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Exam 4: Cash and Internal Controls

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Question 1

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After preparing a bank reconciliation,the collection of a note by the bank on a company's behalf would be recorded with a:

A) Credit to Notes Receivable.
B) Credit to Cash.
C) Debit to Notes Receivable.

D) A) and C)
E) A) and B)

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Question 2

Multiple Choice

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Which of the following would NOT be recorded as a cash sale?

A) Customer who pays with a check.
B) Customer who pays with a debit card.
C) Customer who pays with a credit card.
D) A customers who buys on account.

E) B) and D)
F) A) and D)

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Question 3

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Regarding a bank reconciliation,which one of the following is an item recorded by the company but not by the bank?

A company's ratio of cash to noncash assets is calculated as the total cash balance divided by all noncash assets.

Having an independent party assess each year the adequacy of the company's internal control procedures is an example of which detective control?

Keeping supplies in a locked room with access allowed only to authorized personnel is an example of which preventive control?

Companies often have a high ratio of cash to noncash assets when they consistently pay dividends.Dividends represent the return of cash to stockholders and therefore reduce the balance of cash.

An advantage of a high ratio of cash to noncash assets is that the company has funds to pay obligations as they become due.

The three elements present in every fraud are commonly referred to as the ___________.

Cash is typically reported as a current asset in the balance sheet.

Separation of duties occurs when two or more people act in coordination to circumvent internal controls.This is the act of collusion.

The internal control component of information and communication relates to the effectiveness of accurately measuring and communicating business transactions.

Checking actual outcome of individuals or processes against their expected outcome is an example of which detective control?

A company might hold a large amount of cash relative to noncash assets for which of the following reasons?

Under the provisions of the Sarbanes-Oxley Act,corporate executives:

Cash transactions that have been recorded by the company but not the bank include:

The statement of cash flows reports a company's cash inflows and cash outflows related to (1)operating activities, (2)investing activities,and (3)financing activities.

When a company pays for services received using a credit card,it should credit Accounts Payable.

The balance in the Colt Company's Cash account on August 31 was $19,700,before the bank reconciliation was prepared.After examining the August bank statement and items included with it,the company's accountant found: What is the amount of cash that should be reported in the balance sheet as of August 31? $\begin{array} { | l | r | } \hline \text { Checks outstanding } & \$ 4,300 \\\hline \text { NSF check } & 140 \\\hline \text { Note collected by bank for the Colt Company } & 1,200 \\\hline \text { Deposits outstanding } & 1,800 \\\hline \text { Bank service fees } & 60 \\\hline\end{array}$

The component of internal control that includes the formal procedures for reporting control deficiencies is: