Q: A company discovers a bank service charge of $50 that was not previously recorded. What journal entry should be made?

$\nService Charge Expense \quad 50 \n Cash \quad 50$

Q: Which of the following is the correct formula for calculating the adjusted cash balance per bank in a bank reconciliation?

$\text{Bank balance} + \text{Deposits in transit} - \text{Outstanding cheques} \pm \text{Bank errors}$

Question 1

Which of the following is NOT one of the five primary components of a good internal control system?

Accepted Answer

Financial forecasting

Question 2

A cashier is responsible for both handling cash and recording cash transactions. Which internal control principle is being violated?

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 company receives an electronic funds transfer (EFT) from a customer that was not previously recorded. How should this item be treated in the bank reconciliation?

Accepted Answer

Added to the book balance

Question 5

Which of the following is considered cash according to the general rule?

Accepted Answer

A money order accepted for deposit by the bank

Question 6

A company’s bank statement shows a balance of $14,000. Outstanding cheques total $3,000, and deposits in transit are $2,000. What is the adjusted cash balance per bank?

Accepted Answer

$13,000

Question 7

Which control activity is best illustrated by the use of security cameras and safes?

Accepted Answer

Physical controls

Question 8

If a company records an expense as an asset, which type of fraud is this?

Accepted Answer

Misstatement of financial information

Question 9

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

Accepted Answer

Outstanding cheques

Question 10

A company discovers a bank service charge of $50 that was not previously recorded. What journal entry should be made?

Accepted Answer

$
Service Charge Expense \quad 50 
 Cash \quad 50$

Question 11

Which of the following would NOT be included in the cash and cash equivalents section of the statement of financial position?

Accepted Answer

Bank overdraft at year-end

Question 12

Which control activity is demonstrated when surprise cash counts are performed by internal audit?

Accepted Answer

Review and reconciliation

Question 13

A company’s books show a cash balance of $8,000. The bank statement shows $8,500. There is a deposit in transit of $1,200 and outstanding cheques of $700. What is the adjusted cash balance?

Accepted Answer

$9,000

Question 14

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

Accepted Answer

Human error and collusion can occur

Question 15

Which of the following is the correct formula for calculating the adjusted cash balance per bank in a bank reconciliation?

Accepted Answer

$	ext{Bank balance} + 	ext{Deposits in transit} - 	ext{Outstanding cheques} \pm 	ext{Bank errors}$

Question 16

Which of the following is an example of a control activity related to documentation?

Accepted Answer

Shipping documents indicating goods have been shipped

Question 17

If a company has a cash deficit at year-end, how is this reported on the statement of financial position?

Accepted Answer

As bank indebtedness under current liabilities

Question 18

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 19

Which of the following is NOT a recommended cash management principle?

Accepted Answer

Keep inventory levels high

Question 20

When preparing a bank reconciliation, which items require journal entries in the company’s books?

Accepted Answer

EFT payments and service charges

Chapter 7: Internal Control and Cash – Financial Accounting Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards