Question 1

Which of the following best describes the primary purpose of internal controls within an organization?

Accepted Answer

To safeguard company assets and prevent fraud, waste, and inefficiency.

Question 2

According to the Association of Certified Fraud Examiners, what percentage of revenue does a typical organization lose to fraud each year?

Accepted Answer

5%

Question 3

Which of the following is an example of misappropriation of assets?

Accepted Answer

An employee steals cash from the company and falsifies records to cover it up.

Question 4

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

Accepted Answer

Increase market share

Question 5

Which component of internal control involves the overall attitude of management and the board of directors about the importance of controls?

Accepted Answer

Control environment

Question 6

A bank reconciliation is prepared to:

Accepted Answer

Resolve differences between the bank statement and the company's cash records.

Question 7

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

Accepted Answer

Deposits in transit

Question 8

Which of the following would require a journal entry on the book side of a bank reconciliation?

Accepted Answer

Bank service charges

Question 9

A company’s bank statement shows an ending balance of $$5,000. There are 800 in $$deposits in transit and $600 in outstanding checks. What is the adjusted bank balance?

Accepted Answer

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

Question 10

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

Accepted Answer

A 3-month certificate of deposit

Question 11

If a company’s accountant accidentally records a $$175 check as 100$$, what adjustment is needed during the bank reconciliation?

Accepted Answer

Subtract $75 from the book balance

Question 12

Which of the following is a credit memorandum on a bank statement?

Accepted Answer

Bank collection of a note receivable

Question 13

A company’s cash T-account shows a balance of $$3,856. The bank statement shows 4$$,610. There is a deposit in transit of $$445, outstanding checks of 120$$, and a bank error of $20 (wrongly debited). What is the adjusted bank balance?

Accepted Answer

$$4,935 = 4$$,610 + $$445 - 120$$ + $$20$$

Question 14

Which of the following is NOT included in the calculation of 'Cash and Cash Equivalents' on the balance sheet?

Accepted Answer

Postage stamps

Question 15

Which of the following best explains why a company should separate duties among employees for cash receipts?

Accepted Answer

To reduce the risk of errors and fraud by ensuring no single employee controls all aspects of a cash transaction.

Question 16

Which of the following would be subtracted from the book balance during a bank reconciliation?

Accepted Answer

NSF checks

Question 17

A company receives an EFT payment from a customer for $97 that has not yet been recorded. What journal entry should the company make?

Accepted Answer

Debit Cash $$97; Credit Revenue 97$$

Question 18

Which of the following is a likely consequence of failing to implement effective internal controls over cash?

Accepted Answer

Increased risk of embezzlement

Question 19

Which of the following is the correct formula for calculating the adjusted book balance during a bank reconciliation?

Accepted Answer

$$	ext{Adjusted Book Balance} = 	ext{Ending Book Balance} + 	ext{Credit Memos} - 	ext{Debit Memos} \pm 	ext{Book Errors}$$

Question 20

Which of the following would NOT require a journal entry after preparing a bank reconciliation?

Accepted Answer

Deposits in transit

Internal Control and Cash Management: Study Notes for Financial Accounting

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