Financial ing Chapter 7 Quiz 591a6g

1 Internal controls guarantee the accuracy and reliability of the ing . records. True A. False B. While proper internal controls will enhance accuracy and reliability, honest errors can still be expected and undetected (Internal Control). 2 Segregation of duties reduces the risk of errors and irregularities. . True A. False B. Segregation of duties substantially reduces the probability that any one person will make an error or initiate an irregularity that is material and that errors will go undetected (Segregation of Duties). 3 Collusion is when two or more people are responsible for a single task. . True A. False B. Collusion is when two or more people work together to get around the rules and regulations in order to conduct unethical or illegal activities, not when two people are responsible for a single task (Limitations of Internal Control). 4 All disbursements, even for incidental amounts, must be paid by check. . True A. False B. Businesses often establish a petty cash fund to pay small unforeseen bills such as postage due deliveries. This fund is a cash fund that is subject to audit as part of the safeguard of assets (Internal Control Over Cash Disbursements).

5 Deposits in transit are added to the cash balance per books on bank . reconciliation. True A. False B. Deposits in transit are deposits the business knows are in route to the financial institution, but are not yet processed. Thus, they need to be added to the bank's

balance in the reconciliation process (Reconciling the Bank Reconciliation Procedure). 6 Avoiding paying bills too early is an effective cash management principle. . True A. False B. Paying bills no earlier than the due date including any discount period is a valid cash management technique as long as payments are not stretched to the point of injuring a company's credit (Basic Principles Of Cash Management). 7 The financing section of a cash budget shows expected repayment of borrowed . principle but does not include repayment of interest. True A. False B. The financing section of a cash budget shows expected repayment of borrowed funds plus interest (Cash Budget). 8.

Which of the following is not a principle of internal control? Segregation of duties A. Documentation procedures B. C. D.

Collusion between employees Bonding of employees

9. Computer programs that limit unauthorized access to certain files is an example of: human resource controls. A. B. C. D.

independent internal verification. documentation procedures. physical, mechanical, and electronic controls.

10. Obtaining insurance protection against dishonest employees is an example of: documentation procedures. A. bonding. B. establishing responsibility. C. D.

segregation of duties.

11. Reasonable assurance rests on the premise that: A. the costs of establishing controls should not exceed their expected

benefit. bonding will prevent employees from stealing. B. employees are basically honest people. C. D.

a system of internal controls will prevent errors.

12 When the cashier also keeps the books for a company, which internal control . principle is violated? Rotating employee duties A. Establishment of responsibility B. C. D. 13.

A bank would issue a credit memorandum to a depositor's for: an NSF check. A. interest earned. B. monthly service charges. C. D.

14.

Segregation of duties Documentation procedures

outstanding checks.

A bank would issue a debit memorandum to a depositor's for: interest earned. A. collection of a note receivable. B. C. D.

deposits in transit. monthly service charges.

15 Springer Company had outstanding checks totaling $4,500 on its September . bank reconciliation. In October, the company issued checks totaling $45,700. The October bank statement shows that checks totaling $39,800 cleared the bank. In addition, a check from one of Springer's customers in the amount of $500 was returned as NSF. The outstanding checks on the October bank reconciliation should total: $5,900. A. $9,900. B. C. D.

$10,400. $1,400.

16. Jones Company collected the following information to prepare its May bank reconciliation:

The adjusted cash balance per books on May 31 is: $5,700. A. $5,810. B. $6,210.

C.

$5,660.

D.

17 Barker Company collected the following information to prepare its November . bank reconciliation:

The cash balance per books, before adjustments to the book balance, is: $20,400. A. $13,585. B. $6,815. C. $27,815.

D. 18.

An adjusting entry is required for: outstanding checks. A. deposits in transit. B. C. D.

19.

bank errors. NSF checks.

For which of the following would an adjusting entry NOT be required? NSF checks. A. bk errors. B. C. D.

bank service charges deposits in transit

20.

Which of the following is NOT a basic principle of cash management? Keep inventory levels low. A. B. Grant customers as much time as they want to pay their receivables. Delay the payment of liabilities. C. D.

Invest idle cash.

21 The following information was taken from the Carson Company cash budget for . the month of April:

If the company has a policy of maintaining a minimum cash balance of $37,000, the amount the company would have to borrow is: $24,000. A. $8,000. B. C. D.

$16,000. $14,000.

22 The following credit sales are budgeted by Burt Company: .

In the past, the company collected 60% of its receivables in the month of sale, 30% in the month following the sale, and 7% in the second month following the sale. The budgeted collections from customers for the month of July is: $66,010. A. $65,200. B. C. D.

$140,710. $49,050.

23 Which is the journal entry the bank would prepare when a client company . makes a cash deposit in its bank ? Cash 100 A. s Receivable 100 Cash 100 B. Revenues 100 s Payable 100 C. Cash 100 Cash 100 D.

Funds on Deposit

100

24 Which of the following journal entries is the correct journal entry for the . holder when the bank submits a debit memorandum to the holder for a monthly service charge of $10? Cash 10 A. Bank Service Fee 10 Cash 10 B. Revenues 10 Miscellaneous Expense 10 C. Cash 10 Loss on Bank Transactions 10 D. Cash 10 25 From the four choices below, select the one correct statement. . A. Both deposits in transit and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation. B. Both deposits in transit and outstanding checks are added to the balance per the bank statement during the bank reconciliation. The deposits in transit are deducted from the balance per the bank C. statement and outstanding checks are added to the balance per the bank statement during the bank reconciliation. The deposits in transit are added to the balance per the bank statement D. and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation.

26 From the four choices below, select the one correct statement. . A. Internal auditors are company employees who evaluate on a continuous basis the effectiveness of the company's system of internal control. B. External auditors are company employees who evaluate on a continuous basis the effectiveness of the company's system of internal control. C. The public ants conducting annual audits are responsible for continuous evaluations of a company's system of internal control. D. Only large companies employ internal auditors and utilize a system of internal controls. 27.

Cash is reported on all of the following statements except: Income Statement. A. Statement of Cash Flows. B. C.

Balance Sheet.

D.

All of the above.

28. When is the petty cash fund replenished?

A. B.

At the end of an ing period. When there's not enough cash to cover future withdrawals.

C. When the internal auditor is coming to check the fund's management. Both a and b above. D.