CHAPTER 8: SARBANES-OXLEY, INTERNAL CONTROL, AND CASH
1.
The Sarbanes-Oxley Act applies only to companies whose stock is traded on public exchanges.
a.
True
b.
False
2.
SarbanesOxley’s purpose is to maintain public confidence and trust in the financial reporting of companies.
a.
True
b.
False
3.
There are three internal control objectives and they are to safeguard the company’s reputation, ensure
accurate
financial reports, and ensure compliance with applicable laws.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
4.
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.
a.
True
b.
False
5.
Sarbanes-Oxley requires companies to maintain strong and effective internal controls and thus deter fraud
and
prevent misleading financial statements.
a.
True
b.
False
6.
The control environment in an internal control structure is the overall attitude of management and employees
about
the importance of internal control.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
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.
a.
True
b.
False
8.
Internal control is enhanced by separating the control of a transaction from the record-keeping function.
a.
True
b.
False
9.
A backlog in recording transactions is an example of a warning sign from the accounting system.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
10.
Money orders are considered cash.
a.
True
b.
False
11.
A customer’s check received in settlement of an account receivable is considered cash.
a.
True
b.
False
12.
Businesses who have several bank accounts, petty cash, and cash on hand, would maintain a separate ledger
account for each type of cash.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
13.
For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash
payments divided among different employees.
a.
True
b.
False
14.
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.
a.
True
b.
False
15.
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.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
16.
An example of good internal controls over cash payments is the taking of all cash discounts offered.
a.
True
b.
False
17.
A voucher is a form on which is recorded pertinent data about a liability and the particulars of its payment.
a.
True
b.
False
18.
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.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
19.
A voucher system is an example of an internal control procedure over cash payments.
a.
True
b.
False
20.
A voucher is a written authorization to make a cash payment.
a.
True
b.
False
21.
The bank often informs the company of bank service charges by including a credit memo with the monthly
bank
statement.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
22.
Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on
the
bank’s records.
a.
True
b.
False
23.
Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash.
a.
True
b.
False
24.
For efficiency of operations and better control over cash, a company should maintain only one bank account.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
25.
In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per
bank
statement.
a.
True
b.
False
26.
In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank statement.
a.
True
b.
False
27.
In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is added to
the
balance per company’s records.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
28.
In preparing a bank reconciliation, the amount of a canceled check omitted from the journal is added to the
balance
per company’s records.
a.
True
b.
False
29.
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.
a.
True
b.
False
30.
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.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
31.
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.
a.
True
b.
False
32.
All bank memos reported on the bank reconciliation require entries in the company’s accounts.
a.
True
b.
False
33.
The bank reconciliation is an important part of the system of internal controls.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
34.
The main reason that the bank statement cash balance and the company’s cash balance do not initially balance is
due to timing differences.
a.
True
b.
False
35.
The bank reconciles its statement to the company’s records.
a.
True
b.
False
36.
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.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
37.
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.
a.
True
b.
False
38.
A check outstanding for two consecutive months will appear only on the first month’s bank reconciliation.
a.
True
b.
False
39.
After a bank reconciliation is completed, journal entries are prepared for items in the balance per
company’s
records as well as items in the balance per bank statement.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
40.
A business that requires all cash payments be made by check can not use a petty cash system.
a.
True
b.
False
41.
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.
a.
True
b.
False
42.
Expenditures from a petty cash fund are documented by a petty cash receipt.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
43.
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.
a.
True
b.
False
44.
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.
a.
True
b.
False
45.
Most companies who have several bank accounts, petty cash, and cash on hand, would list each separately on the
balance sheet.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
46.
A petty cash fund is used to pay relatively large amounts.
a.
True
b.
False
47.
The petty cash fund eliminates the need for a bank checking account.
a.
True
b.
False
48.
A compensating balance occurs when a bank may require a company to maintain a maximum cash balance.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
49.
Cash equivalents include short-term investments that will be converted to cash within 120 days.
a.
True
b.
False
50.
Money market accounts, commercial paper, and U. S. Treasury bills are examples of cash equivalents.
a.
True
b.
False
51.
The ratio of cash to monthly cash expenses includes both cash and cash equivalents in the numerator.
a.
True
b.
False
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
52.
Sarbanes-Oxley applies to
a.
publicly held companies
b.
not-for-profit organizations
c.
privately held businesses
d.
all of these
53.
“To maintain public confidence and trust in the financial reporting of companies” is the purpose of
a.
the FASB
b.
the IRS
c.
Sarbanes-Oxley
d.
GAAP
54.
Which one of the following below is not an element of internal control?
a.
risk assessment
b.
monitoring
c.
information and communication
d.
cost-benefit considerations
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
55.
Which one of the following is not a factor that influences a business’s control environment?
a.
management’s philosophy and operating style
b.
organizational structure
c.
proofs and security measures
d.
personnel policies
56.
When a firm uses internal auditors, it is adhering to which of the following internal control elements?
a.
risk assessment
b.
monitoring
c.
proofs and security measures
d.
information and communication
57.
The objectives of internal control are to
a.
control the internal organization of the accounting department personnel and equipment
b.
provide reasonable assurance that assets are safeguarded and used for business purposes, financial reports
are accurate, and laws and regulations are complied with
c.
prevent fraud, and promote the social interest of the company
d.
provide control over “internal-use only” reports and employee internal conduct
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
58.
Which one of the following 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 collecting and recording of cash
59.
Internal control does not consist of policies and procedures that
a.
protect assets from misuse
b.
ensure employees and managers comply with laws and regulations
c.
guarantee the company will earn a profit
d.
ensure that business information is accurate
60.
A firm’s internal control environment is not influenced by
a.
management’s operating style
b.
organizational structure
c.
personnel policies
d.
monitoring policies