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Exam 4: Cash and Internal Controls

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Question 51

True/False

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Management needs to monitor the internal control system,just like any other system.Any control deficiencies spotted by employees should be reported immediately to management.

A) True
B) False

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Question 52

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Section 404 of the Sarbanes-Oxley Act requires that a company's management document and assess the effectiveness of all internal control processes that could affect financial reporting.Auditors are prohibited from providing most nonaudit services,such as consulting,to their clients by the Sarbanes-Oxley Act.

A) True
B) False

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Question 53

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What is the primary purpose of a bank reconciliation?

Which of the following is NOT a design feature of effective internal controls?

Checks outstanding are checks the company has written that have not been subtracted from the bank's record of the company's balance.

The following data were obtained from the bank statement and from the process of reconciling it: Bank service charges = $20 Deposit outstanding = $150 Interest earned on the bank account = $10 Checks outstanding = $400 Which items should be deducted from and added to the bank balance in completing the reconciliation?

The term commonly used to refer to short-term investments that have a maturity date no longer than three months from the date of purchase is:

Cash equivalents refer to:

Occupational fraud:

Differences in the company's cash balance and the bank's cash balance occur because of either timing differences or errors.

Which of the following items would cause the balance of cash in the bank statement not to equal the balance of cash in the accounting records?

At the time a $400 petty cash fund is being replenished,the company's accountant finds vouchers totaling $350 and petty cash of $50.The vouchers include: postage,$100;business lunches,$150;delivery fees,$75;and office supplies,$25.Which of the following is not recorded when recognizing expenditures from the petty cash fund?

An example of a bank error that causes the company's balance and bank's balance of cash to differ is the purchase of supplies with a check.This is an example of a timing difference.

A company's cash balance is reported in which two financial statements?

The components of internal control do not directly include:

Which element of the fraud triangle do companies have the greatest ability to eliminate?

Below are trends in operation cash flows for three companies.Based on an analysis of operating risk,which company's management is likely motivated to have the largest ratio of cash to noncash Company 1 Company 2 Company 3 assets? $\begin{array} { | l | r | r | r | r | } \hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Total } \\\hline \text { Company 1 } & \$ 100,000 & \$ 150,000 & 50,000 & \$ 300,000 \\\hline \text { Company 2 } & 100,000 & 100,000 & 100,000 & 300,000 \\\hline \text { Company 3 } & 90,000 & 100,000 & 110,000 & 300,000 \\\hline\end{array}$

Companies should set maximum purchase limits on debit cards and credit cards as part of internal controls.

Which of the following would NOT represent good controls over cash receipts?

The petty cash fund should have just enough cash to make minor expenditures over a reasonable period (such as a week or a month).