Exam 2 Chapter 6

The main principles of internal control include which of the following: A. Establish responsibilities. B. Maintain minimal records. C. Use only computerized systems. D. Bond all employees. E. Require automated sales systems.

A good system of internal control: A. Urges adherence to prescribed managerial policies. B. Insures profitable operations. C. Eliminates the need for an audit. D. Requires the use of noncomputerized systems. E. Is not necessary if the company uses a computerized system.

A company's internal control system: A. Eliminates the risk of loss. B. Monitors and controls business activities. C. Eliminates human error. D. Eliminates the need for audits. E. Is not necessary in large companies.

When two clerks share the same cash register, which internal control principle is violated? A. Establish responsibilities B. Maintain adequate records C. Insure assets D. Bond key employees E. Apply technological controls

Prenumbered printed checks are an example of which internal control principle? A. Technological controls. B. Maintain adequate records. C. Perform regular and independent reviews. D. Establish responsibilities. E. Divide responsibility for related transactions.

The impact of technology on internal controls includes which of the following? A. Reduced processing errors. B. Elimination of the need for regular audits. C. Elimination of the need to bond employees. D. More efficient separation of duties. E. Elimination of fraud.

Which of the following is the most serious limitation of internal controls? A. Computer error B. Human fraud or human error C. Cost-benefit principle D. Cybercrime E. Management fraud

Which of the following are risks of e-commerce? A. Firewalls, fraud, and computer viruses. B. Encryption, stolen credit card numbers, and fraud. C. Stolen credit card numbers, computer viruses, and impersonation. D. Computer viruses, encryption, and stolen credit card numbers. E. Impersonation, encryption, and firewalls.

Cash, not including cash equivalents, includes: A. Postage stamps. B. Coins, currency, and checking accounts. C. IOUs. D. Two-year certificates of deposit. E. Money market funds.

Cash equivalents: A. Are short-term, highly liquid investments. B. Include six-month CDs. C. Include checking accounts. D. Are recorded in petty cash. E. Include money orders.

Cash equivalents: A. Include savings accounts. B. Include checking accounts. C. Are short-term investments sufficiently close to their maturity date that their value is not sensitive to interest rate changes. D. Include time deposits. E. Have no immediate value.

A check: A. Involves the writer, the signers, the cashier, and the bank. B. Involves the maker, the payee and the bank. C. Involves the maker and the payee. D. Involves the bookkeeper, the payee, and the bank. E. Involves the signer, the cashier, and the company.

A remittance advice is: A. An explanation for a payment by check. B. A bank statement. C. A voucher. D. An EFT. E. A canceled check.

For which item does a bank NOT issue a debit memorandum? A. To notify a depositor of all withdrawals through an ATM. B. To notify a depositor of a deduction to a depositor's account. C. To notify a depositor of a bounced check. D. To notify a depositor of periodic payments arranged in advance, by a depositor. E. To notify a depositor of a deposit to their account.

Why is it a matter of good internal control to deposit all cash receipts daily and make all payments for goods and services by check? A. When no paper documents are required, there is increased convenience and lower cost B. These actions control the access to cash and create an independent record of all cash activities. C. These procedures result in a more extensive testing of a company's records. D. The Sarbanes-Oxley Act requires these steps be taken by each publicly traded company. E. These procedures allow management to determine if projected cash receipts and disbursements came in over or under budgeted amounts.

The number of days' sales uncollected: A. Is used to evaluate the liquidity of receivables. B. Is calculated by dividing accounts receivable by sales. C. Measures a company's ability to pay its bills on time. D. Measures a company's debt to income. E. Is calculated by dividing sales by accounts receivable.

The days' sales uncollected ratio is used to: A. Measure how many days of sales remain until the end of the year. B. Determine the number of days that have passed without collecting on accounts receivable. C. Identify the likelihood of collecting sales on account. D. Estimate how much time is likely to pass before the amount of accounts receivable is collected. E. Measure the amount of layaway sales for a period.

The number of days' sales uncollected is calculated by: A. Dividing accounts receivable by net sales. B. Dividing accounts receivable by net sales and then multiplying by 365. C. Dividing net sales by accounts receivable. D. Dividing net sales by accounts receivable and then multiplying by 365. E. Multiplying net sales by accounts receivable and dividing the result by 365.

A company had net sales of $31,500 and ending accounts receivable of $2,700 for the current period. Its days' sales uncollected is equal to: A. 11.7 days B. 23.3 days C. 31.3 days D. 42.5 days E. 46.6 days

Mattel had net sales of $4,235 million and ending accounts receivable of $775 million. Days' sales uncollected is equal to: A. 298 days B. 66.8 days C. 19.4 days D. 81.8 days E. 65.2 days

In year 1 a company had net sales of $50,000 and ending accounts receivable of $2,000. In year 2 this company had net sales of $80,000 and ending accounts receivable of $4,000. Use days' sales uncollected to determine which of the following statements is true:. A. Days' sales uncollected in year 1 is 14.6 days and in year 2 is 18.25 days. This measure indicates that the company's liquidity is declining. B. Days' sales uncollected in year 1 is 14.6 days and in year 2 is 18.25 days. This measure indicates that the company's liquidity is improving. C. Days' sales uncollected in year 1 is 25 days and in year 2 is 20 days. This measure indicates that the company's liquidity is declining. D. Days' sales uncollected in year 1 is 25 days and in year 2 is 20 days. This measure indicates that the company's liquidity is improving. E. Days' sales uncollected in year 1 is .04 days and in year 2 is .05 days. This measure indicates that the company's liquidity is improving.

An income statement account that is used to record cash overages and cash shortages arising from omitted petty cash receipts and from errors in making change is called the: A. Cash Lost account. B. Bank Reconciliation account. C. Petty Cash account. D. Cash Over and Short account. E. Cash Receivable account.

A set of procedures and approvals that is designed to control cash disbursements and the acceptance of obligations is referred to as a(n): A. Internal cash system B. Petty cash system C. Cash disbursement system D. Voucher system E. Cash control system

The Cash Over and Short account: A. Is used to record a credit balance in the cash account. B. Is an income statement account used for recording the income effects of cash overages and cash shortages from errors in making change and from missing petty cash receipts. C. Is not necessary in a computerized accounting system. D. Can never have a debit balance. E. Can never have a credit balance.

A voucher is an internal file that: A. Is prepared after an invoice is received. B. Is used as a substitute for an invoice. C. Is used to accumulate information needed to control cash disbursements and to ensure that transactions are properly recorded. D. Takes the place of a bank check. E. Is prepared before the company orders goods.

Which of the following procedures would weaken the control over cash receipts that arrive through the mail? A. After the mail is opened, a list (in triplicate) of the money received is prepared with a record of the sender's name, the amount, and an explanation of why the money is sent. B. The bank reconciliation is prepared by a person who does not handle cash or record cash receipts. C. For safety, only one person should open the mail and that person should immediately deposit the cash received in the bank. D. The cashier should not also be the record keeper who records the amounts received in the accounting records. E. All of the above are good internal control procedures over cash receipts that arrive through the mail.

At the end of the day, the cash register's record shows $1,000 but the count of cash in the register is $1,035. The proper entry to record this excess includes a: A. Credit to Cash for $35. B. Debit to Cash for $35. C. Credit to Cash Over and Short for $35. D. Debit to Cash Over and Short for $35. E. Debit to Petty Cash for $35.

The entry necessary to establish a petty cash fund should include: A. A debit to Cash and a credit to Petty Cash. B. A debit to Cash and a credit to Cash Over and Short. C. A debit to Petty Cash and a credit to Cash. D. A debit to Petty Cash and a credit to Accounts Receivable. E. A debit to Cash and a credit to Petty Cash Over and Short.

The entry to record reimbursement of the petty cash fund for postage expense should include: A. A debit to Postage Expense. B. A debit to Petty Cash. C. A debit to Cash. D. A debit to Cash Short and Over. E. A debit to Supplies.

When a petty cash fund is in use: A. Expenses paid with petty cash are recorded when the fund is replenished. B. Petty Cash is debited when funds are replenished. C. Petty Cash is credited when funds are replenished. D. Expenses are not recorded. E. Cash is debited when funds are replenished.

In reimbursing the petty cash fund: A. Cash is debited. B. Petty Cash is credited. C. Petty Cash is debited. D. Appropriate expense accounts are debited. E. No expenses are recorded.

Assume that the custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include: A. A debit to Cash for $377.50. B. A credit to Cash Over and Short for $5.00. C. A debit to Petty Cash for $382.50. D. A credit to Cash for $387.50. E. A debit to Cash for $387.50.

A company plans to decrease a $200 petty cash fund to $75. The current balance in the account includes $45 in receipts and $165 in currency. The entry to reduce the fund will include a: A. Debit to Cash Short and Over for $10. B. Debit to Cash for $90. C. Debit to Miscellaneous Expenses for $35. D. Credit to Petty Cash for $165. E. Credit to Cash for $90.

A company had $43 missing from petty cash which was not accounted for by petty cash receipts. The correct procedure is to: A. Debit Cash Over and Short for $43. B. Credit Cash Over and Short for $43. C. Debit Petty Cash for $43. D. Credit Petty Cash for $43. E. Credit Cash for $43.

An analysis that explains any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a (n): A. Internal audit. B. Bank reconciliation. C. Bank audit. D. Trial reconciliation. E. Analysis of debits and credits.

On a bank reconciliation, an unrecorded debit memorandum for printing checks is: A. Noted as a memorandum only. B. Added to the book balance of cash. C. Deducted from the book balance of cash. D. Added to the bank balance of cash. E. Deducted from the bank balance of cash.

Outstanding checks refer to checks that have been: A. Written, recorded, sent to payees, and received and paid by the bank. B. Written and not yet recorded in the company books. C. Held as blank checks. D. Written, recorded on the company books, sent to the customer, supplier, or creditor but not yet paid by the bank. E. Issued by the bank.

Which of the following statements best describes how GAAP and IFRS treat cash? A. Accounting definitions for cash are similar for U.S. GAAP and IFRS. B. IFRS are more strict about what is considered cash than GAAP. C. GAAP is more strict about what is considered cash than IFRS. D. IFRS requires a cash balance of at least 10% of total assets; IFRS requires a cash balance of at least 5% of total assets. E. GAAP requires anything other than coins and bills in hand to be classified as cash equivalents while IFRS classifies coins and bills as cash equivalents.

A check that was outstanding on last period's bank reconciliation was not included with the canceled checks returned by the bank this period. As a result, in preparing this period's reconciliation, the amount of this check should be: A. Added to the book balance of cash. B. Deducted from the book balance of cash. C. Added to the bank balance of cash. D. Deducted from the bank balance of cash. E. Ignored in preparing the period's bank reconciliation.

A deposit in transit on last period's bank reconciliation is shown as a deposit on the bank statement this period. As a result, in preparing this period's reconciliation, the amount of this deposit should be: A. Added to the book balance of cash. B. Deducted from the book balance of cash. C. Added to the bank balance of cash. D. Deducted from the bank balance of cash. E. Not included as a reconciling item.

A company made a bank deposit on September 30 that did not appear on the bank statement dated September 30. In preparing the September 30 bank reconciliation, the company should: A. Deduct the deposit from the bank statement balance. B. Send the bank a debit memorandum. C. Deduct the deposit from the September 30 book balance and add it to the October 1 book balance. D. Add the deposit to the book balance of cash. E. Add the deposit to the bank statement balance.

A company wrote a check on September 30 that did not appear on the bank statement dated September 30. In preparing the September 30 bank reconciliation, the company should: A. Deduct the check from the bank statement balance. B. Send the bank a credit memorandum C. Deduct the check from the September 30 book balance and add it to the October 1 book balance. D. Add the check to the book balance of cash. E. Add the check to the bank statement balance.

In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 4239 for November's rent was correctly written and drawn for $3,790 but was erroneously entered in the accounting records as $7,390. When reconciling the November bank statement, the company should: A. Deduct $3,600 from the book balance of cash. B. Add $3,700 to the bank statement balance. C. Add $7,390 to the book balance of cash. D. Deduct $3,600 from the bank statement balance. E. Add 3,600 to the book balance of cash.

In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 4239 for November's rent was correctly written and drawn for $7,390 but was erroneously entered in the accounting records as $3,790. When reconciling the November bank statement, the company should: A. Deduct $3,600 from the book balance of cash. B. Add $3,600 to the bank statement balance. C. Add $7,390 to the book balance of cash. D. Deduct $3,600 from the bank statement balance. E. Add $3,600 to the book balance of cash.

In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 2889 for December's utilities was correctly written and drawn for $790 but was erroneously entered in the accounting records as $970. The journal entry to adjust the books for the bank reconciliation would include which of the following for this situation? A. $180 decrease to Cash and a $180 decrease to Utility Expense. B. $180 increase to Cash and a $180 decrease to Utility Expense. C. $20 decrease to Cash and a $20 decrease to Utility Expense. D. $20 increase to Cash and a $120 decrease to Utility Expense. E. $970 increase to Cash.

In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 2889 for December's utilities was correctly written and drawn for $970 but was erroneously entered in the accounting records as $790. The journal entry to adjust the books for the bank reconciliation would include which of the following for this situation? A. $180 decrease to Cash and a $180 decrease to Utility Expense. B. $180 increase to Cash and a $180 increase to Utility Expense. C. $180 decrease to Cash and a $180 increase to Utility Expense. D. $180 increase to Cash and a $120 decrease to Utility Expense. E. $970 increase to Cash and a $790 decrease to Utility Expense.

A seller of goods or services, which is usually a manufacturer or wholesaler, is known as a: A. Vendor B. Payee C. Vendee D. Creditor E. Debtor

The internal document prepared by a department manager that informs the purchasing department of its needs is the: A. Purchase requisition B. Purchase order C. Invoice D. Receiving report E. Invoice approval

The document that the purchasing department prepares and sends to the vendor to place an order is the: A. Purchase requisition B. Purchase order C. Invoice D. Receiving report E. Invoice approval

The document that is an itemized statement of goods prepared by a vendor listing the customer's name, items sold, sales prices, and terms of the sale is the: A. Purchase requisition B. Purchase order C. Invoice D. Receiving report E. Invoice approval

The internal document that is prepared to notify the appropriate persons that ordered goods have been received and describes the quantities and condition of the goods is the A. Purchase requisition B. Purchase order C. Invoice D. Receiving report E. Invoice approval

The document, also known as the check authorization, that is a checklist of steps necessary for approving an invoice for approval and payments is the: A. Purchase requisition B. Purchase order C. Invoice D. Receiving report E. Invoice approval

Which of the following statements is true regarding the documents in a voucher system? A. All voucher systems are the same. B. Recording a purchase is initiated by an invoice approval. C. A well-designed voucher system will allow department managers to place orders directly with suppliers for control purposes. D. A voucher system is most commonly used in very small companies to make up for the lack of other internal controls. E. A well designed voucher system will eliminate all fraud and error.

Triple Company's accountant made an entry that included the following items: debit postage expense $12.42, debit office supplies expense $27.33, credit cash over/short $2.19. If the original amount in petty cash is $320, how much was the credit to cash for the reimbursement? A. $320.00 B. $202.44 C. $37.56 D. $39.75 E. $41.94

Triple Company's accountant made an entry that included the following items: debit postage expense $12.42, debit office supplies expense $27.33, credit cash over/short $2.19. If the original amount in petty cash is $320, how much is in petty cash before the reimbursement? A. $320.00 B. $282.44 C. $37.56 D. $39.75 E. $41.94

Triple Company's accountant made an entry that included the following items: debit postage expense $12.42, debit office supplies expense $27.33, debit cash over/short $2.19. If the original amount in petty cash is $320, how much was the credit to cash for the reimbursement? A. $320.00 B. $202.44 C. $37.56 D. $39.75 E. $41.94

Triple Company's accountant made an entry that included the following items: debit postage expense $12.42, debit office supplies expense $27.33, debit cash over/short $2.19. If the original amount in petty cash is $320, how much is in petty cash before the reimbursement? A. $320.00 B. $202.44 C. $37.56 D. $275.87 E. $278.06

What is the net method of recording purchases? A. A purchase is originally recorded at its full amount with any cash discount taken recorded as a reduction to inventory at a later date. B. A purchase is originally recorded at its full amount less any available cash discount. C. A purchase is originally recorded at its full amount plus any available cash discount. D. A purchase is originally recorded at its full amount with any cash discount taken recorded as an increase to inventory at a later date. E. A purchase is originally recorded to a purchase discounts lost account with any cash discount taken recorded as a reduction to inventory at a later date.

The Discounts Lost account: A. Is used with the gross method of recording purchases to highlight the value of purchase discounts taken. B. Is used with the gross method of recording purchases to highlight the value of purchase discounts available but not taken. C. Is used to note situations where the accounting department has lost or misplaced paperwork relating to inventory purchases. D. Is used with the net method of recording purchases to highlight the value of purchase discounts taken. E. Is used with the net method of recording purchases to highlight the value of purchase discounts available but not taken.