which of the following internal control elements?
a.
Risk assessment
b.
Control procedures
c.
Monitoring
d.
Information and communication
64. Which of the following of internal control deals with hiring, training, evaluation, compensation, and promotion of
employees?
a.
Monitoring
b.
Control environment
c.
Risk assessment
d.
Control procedures
Chapter 5
65. Zorro Inc. has the following cash register data for December 31:
Cash register total for cash sales
$23,500
Cash receipts from cash sales
$23,480
How should the difference be recorded?
a.
$20 cash overage as miscellaneous operating expense
b.
$20 cash overage as revenue
c.
$20 cash shortage as normal operating expense
d.
$20 cash shortage as other revenue
66. Which of the following is true of EFT?
a.
It cost more than receiving cash payments through the mail.
b.
It can process certain cash transactions at less cost than by using the mail.
c.
It is easy to document purchase and sale transactions.
d.
It means Effective Funds Transfer.
Chapter 5
67. A bank issues credit memos for:
a.
payments made by electronic funds transfer.
b.
interest earned on the company's account.
c.
service charges.
d.
customer checks returned for not sufficient funds.
68. On the bank's accounting records, customers' accounts are normally shown as a(n):
a.
revenue.
b.
liability.
c.
asset.
d.
expenses.
Chapter 5
69. 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.
70. Anna erroneously records a check drawn for $385 as $835. This error is adjusted on the bank reconciliation as a(n):
a.
$450 addition to the cash balance per books.
b.
$385 addition to the cash balance per bank.
c.
$835 deduction from the cash balance per bank.
d.
$1,220 deduction from the cash balance per books.
Chapter 5
71. 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.
72. When preparing a bank reconciliation statement, outstanding checks would:
a.
increase the cash balance according to the bank statement.
b.
deduct the cash balance according to the bank statement.
c.
increase the cash balance according to the company statement.
d.
deduct the cash balance according to the company statement.
Chapter 5
73. 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
74. MMC Inc. recorded the receipt from cash sales of $2,600 as $6,200. This error is adjusted on the bank reconciliation
as a(n):
a.
$2,600 addition to the cash balance per books.
b.
$8,800 addition to the cash balance per bank.
c.
$6,200 deduction from the cash balance per bank.
d.
$3,600 deduction from the cash balance per books.
Chapter 5
75. Day Time Company records the receipts from cash sales of $41,200 as $12,400. What adjustment is required in the
bank's accounts?
a.
No adjustment needed
b.
Increase Sales; decrease Cash
c.
Increase Cash; decrease Sales
d.
Increase Cash; decrease Accounts Receivable
76. Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the
depositor. This item would be included on the bank reconciliation as a(n):
a.
deduction from the cash balance per books.
b.
addition to the cash balance per bank.
c.
deduction from the cash balance per bank.
Chapter 5
d.
addition to the cash balance per books.
77. The bank statement of Jade Co. shows a balance of $4,555 as of December 31. The following reconciling items were
identified:
i) Deposit not recorded on bank statement, $50
ii) Total outstanding checks, $105
iii) Check of $100 returned because of not sufficient funds (NSF)
What is the adjusted balance according to the bank statement?
a.
$4,400
b.
$4,605
c.
$4,500
d.
$4,810
78. 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
79. 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 cash balance per books.
b.
addition to the cash balance per bank.
c.
deduction from the cash balance per bank.
d.
addition to the cash balance per books.
