Ch 7 Internal Controls

Payment by check is an important internal control over cash payments because

• a) the check must be signed by an authorized official.

• b) before signing the check, the official reviews the invoice supporting the payment

• c) both a and b

• d) none of the above

The petty cash fund had an initial imprest balance of $100. It currently has $20 and petty cash tickets totaling $75 for office supplies. The entry to replenish the fund would contain

• a credit to Cash Short & Over for $5.

• a credit to Petty Cash for $80.

• a debit to Cash Short & Over for $5.

• a debit to Petty Cash for $80.

The document that explains all the differences between the company’s cash records and

the bank’s figures is called a(n)

• bank collection.

• bank statement.

• electronic fund transfer.

• bank reconciliation.

The Sarbanes-Oxley Act

• created the Private Company Accounting Board.

• allows accountants to audit and to perform any type of consulting work for a public

  company.

• stipulates that violators of the act may serve 20 years in prison for securities fraud.

• requires that an outside auditor must evaluate a public company’s internal controls.

Encryption

• avoids the need for separation of duties.

• creates firewalls to protect data.

• cannot be broken by hackers

• rearranges messages by a special process.

Separation of duties is important for internal control of

• a) cash receipts

• b) cash payments

• c) neither a nor b

• d) both a and b

In reconciling a bank statement, the bank balance is $1,500, and the checkbook balance is $2,105. Which of the following is the most probable reason for the checkbook balance being larger than the bank balance?

• The bank has not cleared certain outstanding checks.

• The bank has added interest revenue to the account balance.

• A deposit in transit was made at the end of the month.

• The bank received an EFT from a customer.

A check for which a maker's bank account has inadequate money to pay the check is known as a(n) ________.

• nonsufficient funds check

• outstanding check

• restrictive check

• canceled check

Which one of the following is true of the bank reconciliation?

• It should not be prepared by an employee who handles cash transactions.

• It is prepared in place of the cash ledger.

• It is a financial statement.

• It guarantees that no errors have been made.

A check was written by a business for $507 but was recorded in the journal as $705. How would this error be included on the bank reconciliation?

• a deduction on the bank side

• an addition on the book side

• an addition on the bank side

• a deduction on the book side