Chapter 8-Sarbanes-Oxley, Internal Control, and Cash PDF

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Chapter 8--Sarbanes-Oxley, Internal Control, and Cash Student: ___________________________________________________________________________ 1. The Sarbanes-Oxley Act of 2002 was passed by Congress due to the public outcry after the financial scandals of the early 2000s. True False

2. Sarbanes-Oxley’s purpose is to improve financial reporting. True False

3. There are two internal control objectives and they are to ensure accurate financial reports, and ensure compliance with applicable laws. True False

4. Sarbanes -Oxley requires companies to maintain strong and effective internal controls and thus prevent fraud and misleading financial statements. True False

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. True False

6. The control environment in an internal control structure is the attitude and awareness of internal control by all employees. True False

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. True False

8. Internal control is enhanced by separating the control of a transaction from the record-keeping function. True False

9. A backlog in recording transactions is an example of a warning sign from the accounting system. True False

10. Money orders are considered cash. True False

11. A customer's check received in settlement of an account receivable is considered cash. True 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. True False

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. True False

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. True False

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. True False

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. True False

17. An example of good internal controls over cash payments is the taking of all cash discounts offered. True False

18. A voucher is a form on which is recorded pertinent data about a liability and the particulars of its payment. True False

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. True False

20. A voucher system is an example of an internal control procedure over cash payments. True False

21. A voucher is a written authorization to make a cash payment. True False

22. A payment system that uses computerized electronic impulses to effect a cash transaction is called electronic funds transfer (EFT). True False

23. A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice being paid. True False

24. The bank often informs the company of bank service charges by including a credit memo with the monthly bank statement. True False

25. Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on the bank's records. True False

26. Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash. True False

27. For efficiency of operations and better control over cash, a company should maintain only one bank account. True False

28. In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank statement. True False

29. In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank statement. True False

30. 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. True False

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. True False

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. True False

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. True False

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. True False

35. All bank memos reported on the bank reconciliation require entries in the company's accounts. True False

36. The bank reconciliation is an important part of the system of internal controls. True False

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. True False

38. The bank reconciles its statement to the company's records. True False

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. True False

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. True False

41. A check outstanding for two consecutive months will appear only on the first month's bank reconciliation. True False

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. True False

43. A business that requires all cash payments be made by check can not use a petty cash system. True False

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. True False

45. Expenditures from a petty cash fund are documented by a petty cash receipt. True False

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. True False

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. True False

48. Most companies who have several bank accounts, petty cash, and cash on hand, would list each separately on the balance sheet. True False

49. A petty cash fund is used to pay relatively large amounts. True False

50. The petty cash fund eliminates the need for a bank checking account. True False

51. A compensating balance occurs when a bank may require a company to maintain a maximum cash balance. True False

52. Cash equivalents are short -term investments that will be converted to cash within 120 days. True False

53. Money market accounts, commercial paper, and United States Treasury Notes are examples of cash equivalents. True False

54. The doomsday ratio includes both cash and cash equivalents in the numerator. True False

55. 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

56. Which one of the following below 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 measurers D. personnel policies

57. When a firm uses internal auditors, it is adhering to which one of the following internal control elements? A. risk assessment B. monitoring C. proofs and security measures D. separating responsibilities for related operations

58. The objectives of internal control are to A. control the internal organization of the accounting department personnel and equipment B. provide reasonable assurance that operations are managed to achieve goals, 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

59. Which one of the following below 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

60. Internal control does not consist of policies and procedures that A. protect assets from misuse B. aid management in directing operations toward achieving business goals C. guarantee the company will not go bankrupt D. ensure that business information is accurate

61. A firm's internal control environment is not influenced by A. management's operating style B. organizational structure C. personnel policies D. monitoring policies

62. An element of internal control is A. risk assessment B. journals C. subsidiary ledgers D. controlling accounts

63. A necessary element of internal control is A. database B. systems design C. systems analysis D. information and communication

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? A. internal auditors B. independent accountants C. Board of Director's audit committee D. Board of Trustees

65. Which of the following should not be considered cash by an accountant? A. money orders B. bank checking accounts C. postage stamps D. travelers' checks

66. The cash account in the company's ledger is a(n) A. asset with a debit balance B. asset with a credit balance C. liability with a debit balance D. liability with a credit balance

67. The notification accompanying a check that indicates the specific invoice being paid is called a A. remittance advice B. voucher C. debit memo D. credit memo

68. The debit balance in Cash Short and Over at the end of an accounting period is reported as A. an expense on the income statement B. income on the income statement C. an asset on the balance sheet D. a liability on the balance sheet

69. An example of a preventive control is A. a single person handles the responsibilities for operations, custody of assets, and accounting B. separation of the Purchasing Department and Accounting Department personnel C. bonding employees who handle cash D. accepting payment in currency only

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 A. accounting controls B. cash controls C. preventive controls D. detective controls

71. A special form on which is recorded pertinent data about a liability and the particulars of its payment is called a(n) A. invoice B. voucher C. debit memo D. remittance advice

72. EFT A. means Efficient Funds Transfer B. can process certain cash transactions at less cost than by using the mail C. makes it easier to document purchase and sale transactions D. means Effective Funds Transfer

73. A voucher A. is received from customers to explain the purpose of a payment B. is normally prepared in the Accounting Department C. system is used to control cash receipts D. system is an internal control procedure to verify that the assets in the ledger are the ones the company owns

74. A voucher is usually supported by A. a supplier's invoice B. a purchase order C. a receiving report D. all of the above

75. The reconciliation of the cash register tape with the cash in the register is an example of A. other controls. B. independent internal verification. C. establishment of responsibility. D. segregation of duties.

76. Which of the following is not an internal control activity for cash? A. The number of persons who have access to cash should be limited. B. All cash receipts should be recorded promptly. C. The functions of record keeping and maintaining custody of cash should be combined. D. Surprise audits of cash on hand should be made occasionally.

77. The term cash includes A. coins, currency (paper money), checks B. money orders, and money on deposit that is available for unrestricted withdrawal C. short-term receivables D. both a and b

78. On the bank's accounting records, customers' accounts are normally shown as A. debit balances B. expenses C. an asset D. a liability

79. Credit memos from the bank A. decrease a bank customer's account B. are used to show a bank service charge C. show that a company has deposited a customer's NSF check D. show the bank has collected a note receivable for the customer

80. A bank statement A. is a credit reference letter written by the company's bank. B. lets a company know the financial position of the bank as of a certain date. C. is a bill from the bank for services rendered. D. shows the activity that increased or decreased the company's account balance.

81. Which one of the following would not cause a bank to debit a company's account? A. Bank service charge B. Collection of a note receivable C. Checks marked NSF D. Wiring of funds to other locations

82. There are three parties to a check. The drawer is A. a written document signed by the company B. is the one who signs the check ordering payment by the bank C. the bank on which the check is drawn D. the party to whom payment is to be made

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 A. deposited checks returned for insufficient funds B. a promissory note left for collection C. a service charge D. notification that a customer's check for $375 was recorded by the company as $735 on the deposit ticket

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 A. deducted from the balance per company's records B. deducted from the balance per bank statement C. added to the balance per bank statement D. added to the balance per company's records

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 A. signature card B. deposit ticket C. checkbook D. bank card

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) A. addition to the balance per the company's records B. addition to the balance per the bank statement C. deduction from the balance per the bank statement D. deduction from the balance per the company's records

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? A. debit Accounts Payable; credit Cash B. debit Cash; credit Accounts Receivable C. debit Cash; credit Accounts Payable D. debit Accounts Receivable; credit Cash

88. A bank reconciliation should be prepared periodically because A. the company's records and the bank's records are in agreement B. the bank has not recorded all of its transactions C. any differences between the company's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected D. the bank must make sure that its records are correct

89. The bank reconciliation A. should be prepared by an employee who records cash transactions B. is part of the internal control system C. is for information purposes only D. is sent to the bank for verification

90. Journal entries based on the bank reconciliation are required in the company's accounts for A. outstanding checks B. deposits in transit C. bank errors D. book errors

91. Accompanying the bank statement was a debit memo for bank service charges. On the bank reconciliation, the item is A. a deduction from the balance per company's records B. an addition to the balance per bank statement C. a deduction from the balance per bank statement D. an addition to the balance per company's records

92. Accompanying the bank statement was a debit memo for bank service charges. What entry is required in the company's accounts? A. debit Miscellaneous Administrative Expense; credit Cash B. debit Cash; credit Other Income C. debit Cash; credit Accounts Payable D. debit Accounts Payable; credit Cash

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) A. deduction from the balance per the company's records B. addition to the balance per the bank statement C. deduction from the balance per the bank statement D. addition to the balance per the company's records

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? A. debit Accounts Payable; credit Cash B. debit Cash; credit Accounts Receivable C. debit Cash; credit Accounts Payable D. debit Accounts Receivable; credit Cash

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) A. deduction from the balance per company's records B. addition to the balance per bank statement C. deduction from the balance per bank statement D. addition to the balance per company's records

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? A. debit Sales; credit Cash B. debit Cash; credit Accounts Receivable C. debit Cash; credit Sales D. debit Accounts Receivable; credit Cash

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) A. deduction from the balance per company's records B. addition to the balance per bank statement C. deduction from the balance per bank statement D. addition to the balance per company's records

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? A. debit Notes Receivable; credit Cash B. debit Cash; credit Miscellaneous Income C. debit Cash; credit Notes Receivable D. debit Accounts Receivable; credit Cash

99. The amount of deposits in transit is included on the bank reconciliation as a(n) A. deduction from the balance per the company's books B. deduction from the balance per bank statement C. addition to the balance per bank statement D. addition to the balance per company books

100. The amount of the outstanding checks is included on the bank reconciliation as a(n) A. ded...