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| 1 | |
A properly designed and effective internal control system provides guarantees against losses and errors in accounting. |
| | A) | True |
| | B) | False |
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| 2 | |
The Sarbanes-Oxley Act requires the managers and auditors of public companies to document and certify the effectiveness of the system of internal control. |
| | A) | True |
| | B) | False |
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| 3 | |
A person who has custody of an asset should maintain that asset's accounting records. |
| | A) | True |
| | B) | False |
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| 4 | |
Short-term assets are a form of cash equivalents. |
| | A) | True |
| | B) | False |
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| 5 | |
A check involves three parties: the maker who signs the check, the payee who is the recipient, and the bank (or payer) on which the check is drawn. |
| | A) | True |
| | B) | False |
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| 6 | |
The day's sales uncollected ratio measures how quickly a company can convert its accounts receivable into cash. |
| | A) | A: True |
| | B) | B: False |
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| 7 | |
When there is a difference between recorded cash sales and the count of cash in the cash register, the difference is recorded in an account called petty cash. |
| | A) | True |
| | B) | False |
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| 8 | |
A journal entry is made each time a petty cash disbursement is made. |
| | A) | True |
| | B) | False |
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| 9 | |
The reimbursement of a petty cash fund will require a credit to the Petty Cash account for the amount of the reimbursement. |
| | A) | True |
| | B) | False |
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| 10 | |
When a bank reduces the depositor's checking account for service charges or other items, the bank sends the depositor a credit memorandum. |
| | A) | True |
| | B) | False |
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| 11 | |
An analysis prepared to explain the difference between the balance of the checking account of the depositor and the checking account balance shown on the bank statement is called the bank reconciliation. |
| | A) | True |
| | B) | False |
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| 12 | |
Deposits in transit are a common reconciling item in the computation of the adjusted book balance of cash on a bank reconciliation. |
| | A) | True |
| | B) | False |
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| 13 | |
It is not possible for the bank statement to show a larger ending cash balance than the ending cash balance reported on the balance sheet. |
| | A) | True |
| | B) | False |
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| 14 | |
When preparing the bank reconciliation, it is discovered that a check written in the amount of $97.00 for payment of the company’s telephone bill was recorded in error in the depositor’s accounting records at $79.00. This error will require a journal entry to correct the balance of the Cash account. |
| | A) | True |
| | B) | False |
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| 15 | |
If the bank has recorded a deposit of $1,112 in error as a deposit of $1,121, the bank should be notified and a journal entry is required on the books of the depositor. |
| | A) | True |
| | B) | False |
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| 16 | |
Which of the following is a purpose of an internal control system? |
| | A) | Protect assets |
| | B) | Ensure reliable accounting |
| | C) | Promote efficient operations |
| | D) | Urge adherence to company policies |
| | E) | All of the above |
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| 17 | |
If two sales clerks share the same cash register, which principle of internal control has been compromised (or violated)? |
| | A) | Establishing responsibilities |
| | B) | Separate recordkeeping from custody of assets |
| | C) | Maintain adequate records |
| | D) | All of the above |
| | E) | None of the above |
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| 18 | |
Management's ability to monitor and control business operations is greatly improved with fully automated accounting system because of which of the following? |
| | A) | Separation of duties does not have to be maintained. |
| | B) | More hard evidence in the form of written forms and documents are used. |
| | C) | Less testing of records is possible. |
| | D) | Data entry errors are always discovered in the early stages. |
| | E) | Technology allows quicker access to databases and information. |
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| 19 | |
Which of the following is an example of internal controls that could be put in place to help safeguard the risk of loss due to increased e-commerce transactions? |
| | A) | Firewalls |
| | B) | Encryption |
| | C) | Exploitation |
| | D) | A and B above |
| | E) | None of the above |
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| 20 | |
Which of the following would be a benefit of having employees bonded? |
| | A) | Bonding reduces the risk of loss. |
| | B) | Bonding discourages theft. |
| | C) | The bonding company is unlikely to be sympathetic with an employee involved in theft. |
| | D) | All of the above. |
| | E) | None of the above. |
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| 21 | |
Which of the following is not a proper control procedure relating to cash? |
| | A) | Custody of cash is separated from the recordkeeping of cash. |
| | B) | Cash receipts are deposited on a weekly basis in a bank. |
| | C) | Two people are assigned the task of opening cash receipts in mail. |
| | D) | All expenditures are made by check. |
| | E) | A voucher system is used for approving and paying cash disbursements. |
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| 22 | |
On the December 31 financial statements, the following balances were reported: Cash $40,000, Accounts Payable $ 12,000, Accounts Receivable $ 17,000, and Sales $160,000. What is the amount of days' sales uncollected? |
| | A) | 3.87 days |
| | B) | 38.78 days |
| | C) | 9.28 days |
| | D) | 126.41 days |
| | E) | None of the above |
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| 23 | |
At the end of the day, the cashier: (1) counts the money in the cash drawer, (2) compares the cash count with the recorded cash sales for the day, and (3) makes notations of differences (that is, cash overages or shortages) on a special report that is forwarded, along with the cash, to the accounting department. How should this procedure be described? |
| | A) | It is an acceptable procedure, adhering to internal control principles. |
| | B) | The procedure is designed to provide adequate internal control over cash. |
| | C) | It is an unacceptable procedure, not following internal control principles. |
| | D) | The procedure follows the broad principle of internal control of insuring assets. |
| | E) | None of the above. |
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| 24 | |
Which of the following would require the Petty Cash account to be debited? |
| | A) | The petty cash fund is short by $3.50. |
| | B) | The petty cash fund is over by $4.50. |
| | C) | The petty cash account is being decreased. |
| | D) | The petty cash account is being created. |
| | E) | None of the above. |
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| 25 | |
Which of the following would be an appropriate use for petty cash? |
| | A) | Postage |
| | B) | Purchase of a computer |
| | C) | Loan to an employee |
| | D) | Advance on a payroll check |
| | E) | All of the above |
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| 26 | |
The company's accountant recorded a bank deposit at $460, but the bank recorded the deposit at its correct amount of $640. (The accountant made the error.) How should this error be treated on the bank reconciliation? |
| | A) | Addition to the book balance |
| | B) | Deduction from the book balance |
| | C) | Addition to the bank statement balance |
| | D) | Deduction from the bank statement balance |
| | E) | None of the above |
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| 27 | |
How should a deposit in transit be treated on a bank reconciliation? |
| | A) | Addition to the book balance |
| | B) | Deduction from the book balance |
| | C) | Addition to the bank statement balance |
| | D) | Deduction from the bank statement balance |
| | E) | None of the above |
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| 28 | |
The bank debited the company's bank account for check printing fees. How should this item be treated on the bank reconciliation? |
| | A) | Addition to the book balance |
| | B) | Deduction from the book balance |
| | C) | Addition to the bank statement balance |
| | D) | Deduction from the bank statement balance |
| | E) | None of the above |
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| 29 | |
Which of the following items would not be shown as an adjustment to the book balance of cash on a bank reconciliation? |
| | A) | A customer check that is returned as non-sufficient (NSF) by the bank |
| | B) | A credit on the bank statement for interest earned |
| | C) | A credit on the bank statement for collections by the bank of a note less the related service fee |
| | D) | Outstanding checks |
| | E) | Errors made by the depositor |
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| 30 | |
What is the proper journal entry to adjust the cash account for a check returned as NSF by the bank? |
| | A) | Debit Cash; Credit Accounts Receivable |
| | B) | Debit Bad Debt Expense; Credit Cash |
| | C) | Debit Accounts Receivable; Credit Cash |
| | D) | Debit Accounts Payable; Credit Cash |
| | E) | Debit Miscellaneous Expense; Credit Cash |
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