Question 1

Which of the following best describes the 'Fraud Triangle' in the context of financial accounting?

Accepted Answer

It illustrates the three elements necessary for fraud to occur: opportunity, motive, and rationalization.

Question 2

A company discovers that an employee has been stealing inventory and falsifying records to cover up the theft. Which type of fraud does this scenario best illustrate?

Accepted Answer

Misappropriation of assets

Question 3

Which of the following is NOT one of the five objectives of an internal control system?

Accepted Answer

Maximize shareholder wealth

Question 4

A company separates the duties of handling cash, record keeping, and transaction approval. This is an example of which internal control procedure?

Accepted Answer

Separation of duties

Question 5

Which of the following is a limitation of internal controls?

Accepted Answer

They can be circumvented by collusion or management override.

Question 6

A company receives a bank statement showing a service charge of $25, which was not recorded in the company’s books. How should this be reflected in the bank reconciliation?

Accepted Answer

Subtract $25 from the book balance.

Question 7

Which of the following items would be added to the book balance during a bank reconciliation?

Accepted Answer

Bank collections

Question 8

A company’s bank statement shows an ending balance of $5,000. There are $1,200 in deposits in transit and $800 in outstanding checks. What is the adjusted bank balance?

Accepted Answer

$5,400 = $5,000 + $1,200 - $800$

Question 9

Which of the following is considered a cash equivalent on the balance sheet?

Accepted Answer

A certificate of deposit with a maturity of two months

Question 10

Encryption is used in accounting information systems primarily to:

Accepted Answer

Protect sensitive data from unauthorized access

Question 11

Which of the following best describes the purpose of a bank reconciliation?

Accepted Answer

To ensure that the company’s cash records match the bank’s records by explaining timing and error differences

Question 12

A company’s accounting department discovers that a check was recorded in the books as $510, but the actual amount paid was $150. What adjustment should be made during the bank reconciliation?

Accepted Answer

Add $360 to the book balance

Question 13

Which of the following is NOT a component of an internal control system?

Accepted Answer

Financial leverage

Question 14

A company’s cashier and accountant collude to steal cash and cover it up in the records. This is an example of:

Accepted Answer

A limitation of internal controls due to collusion

Question 15

Which of the following is a real-world example of a control procedure to safeguard assets?

Accepted Answer

Storing important documents in a fireproof vault

Question 16

A company’s bank reconciliation includes the following items: deposits in transit $2,000, outstanding checks $1,500, and a bank error (bank deducted $200 in error). If the bank statement shows a balance of $10,000, what is the adjusted bank balance?

Accepted Answer

$10,700 = $10,000 + $2,000 - $1,500 + $200$

Question 17

Which of the following is an example of a control over cash receipts by mail?

Accepted Answer

Separating the duties of opening mail, preparing deposit tickets, and recording receipts

Question 18

Which of the following would NOT be classified as a cash equivalent?

Accepted Answer

A six-month certificate of deposit purchased two months ago

Question 19

A company’s internal control system includes the use of firewalls. What is the primary purpose of this control?

Accepted Answer

To prevent unauthorized access to the company’s computer network

Question 20

Which of the following best describes the ethical implications of committing fraud in a business context?

Accepted Answer

Fraud is an unethical act that violates the rights of many for the temporary benefit of a few.

Chapter 4: Internal Control and Cash – Financial Accounting Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards