Q: A company receives a bank statement showing a service charge of $25 that has not yet been recorded in the company's books. What is the correct journal entry?

$$ \text{Debit Service Expense} \ 25; \ \text{Credit Cash} \ 25 $$

Q: A company’s quick ratio is calculated as:

$$ \frac{\text{Cash} + \text{Marketable Securities} + \text{Accounts Receivable}}{\text{Current Liabilities}} $$

Q: Which of the following is a correct journal entry for a non-sufficient funds (NSF) check discovered during bank reconciliation?

$$ \text{Debit Accounts Receivable}; \ \text{Credit Cash} $$

Question 1

Which of the following best describes the 'opportunity' element in the fraud triangle?

Accepted Answer

A situation where weak internal controls make it possible to commit fraud without detection.

Question 2

A company manager intentionally overstates revenue and understates expenses to make the company appear more profitable to investors. This is an example of:

Accepted Answer

Fraudulent financial reporting

Question 3

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

Accepted Answer

Maximize shareholder dividends

Question 4

Under the Sarbanes-Oxley Act (SOX), which of the following is required of public companies?

Accepted Answer

They must maintain systems of internal controls adequate to prevent material misstatements in financial statements.

Question 5

Which internal control procedure is best illustrated by requiring that the person who authorizes payment of a bill is not the same person who writes the check?

Accepted Answer

Separation of duties

Question 6

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

Accepted Answer

$$ 	ext{Debit Service Expense} \ 25; \ 	ext{Credit Cash} \ 25 $$

Question 7

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

Accepted Answer

A certificate of deposit maturing in 2 months

Question 8

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

Accepted Answer

They can be circumvented by collusion among employees.

Question 9

A company’s bank reconciliation shows deposits in transit of $$2,000 and outstanding checks of 1$$,200. If the bank statement balance is $10,000, what is the adjusted bank balance?

Accepted Answer

$$ 10,000 + 2,000 - 1,200 = 10,800 $$

Question 10

Which of the following best describes the purpose of exception reporting in internal controls?

Accepted Answer

To identify and follow up on transactions that fall outside normal limits

Question 11

A company’s quick ratio is calculated as:

Accepted Answer

$$ \frac{	ext{Cash} + 	ext{Marketable Securities} + 	ext{Accounts Receivable}}{	ext{Current Liabilities}} $$

Question 12

Which of the following is a correct journal entry for a non-sufficient funds (NSF) check discovered during bank reconciliation?

Accepted Answer

$$ 	ext{Debit Accounts Receivable}; \ 	ext{Credit Cash} $$

Question 13

Which of the following is NOT a recommended internal control for e-commerce transactions?

Accepted Answer

Allowing all employees access to customer credit card information

Question 14

If a company’s cash receipts are not deposited daily, which internal control objective is most at risk?

Accepted Answer

Safeguarding assets

Question 15

Which of the following is a benefit of using a budget as an internal control tool?

Accepted Answer

It helps control the company’s day-to-day management activities and cash flow.

Question 16

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

Accepted Answer

$$ 5,000 + 800 - 1,200 = 4,600 $$

Question 17

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

Accepted Answer

Fidelity bond insurance policy

Question 18

Which of the following is a reason why internal controls cannot guarantee the prevention of fraud?

Accepted Answer

Management override and employee collusion can circumvent controls.

Question 19

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

Accepted Answer

To identify and explain differences between the bank statement and the company’s general ledger cash account.

Question 20

Which of the following is a correct formula for calculating the quick ratio?

Accepted Answer

$$ \frac{	ext{Cash} + 	ext{Marketable Securities} + 	ext{Accounts Receivable}}{	ext{Current Liabilities}} $$

Internal Controls, Fraud, and Cash Management in Financial Accounting

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