Chapter 6 Questions

Question 1

An internal control system is used to do all of the following

Answer 1

protect assets
ensure reliable accounting
promote efficient operations
uphold company policies

Question 2

Sarbanes-Oxley Act requires each of the following:

Answer 2

effective internal control
auditors must evaluate internal controls
violators receive harsh penalties
auditor’s work is overseen by the PCAOB

Question 3

The work of one person acts as a check on another person to prevent fraud and errors.

Answer 3

Divide responsibilities

Question 4

Responsibility for a task should be clearly established and assigned to one person

Answer 4

Establish responsibilities

Question 5

Use of cash registers, time clocks and personal identification scanners to improve internal control.

Answer 5

Apply technological controls

Question 5

Use of detailed records to help prevent loss of assets.

Answer 5

Maintain adequate records

Question 6

Technology helps managers to monitor and control business activities and includes each of the following except less extensive testing of records. True or False?

Answer 6

True

Question 7

Employee has a low risk of getting caught committing fraud.

Answer 7

Opportunity

Question 7

Employees justifying fraudulent behavior.

Answer 7

Rationalization

Question 8

A person feels pressure to commit fraud.

Answer 8

Pressure

Question 8

A person feels pressure to commit fraud.

Answer 8

Pressure

Question 9

All of the following are examples of controls of cash except a person handling the cash is the same person who records receipt of that cash. True or False?

Answer 9

True

Question 10

Cash management strategies include maximizing other assets. True or False?

Answer 10

False

Question 11

The supervisor should compare the register transactions with the cash receipts report to make sure that both are correct. True or false?

Answer 11

True

Question 12

The listing of cash received via mail should be sent to each of the following individuals:

Answer 12

cashier
record-keeper
mail clerk

Question 13

Used by bank employees to verify signatures on checks.

Answer 13

Signature card

Question 14

Lists items such as currency and checks along with their dollar amounts.

Answer 14

Deposit ticket

Question 15

A transfer of cash from one party to another that does not involve a paper document.

Answer 15

Electronic funds transfer

Question 15

Signed by the depositor instructing the bank to pay a specified amount of money to a designated recipient.

Answer 15

Check

Question 16

Interest earned on a checking account is a deduction on a bank statement. True or False?

Answer 16

False

Question 17

Select the items below which must be adjusted to the book balance:

Answer 17

book error
interest earned on checking account
collections of accounts receivable by the bank

Question 18

Days’ sales uncollected is computed by:

Answer 18

dividing accounts receivable by net sales and multiplying by 365

Question 19

There is $500 in cash missing from a cash register drawer. Three salesclerks shared the cash register drawer, so the owner cannot determine who is at fault.

Answer 19

Establish responsibilities

Question 20

An employee stole thousands of dollars worth of equipment over many years. It took years for the company to discover the fraud because accounting records for equipment were rarely updated.

Answer 20

Maintain adequate records

Question 21

An employee requested merchandise be purchased, then approved the purchase request, and finally made payment to a fake supplier. The employee stole a considerable amount of money under this scheme.

Answer 21

Divide responsibility for related transactions

Question 22

Cash registers contain locked electronic files that keep records of each sale.

Answer 22

Apply technological controls

Question 23

The company divides responsibility for a transaction between multiple departments.

Answer 23

Divide responsibility for related transactions

Question 24

Each cashier is designated a specific cash drawer and is solely responsible for cash in that drawer.

Answer 24

Establish responsibilities

Question 25

The most important assets of the business are insured.

Answer 25

Insure assets and bond key employees

Question 26

Preprinted forms are used to reduce the chance of missing transaction details.

Answer 26

Maintain adequate records

Question 27

The company's internal auditors frequently assess the performance of internal controls.

Answer 27

Perform regular and independent reviews

Question 28

The owner does not use ID scanners to limit access to expensive merchandise. Instead, the owner argues they hire honest employees.

Answer 28

Weakness; Apply technological controls

Question 29

An employee cannot approve their own request for purchases of inventory.

Answer 29

Strength; Divide responsibility for related transactions

Question 30

Several salesclerks share the same cash drawer.

Answer 30

Weakness; Establish responsibilities

Question 30

Several salesclerks share the same cash drawer.

Answer 30

Weakness; Establish responsibilities

Question 31

Employees that handle easily transferable assets such as cash are bonded.

Answer 31

Strength; Insure assets and bond key employees

Question 32

The company devotes resources towards keeping accurate accounting records for machinery.

Answer 32

Strength; Maintain adequate records

Question 33

Cash receipts and cash payments are regularly planned and reviewed.

Answer 33

Good; Plan expenditures

Question 34

Bills are paid as soon as they are received.

Answer 34

Bad; Delay payment of liabilities

Question 35

Customers are offered discounts to pay early.

Answer 35

Good; Encourage collection of receivables

Question 36

Customers are offered discounts to pay early.

Answer 36

Good; Encourage collection of receivables

Question 37

Excess cash is put into short-term investments to earn extra income.

Answer 37

Good; Invest excess cash

Question 38

All equipment is purchased, even if it is infrequently used.

Answer 38

Bad; Keep only necessary assets

Question 39

One employee with many years of experience is solely in charge of opening cash receipts received by mail.

Answer 39

Weakness

Question 40

All sales transactions, even those for less than $1, are recorded on a cash register.

Answer 40

Strength

Question 41

Two employees are tasked with opening mail that contains cash receipts.

Answer 41

Strength

Question 42

Cash registers have a permanent, locked-in electronic record of each transaction.

Answer 42

Strength

Question 43

The clerk who has access to cash in the register cannot access the accounting records to change transaction details.

Answer 43

Strength

Question 44

A list of cash receipts by mail includes the sender's name, the dollar amount, and an explanation of why the money was sent.

Answer 44

Strength

Question 45

Payments over $100 are made by check.

Answer 45

Strength

Question 46

Requesting and receiving merchandise is handled by the same department.

Answer 46

Weakness

Question 47

Payments of less $100 are made through petty cash.

Answer 47

Strength

Question 48

Large amounts of cash are kept in a drawer to pay liabilities over $1,000.

Answer 48

Weakness

Question 49

Only authorized departments and individuals can incur liabilities.

Answer 49

Strength

Question 50

When the company runs out of checks, it pays liabilities with cash.

Answer 50

Weakness

Question 51

Are accounts receivable cash equivalents?

Answer 51

No

Question 52

Are checks cash equivalents?

Answer 52

Yes

Question 53

Are checks cash equivalents?

Answer 53

Yes

Question 54

What counts as a short-term investment?

Answer 54

With-in 3 months