Question 1

What is the concept behind separation of duties in establishing internal controls?

Accepted Answer

A)  The company's financial accountant should not share information with the company's tax accountant.
B)  Duties of middle-level managers should be clearly separated from those of top executives.
C)  Employee fraud is less likely to occur when access to assets and access to accounting records are separated.D) B) and C)
E) A) and C)

Question 2

Operating cash flows would exclude:

Accepted Answer

A)  Payment of employee salaries.
B)  Receipt of cash from customers.
C)  Payment of dividends.D) None of the above
E) All of the above

Question 3

A company's cash is reported in two financial statements-income statement and statement of cash flows.Cash is reported in the balance sheet and in the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 4

Investing activities include transactions designed to raise cash or finance the business.These are financing activities.

Accepted Answer

A) True 
 B)False

Question 5

Managers of the company act as stewards or caretakers of the company's assets.

Accepted Answer

A) True 
 B)False

Question 6

Only transactions involving cash affect a company's cash flows.

Accepted Answer

A) True 
 B)False

Question 7

A common example of restricted cash includes cash set aside by the company for the specific purpose of:

Accepted Answer

A)  Repaying debt in the future.
B)  Purchasing equipment in the future.
C)  Making investments in the future.
D)  All of the other answers represent examples of restricted cash.E) All of the above
F) A) and C)

Question 8

The statement of cash flows reports cash flows from the activities of:

Accepted Answer

A)  Operating,purchasing,and investing.
B)  Borrowing,paying,and investing.
C)  Financing,investing,and operating.D) B) and C)
E) All of the above

Question 9

Which of the following is correct regarding a petty cash fund?

Accepted Answer

A)  Petty cash fund represents cash on hand at the business for quick access.
B)  Petty cash fund is used for minor purposes.
C)  When cash from this fund is taken out,it should be replaced with a voucher.
D)  All of the answers are correct regarding a petty cash fund.E) A) and B)
F) None of the above

Question 10

Separation of duties refers to:

Accepted Answer

A)  Making each manager personally responsible for his/her department.
B)  Keeping functions across different departments separate.
C)  Preventing top management and lower-level employees from interacting.
D)  Individuals who have physical responsibility for assets should not also have access to accounting records.E) A) and D)
F) A) and B)

Question 11

The control environment refers to the overall top-to-bottom attitude of the company with respect to internal controls.

Accepted Answer

A) True 
 B)False

Question 12

Under the provisions of the Sarbanes-Oxley Act,auditors must do which of the following?

Accepted Answer

A)  Provide nonaudit services for their clients.
B)  Audit public companies whose chief executives worked for the audit firm in the preceding year.
C)  Be hired by company management.
D)  Maintain working papers for at least seven years following an audit.E) B) and D)
F) C) and D)

Question 13

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

Accepted Answer

A)  Periodically check amounts shown in the debit card and credit card statements against purchase receipts.
B)  The employee verifying the accuracy of the debit card and credit card statements should not also be the employee responsible for actual purchases.
C)  Set maximum purchase limits on debit cards and credit cards.
D)  Employees responsible for making cash disbursements should also be in charge of cash receipts.E) B) and D)
F) B) and C)

Question 14

The amount of cash reported in a company's balance sheet includes currency,coins,and balances in savings and checking accounts,as well as items acceptable for deposit in these accounts,such as checks received from customers.

Accepted Answer

A) True 
 B)False

Question 15

The amount of cash reported in a company's balance sheet includes the balance of accounts receivable if cash collection is highly likely in the near future.Accounts receivable is a separately reported asset from cash.

Accepted Answer

A) True 
 B)False

Question 16

Internal control is a company's plan to (1)improve the accuracy and reliability of accounting information and (2)safeguard the company's assets.

Accepted Answer

A) True 
 B)False

Question 17

Cash flows from investing do not include cash flows from:

Accepted Answer

A)  Lending.
B)  The sale of equipment.
C)  Borrowing.D) A) and C)
E) All of the above

Question 18

McGregor Company allows customers to pay with credit cards.The credit card company charges McGregor 3% of the sale.When a customer uses a credit card to pay McGregor $200 for services provided,McGregor would:

Accepted Answer

A)  Debit Cash for $200.
B)  Credit Service Revenue for $194.
C)  Debit Service Fee Expense for $6.D) A) and C)
E) All of the above

Question 19

Cash may not include:

Accepted Answer

A)  Foreign currency.
B)  Money orders.
C)  Accounts receivable.D) None of the above
E) All of the above

Question 20

A potential risk of a company with a high ratio of cash to noncash assets is:

Accepted Answer

A)  Creditors are less likely to lend money to the company.
B)  Management may not foresee any growth opportunities.
C)  The company likely will not be able to pay dividends in the near future.D) A) and B)
E) None of the above

Exam 4: Cash and Internal Controls

A potential risk of a company with a high ratio of cash to noncash assets is:

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Cash flows from investing do not include cash flows from:

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Managers of the company act as stewards or caretakers of the company's assets.

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McGregor Company allows customers to pay with credit cards.The credit card company charges McGregor 3% of the sale.When a customer uses a credit card to pay McGregor $200 for services provided,McGregor would:

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Internal control is a company's plan to (1)improve the accuracy and reliability of accounting information and (2)safeguard the company's assets.

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Operating cash flows would exclude:

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Separation of duties refers to:

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A company's cash is reported in two financial statements-income statement and statement of cash flows.Cash is reported in the balance sheet and in the statement of cash flows.

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Under the provisions of the Sarbanes-Oxley Act,auditors must do which of the following?

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Only transactions involving cash affect a company's cash flows.

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Which of the following is correct regarding a petty cash fund?

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What is the concept behind separation of duties in establishing internal controls?

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Cash may not include:

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The amount of cash reported in a company's balance sheet includes currency,coins,and balances in savings and checking accounts,as well as items acceptable for deposit in these accounts,such as checks received from customers.

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Investing activities include transactions designed to raise cash or finance the business.These are financing activities.

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A common example of restricted cash includes cash set aside by the company for the specific purpose of:

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The control environment refers to the overall top-to-bottom attitude of the company with respect to internal controls.

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The amount of cash reported in a company's balance sheet includes the balance of accounts receivable if cash collection is highly likely in the near future.Accounts receivable is a separately reported asset from cash.

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

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The statement of cash flows reports cash flows from the activities of:

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