Q: A company receives an electronic funds transfer (EFT) from a customer that was not previously recorded. What is the correct journal entry?

$\text{Cash} \quad \text{Dr.} \\ \text{Accounts Receivable} \quad \text{Cr.}$

Question 1

Which of the following is NOT one of the five primary components of an effective internal control system?

Accepted Answer

Financial forecasting

Question 2

A company assigns one employee to authorize transactions and another to record them. Which control activity is being applied?

Accepted Answer

Segregation of duties

Question 3

Which of the following is a limitation of internal control systems?

Accepted Answer

They can be overridden by management

Question 4

A cashier is responsible for their own cash drawer. This is an example of which control activity?

Accepted Answer

Assignment of responsibility

Question 5

Which of the following is considered cash for financial reporting purposes?

Accepted Answer

A money order accepted by the bank

Question 6

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

Accepted Answer

To ensure the company’s cash balance matches the bank’s records

Question 7

A company’s bank statement shows a balance of $12,000. There are $2,000 in deposits in transit and $1,500 in outstanding cheques. What is the adjusted cash balance?

Accepted Answer

$12,000 + 2,000 - 1,500 = $12,500

Question 8

Which of the following would require a journal entry when preparing a bank reconciliation?

Accepted Answer

Bank service charges

Question 9

If a company records an expense as an asset, this is an example of:

Accepted Answer

A fraud misstatement

Question 10

Which of the following is a recommended cash management practice?

Accepted Answer

Deposit cash receipts into the bank daily

Question 11

A company’s books show a cash balance of $8,000. The bank statement shows $8,500. There is a $1,200 deposit in transit and $900 in outstanding cheques. What is the reconciled cash balance?

Accepted Answer

$8,500 + 1,200 - 900 = $8,800

Question 12

Which of the following is NOT a control activity over cash receipts?

Accepted Answer

Management override

Question 13

If a company’s cash is in a deficit at year-end, how should it be reported?

Accepted Answer

As bank indebtedness (current liability)

Question 14

Which of the following is an example of a physical control?

Accepted Answer

Storing undeposited cash in a safe

Question 15

Which of the following would NOT be considered a cash equivalent?

Accepted Answer

A 6-month certificate of deposit

Question 16

Which of the following is a reason why internal controls cannot provide absolute assurance?

Accepted Answer

They are subject to human error and collusion

Question 17

A company receives an electronic funds transfer (EFT) from a customer that was not previously recorded. What is the correct journal entry?

Accepted Answer

$	ext{Cash} \quad 	ext{Dr.} \ 	ext{Accounts Receivable} \quad 	ext{Cr.}$

Question 18

Which of the following is an example of a reconciling item per bank in a bank reconciliation?

Accepted Answer

Outstanding cheques

Question 19

Which of the following statements about bank reconciliation journal entries is correct?

Accepted Answer

Reconciling items per books must be journalized and posted

Question 20

A company’s cash receipts are not deposited daily and are handled by the same person who records them. Which internal control principle is being violated?

Accepted Answer

Segregation of duties

Chapter 7: Internal Control and Cash – Study Notes

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