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Chapter 7--Sarbanes-Oxley, Internal Control, and Cash Key
1. The Sarbanes-Oxley Act of 2002 was passed by Congress due to the public outcry after the financial scandals
of the early 2000s.
2. Sarbanes-Oxley’s purpose is to improve financial reporting.
3. There are two internal control objectives and they are to ensure accurate financial reports, and ensure
compliance with applicable laws.
4. Sarbanes-Oxley requires companies to maintain strong and effective internal controls and thus prevent fraud
and misleading financial statements.
5. The Sarbanes-Oxley Act requires that financial statements of all public companies report on management's
conclusions about the effectiveness of the company's internal control procedures.
6. The control environment in an internal control structure is the attitude and awareness of internal control by all
employees.
7. Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the
control procedure: separating operations, custody of assets, and accounting.
8. Internal control is enhanced by separating the control of a transaction from the record-keeping function.
9. A backlog in recording transactions is an example of a warning sign from the accounting system.
10. Money orders are considered cash.
11. A customer's check received in settlement of an account receivable is considered cash.
12. Businesses who have several bank accounts, petty cash, and cash on hand, would maintain a separate ledger
account for each type of cash.
13. For strong internal control system over cash, it is important to have the duties related to cash receipts and
cash payments divided among different employees.
14. When a clerk enters a sale and the customer can see the amount displayed and is given a cash receipt, this is
an example of a preventive control.
15. If the balance in Cash Short and Over at the end of a period is a credit, it indicates that cash shortages have
exceeded cash overages for the period.
16. If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as an "other
income" item on the income statement.
17. An example of good internal controls over cash payments is the taking of all cash discounts offered.
18. A voucher is a form on which is recorded pertinent data about a liability and the particulars of its payment.
19. When the voucher system is used, the amount due on each voucher represents the credit balance of an
account payable if the voucher is in full payment to a creditor.
20. A voucher system is an example of an internal control procedure over cash payments.
21. A voucher is a written authorization to make a cash payment.
22. A payment system that uses computerized electronic impulses to effect a cash transaction is called
electronic funds transfer (EFT).
23. A remittance advice is the notification accompanying the check issued to a creditor that states the specific
invoice being paid.
24. The bank often informs the company of bank service charges by including a credit memo with the monthly
bank statement.
25. Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances
on the bank's records.
26. Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over
cash.
27. For efficiency of operations and better control over cash, a company should maintain only one bank
account.
28. In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank
statement.
29. In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank
statement.
30. In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is added
31. In preparing a bank reconciliation, the amount of a canceled check omitted from the journal is added to the
balance per company's records.
32. A check for $342 was erroneously charged by the bank as $432. In order for the bank reconciliation to
balance, you must add $90 to the bank statement balance.
33. If an adjustment for an NSF check is made in a company’s bank reconciliation, then the company must have
written a bad check during the month.
34. The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount
that is shown on the balance sheet for that date.
35. All bank memos reported on the bank reconciliation require entries in the company's accounts.
36. The bank reconciliation is an important part of the system of internal controls.
37. The main reason that the bank statement cash balance and the company's cash balance do not initially
balance is due to timing differences.
38. The bank reconciles its statement to the company's records.
39. In preparing a bank reconciliation, the amount indicated by a credit memo for a note receivable collected by
the bank is added to the balance per company's records.
40. In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal
for an amount larger than the amount of the check is added to the balance per company's records.
41. A check outstanding for two consecutive months will appear only on the first month's bank reconciliation.
42. After a bank reconciliation is completed, adjusting entries are prepared for items in the balance per
company's records as well as items in the balance per bank statement.
43. A business that requires all cash payments be made by check can not use a petty cash system.
44. In establishing a petty cash fund, a check is written for the amount of the fund and is recorded as a debit to
Accounts Payable and a credit to Petty Cash.
45. Expenditures from a petty cash fund are documented by a petty cash receipt.
46. The sum of the money on hand and petty cash receipts in a petty cash fund will always be equal to the
balance in the Petty Cash account.
47. When the petty cash fund is replenished, the petty cash account is credited for the total of all expenditures
made since the fund was last replenished.
48. Most companies who have several bank accounts, petty cash, and cash on hand, would list each separately
on the balance sheet.
49. A petty cash fund is used to pay relatively large amounts.
50. The petty cash fund eliminates the need for a bank checking account.
51. A compensating balance occurs when a bank may require a company to maintain a maximum cash balance.
52. Cash equivalents are short -term investments that will be converted to cash within 120 days.
53. Money market accounts, commercial paper, and United States Treasury Notes are examples of cash
equivalents.
54. The doomsday ratio includes both cash and cash equivalents in the numerator.
55. Which one of the following below is not an element of internal control?
56. Which one of the following below is not a factor that influences a business's control environment?
57. When a firm uses internal auditors, it is adhering to which one of the following internal control elements?
58. The objectives of internal control are to
59. Which one of the following below reflects a weak internal control system?
60. Internal control does not consist of policies and procedures that
61. A firm's internal control environment is not influenced by
62. An element of internal control is
63. A necessary element of internal control is
64. In management's internal control report that is now required of all public companies, which of the following
does not have a direct effect on a company's internal control system?
65. Which of the following should not be considered cash by an accountant?
66. The cash account in the company's ledger is a(n)
67. The notification accompanying a check that indicates the specific invoice being paid is called a
68. The debit balance in Cash Short and Over at the end of an accounting period is reported as
69. An example of a preventive control is
70. Procedures designed to protect cash from theft and misuse from the time it is received until it can be
deposited in a bank are called
71. A special form on which is recorded pertinent data about a liability and the particulars of its payment is
called a(n)
72. EFT
73. A voucher
74. A voucher is usually supported by
75. The reconciliation of the cash register tape with the cash in the register is an example of
76. Which of the following is not an internal control activity for cash?
77. The term cash includes
78. On the bank's accounting records, customers' accounts are normally shown as
79. Credit memos from the bank
80. A bank statement
81. Which one of the following would not cause a bank to debit a company's account?
82. There are three parties to a check. The drawer is
83. A debit or credit memo describing entries in the company's bank account may be enclosed with the bank
statement. An example of a credit memo is
84. Following the completion of the bank reconciliation, an adjusting entry was made that debited cash and
credited Interest Revenue. Therefore the bank reconciliation must have included an item that was
85. A person authorized to write checks drawn on a checking account at a bank must sign and have on file with
the bank a
86. A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. This
item would be included on the bank reconciliation as a(n)
87. A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. What
entry is required in the company's accounts?
88. A bank reconciliation should be prepared periodically because
89. The bank reconciliation
90. Journal entries based on the bank reconciliation are required in the company's accounts for
91. Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation,
92. Accompanying the bank statement was a debit memo for bank service charges. What entry is required in
the company's accounts?
93. A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. This
item would be included in the bank reconciliation as a(n)
94. A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. What
entry is required in the company's accounts?
95. Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300. This
item would be included on the bank reconciliation as a(n)
96. Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300. What
entry is required in the company's accounts?
97. Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the
company. This item is a(n)
98. Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the
customer. What entry is required in the company's accounts?
99. The amount of deposits in transit is included on the bank reconciliation as a(n)
100. The amount of the outstanding checks is included on the bank reconciliation as a(n)
101. Which of the following items that appeared on the bank reconciliation did not require an adjusting entry?
102. What entry is required in the company's accounts to record outstanding checks?
103. Accompanying the bank statement was a debit memo for an NSF check received from a customer. This
item would be included on the bank reconciliation as a(n)
104. Accompanying the bank statement was a debit memo for an NSF check received from a customer. What
entry is required in the company's accounts?
105. The amount of cash to be reported on the balance sheet at June 30 is the
106. Which of the following would be deducted from the balance per books on a bank reconciliation?
107. Which of the following would be added to the balance per books on a bank reconciliation?
108. Which of the following would be subtracted from the balance per books on a bank reconciliation?
109. Which of the following would be subtracted from the balance per bank on a bank reconciliation?
110. A bank reconciliation should be prepared
111. Harris Company had checks outstanding totaling $15,400 on its May bank reconciliation. In June, Harris
Company issued checks totaling $64,900. The June bank statement shows that $47,600 in checks cleared the
bank in June. A check from one of Harris Company's customers in the amount of $300 was also returned
marked "NSF." The amount of outstanding checks on Harris Company's June bank reconciliation should be
112. Meredith Company gathered the following reconciling information in preparing its May bank
reconciliation:
Cash balance per books, 5/31
$4,500
Deposits in transit
375
Notes receivable and interest collected by bank
650
Bank charge for check printing
40
Outstanding checks
2,400
NSF check
140
The adjusted cash balance per
books on May 31 is
113. Derek Company gathered the following reconciling information in preparing its September bank
reconciliation:
Cash balance per books, 9/30
$2,750
Deposits in transit
200
Notes receivable and interest collected by bank
630
Bank charge for check printing
30
Outstanding checks
1,250
NSF check
290
The adjusted cash balance
per books on September 30 is
114. Jamison Company developed the following reconciling information in preparing its June bank
reconciliation:
Cash balance per bank, 6/30
$13,000
Note receivable collected by bank
4,000
Outstanding checks
7,000
Deposits-in-transit
2,500
Bank service charge
35
NSF check
1,900
Using the above information, determine the cash balance per books (before adjustments) for the Jamison Company.
115. Thompson Company developed the following reconciling information in preparing its October bank
reconciliation:
Cash balance per bank, 10/31
$17,000
Note receivable collected by bank
4,800
Outstanding checks
6,500
Deposits-in-transit
3,000
Bank service charge
50
NSF check
2,300
Using the above information, determine the cash balance per books (before adjustments) for the Thompson Company.
116. During a bank reconciliation process,
117. In the normal operation of business you receive a check from a customer and deposit it into your checking
account. With your bank statement you are advised that this check for $775 is “NSF”. The bank also informs
you that due to the amount of activity on your business account the monthly service charge is $75. During a
bank reconciliation, you will:
118. A $150 petty cash fund has cash of $44 and receipts of $93. The journal entry to replenish the account
would include a
119. A $135 petty cash fund has cash of $28 and receipts of $110. The journal entry to replenish the account
would include a
120. Entries are made to the Petty Cash account when
121. The type of account and normal balance of Petty Cash is a(n)
122. The debit recorded in the journal to reimburse the petty cash fund is to
123. A $100 petty cash fund contains $91 in petty cash receipts, and $4.75 in currency and coins. The journal
entry to record the replenishment of the fund would include a
124. A $140 petty cash fund has cash of $20 and receipts of $117. The journal entry to replenish the account
would include a credit to
125. Cash equivalents include
126. Cash equivalents
127. A minimum cash balance required by a bank is called
128. Which of the following would not be included with the Cash and Equivalents on the Balance Sheet?
129. During 2010, Tempo Inc has monthly cash expenses of $115,000. On December 31, 2010, their cash
balance is $1,437,500. The ratio of cash to monthly cash expenses is
