ch 7

Question 1

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is

Answer 1

bank service charges.

Question 2

A company reports a debit balance in Cash Over and Short as a(n)

Answer 2

miscellaneous expense

Question 3

On a bank reconciliation, outstanding checks are

Answer 3

deducted from the bank balance.

Question 4

Internal control consists of all the related methods and measures adopted within an organization to safeguard assets, enhance the accuracy and reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations

T/F

Answer 4

true

Question 5

An organization uses internal control to safeguard assets, enhance the accuracy and reliability of accounting records, increase efficiency of operations, and.

Answer 5

ensure compliance with laws and regulations

Question 6

A disbursement system that uses wire, telephone, or computers to transfer cash balances from one location to another is called a(n)

Answer 6

electronic funds transfer system

Question 7

Which of the following is not a result of the Sarbanes-Oxley Act?

Answer 7

Companies must file financial statements with the Internal Revenue Service

Question 8

Control is most effective when two people are responsible for a given task.

T/F

Answer 8

false

Question 9

Which of the following statements is true under IFRS?

A.) IFRS defines cash as cash on hand and demand deposits.
B.) IFRS defines cash equivalents as short-term, highly liquid investments that are readily convertible to known amounts of cash.
C.) IFRS reports cash and cash equivalents in the statement of financial position.
D.) All of these answer choices are correct.

Answer 9

All of these answer choices are correct.

Question 10

The Sarbanes Oxley Act (SOX) internal control standards apply only to companies listed on the U.S. exchanges.

T/F

Answer 10

TRUE

Question 11

Cash equivalents include all of the following except

A.) Restricted cash.
B.) Money market funds.
C.) Commercial paper.
D.) U.S. Treasury bills.

Answer 11

Restricted cash.

Question 12

All of the following are classified as cash except

A.) restricted cash.
B.) checks.
C.) money orders.
D.) money on hand.

Answer 12

restricted cash

Question 13

Which of the following statements correctly describes the reporting of cash?

A,) Restricted cash funds cannot be reported as a current asset.
B.) Cash cannot be combined with cash equivalents.
C.) Restricted cash funds may be combined with Cash.
D.) Cash is listed first in the current assets section.

Answer 13

Cash is listed first in the current assets section.

Question 14

Which of the following items at November 30 is not cash or cash equivalent?

A.) Coins and currency.
B.) Money market funds.
C.) Money orders.
D.) Treasury bond

Answer 14

Treasury bond

Question 15

Restricted cash expected to be used within the next year should be

Answer 15

reported as a current asset

Question 16

Cash equivalents include each of the following except

A. Money market funds.
B. Petty cash.
C. U.S. Treasury bills.
D. Commercial paper.

Answer 16

Petty cash.

Question 17

Dewitt Company gathered the following information in preparing its bank reconciliation on May 31: Cash balance per books, May 31, $3,500; deposits in transit, $1,150; note and interest collected by the bank, $850; bank service charge, $20; outstanding checks, $2,500; NSF check, $170. The adjusted cash balance per books at May 31 is

Answer 17

Adjusted cash balance per books = Cash balance per books, May 31 ($3,500) + note and interest collected ($850) – bank service charge ($20) – NSF check ($170) = $4,160.

Question 18

On a bank reconciliation, collection of a note receivable by the bank is

Answer 18

added to the book balance

Question 19

If a check written and paid by the bank for $638 is incorrectly recorded on the company’s books at $683, the appropriate treatment on the bank reconciliation would be to

Answer 19

add $45 to the book’s balance

[In this situation, the company’s Cash account has been understated due to the error. Therefore, the difference between the amount recorded on the company’s books and the amount paid by the bank ($683 - $638 = $45) should be added to the book’s balance.]

Question 20

In a bank reconciliation, a bank service charge is

Answer 20

deducted from the book balance

Question 21

Journal entries are required by the depositor for all of the following except

A. an NSF check.
B. collection of a note receivable.
C. bank errors.
D. bank service charges.

Answer 21

bank errors.

Question 22

The lack of agreement between the bank balance and the book balance is due to time lags and errors.

T/F

Answer 22

TRUE

Question 23

All of the following would involve a debit memorandum except

A. interest earned.
B. a bank service charge.
C. the cost of printing checks.
D.an NSF check.

Answer 23

interest earned

Question 24

The party who issues a check is the

Answer 24

maker

Question 25

The control features of a bank account do not include A. having bank auditors verify the correctness of the balance per books. B. providing a double record of all bank transactions. C. minimizing the amount of cash that must be kept on hand. D. safeguarding cash by using a bank as a depository.

Answer 25

having bank auditors verify the correctness of the balance per books.

Question 26

A bank may issue a credit memorandum for

Answer 26

the collection of a note receivable by the bank for the depositor

Question 27

There are two parties to a check: the maker and the payee. T/F

Answer 27

FALSE

Question 28

A petty cash fund of $200 is replenished when the fund contains $5 in cash and receipts of $190. The entry to replenish the fund would

Answer 28

debit Cash Over and Short for $5. [The correct journal entry would be to debit the related expense accounts for the receipts, $190, debit Cash Over and Short, $5 ($195 - $190) and credit cash, $195]

Question 29

Making payments from a petty cash fund requires

Answer 29

no accounting entry to record a payment when it is made from petty cash.

Question 30

A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $3 in cash. In recording the check, the company should

Answer 30

debit Cash Over and Short for $3

Question 31

Companies use a petty cash fund to pay relatively small amounts. T/F

Answer 31

TRUE

Question 32

Printing check amounts by machine in indelible ink is an example of

Answer 32

physical controls

Question 33

The use of pre-numbered checks in disbursing cash is an application of the principle of

Answer 33

documentation procedures.

Question 34

Internal control over cash disbursements is more effective when companies pay by check, rather than by cash. T/F

Answer 34

TRUE

Question 35

Cash is the asset most susceptible to fraudulent activities. T/F

Answer 35

TRUE

Question 36

Having different individuals receive cash, record cash receipts, and hold the cash is an example of

Answer 36

segregation of duties

Question 37

Large companies often assign independent internal verification to the

Answer 37

internal auditors

Question 38

Controls that relate primarily to the safeguarding of assets are

Answer 38

physical controls

Question 39

The principles of internal control include all of the following except A. combining of duties. B. independent internal verification. C. physical controls. D. establishment of responsibility.

Answer 39

combining of duties

Question 40

Which of the following control activities is relevant when a company uses a computerized (rather than manual) accounting system? A. Establishment of responsibility B. Segregation of duties C. Independent internal verification D. All of these answer choices are correct

Answer 40

All of these answer choices are correct

Question 41

Physical controls do not include A. locked warehouses for inventories. B. safes and vaults to store cash. C. bank safety deposit boxes for important papers. D. independent bank reconciliations.

Answer 41

independent bank reconciliations.

Question 42

The principles of internal control do not include A. management responsibility. B. establishment of responsibility. C. independent internal verification. D. documentation procedures

Answer 42

management responsibility.

Question 43

The use of remittance advices for mail receipts is an example of

Answer 43

documentation procedures