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 company assigns each cashier responsibility for their own cash drawer. This is an example of which control activity?

Accepted Answer

Assignment of responsibility

Question 3

Which limitation of internal control is best illustrated when two employees work together to bypass controls and commit fraud?

Accepted Answer

Collusion

Question 4

A company receives an electronic funds transfer (EFT) from a customer that was not previously recorded in the books. What journal entry should be made?

Accepted Answer

Debit Cash, Credit Accounts Receivable

Question 5

Which of the following is considered cash according to the general rule provided in the study materials?

Accepted Answer

A money order accepted for deposit by the bank

Question 6

When preparing a bank reconciliation, which item would be added to the balance per bank statement?

Accepted Answer

Deposits in transit

Question 7

A company discovers that a cheque for $890 was recorded as $980 in its books. What is the correct journal entry to fix this error?

Accepted Answer

Debit Cash $90, Credit Accounts Payable $90

Question 8

Which control activity is best described by the use of computer passwords and security cameras?

Accepted Answer

Physical controls

Question 9

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

Accepted Answer

As bank indebtedness under current liabilities

Question 10

Which of the following is a key principle of cash management to ensure a company has sufficient cash?

Accepted Answer

Increase the speed of receivables collection

Question 11

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

Accepted Answer

A postdated cheque received from a customer

Question 12

Which of the following is a reason why internal control can only provide reasonable assurance?

Accepted Answer

Human error and management override can occur

Question 13

Which of the following is an example of fraud as defined in the study materials?

Accepted Answer

Recording expenses as assets

Question 14

When reconciling the bank account, which of the following items would require a journal entry in the company's books?

Accepted Answer

Bank service charges

Question 15

Which control activity involves comparing two or more documents, such as performing a bank reconciliation?

Accepted Answer

Review and reconciliation

Question 16

A company receives a bank statement showing a service charge of $25 that was not recorded in the books. What is the correct journal entry?

Accepted Answer

Debit Bank Charges Expense $25, Credit Cash $25

Question 17

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

Accepted Answer

To reconcile the balance per the company's bank account with the cash balance per the general ledger

Question 18

If a company receives a cheque from a customer but does not deposit it until the next period, how is this treated in the bank reconciliation?

Accepted Answer

As a deposit in transit

Question 19

Which of the following is a control activity that helps prevent employees from both authorizing and recording transactions involving the same asset?

Accepted Answer

Segregation of duties

Question 20

A company has the following balances at year-end: $2,000 in cash, $5,000 in a savings account, and a $25,000 government treasury bill maturing in 2 months. What is the total amount reported as cash and cash equivalents?

Accepted Answer

$32,000

Chapter 7: Internal Control and Cash – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards