Cash Fraud Control – Test Bank | 10th

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Student name:__________

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) Managers use internal control systems to prevent avoidable losses, plan operations, and monitor company and employee performance.

⊚ true
⊚ false

2) The use of internal controls provides a guarantee against losses due to operating activities.

⊚ true
⊚ false

3) Maintaining adequate records is a principle of internal control.

⊚ true
⊚ false

4) Assigning responsibility for the same task to multiple people (to ensure duplication of work) is a principle of internal control.

⊚ true
⊚ false

5) Cash registers, time clocks, and ID scanners are examples of devices that can improve internal control.

⊚ true
⊚ false

6) An internal control system consists of the policies and procedures companies use to protect assets, ensure reliable accounting, promote efficient operations, and uphold company policies.

⊚ true
⊚ false

7) Insuring assets and requiring all accounting personnel to have CPA licenses are two principles of internal control.

⊚ true
⊚ false

8) Bonding employees encourages theft because employees know the bonding company will not pursue reported theft.

⊚ true
⊚ false

9) According to good internal control policies, a person who controlsor has access to an assetmust also have access to that asset's accounting records.

⊚ true
⊚ false

10) Technologically advanced accounting systems rarely need monitoring for errors because computers always process transactions correctly.

⊚ true
⊚ false

11) Internal control in technologically advanced accounting systems depends less on the design and operation of the information system and more on the analysis of its resulting documents.

⊚ true
⊚ false

12) Internal controls have limitations from (1) human error or fraud and (2) the cost-benefit constraint.

⊚ true
⊚ false

13) To collude means that two or more people agree in secret to commit fraud.

⊚ true
⊚ false

14) Separation of duties involves dividing responsibility for a transaction between two or more individuals or departments.

⊚ true
⊚ false

15) The Sarbanes-Oxley Act (SOX) requires managers and auditors of companies whose stock is traded on an exchange to document and verify internal controls.

⊚ true
⊚ false

16) Harsh penalties exist for violators of the Sarbanes-Oxley Act (SOX) – sentences up to 25 years in prison with fines.

⊚ true
⊚ false

17) The fraud triangle shows three factors that push a person to commit fraud: Opportunity, collusion, and rationalization.

⊚ true
⊚ false

18) Cash equivalents consist of short-term and long-term investment assets.

⊚ true
⊚ false

19) Liquidity refers to a company's ability to safeguard its assets from theft.

⊚ true
⊚ false

20) Money orders, cashier's checks, and certified checks are all examples of cash.

⊚ true
⊚ false

21) Basic bank services such as bank accounts, bank deposits, and checking contribute to the control of cash.

⊚ true
⊚ false

22) The payee is the person who signs a check, authorizing its payment.

⊚ true
⊚ false

23) Electronic funds transfers (EFTs) are decreasingly used by companies due to the inconvenience and high cost.

⊚ true
⊚ false

24) Canceled checks are checks the bank has paid and deducted from the customer's account.

⊚ true
⊚ false

25) A check involves 3 parties: a maker who signs the check, a payee who is the recipient, and a bank (or payer) on which the check is drawn.

⊚ true
⊚ false

26) Signature cards, deposit tickets, checks, and bank statements are all examples of internal control devices for banking activities.

⊚ true
⊚ false

27) On a bank statement, deposits are listed as credits because the bank increases its liability to the depositor when the deposit is made.

⊚ true
⊚ false

28) The days' sales uncollected ratio measures a company's ability to manage its debt.

⊚ true
⊚ false

29) The days' sales uncollected ratio measures how quickly a company can convert its accounts receivable into cash.

⊚ true
⊚ false

30) When evaluating the days' sales uncollected ratio, generally the higher the receivables balance, the better the ratio.

⊚ true
⊚ false

31) Internal control of cash receipts ensures that all cash received is properly recorded and deposited.

⊚ true
⊚ false

32) A voucher system is a set of procedures and approvals designed to control cash payments and the acceptance of liabilities.

⊚ true
⊚ false

33) After the petty cash fund is established, the Petty Cash account is not debited or credited again unless the amount of the fund is changed.

⊚ true
⊚ false

34) If the Cash Over and Short account has a credit balance at the end of the period, the amount is reported as miscellaneous revenue.

⊚ true
⊚ false

35) The clerk who has access to the cash in the cash register should also have access to its accounting records (the register tape or file).

⊚ true
⊚ false

36) A voucher system's control over cash payments begins when a company incurs a liability that will result in cash payment.

⊚ true
⊚ false

37) A voucher system establishes procedures for verifying, approving, and recording liabilities for cash payment.

⊚ true
⊚ false

38) Assigning purchasing, receiving, and paying for merchandise to one department or individual is a way to streamline a voucher system.

⊚ true
⊚ false

39) A voucher is an external document used to accumulate information to control cash receipts and to ensure that a transaction is properly recorded.

⊚ true
⊚ false

40) A voucher system should be applied to all payments, except those using petty cash.

⊚ true
⊚ false

41) A debit balance in the Cash Over and Short account reflects an expense and is reported on the income statement.

⊚ true
⊚ false

42) The Petty Cash account is a separate bank account used for small amounts.

⊚ true
⊚ false

43) Since petty cash is concerned with such small amounts of cash, it is not necessary to document all transactions with a petty cash receipt.

⊚ true
⊚ false

44) Petty cash reimbursement requires a journal entry that involves a debit to the appropriate expenses and a credit to Cash.

⊚ true
⊚ false

45) The petty cash fund is reimbursed when it is nearing zero and at the end of the accounting period.

⊚ true
⊚ false

46) The entry to increase the balance in petty cash from $50 to $75 would include a credit to Petty Cash of $25.

⊚ true
⊚ false

47) A bank reconciliation explains any differences between the checking account balance in the depositor's records and the balance on the bank statement.

⊚ true
⊚ false

48) Outstanding checks are checks the bank has paid and deducted from the customer's account during the month.

⊚ true
⊚ false

49) Deposits in transit are deposits made and recorded in the depositor’s books, but not yet listed on the bank statement.

⊚ true
⊚ false

50) Electronic funds transfer (EFT) is the electronic transfer of cash from one party to another.

⊚ true
⊚ false

51) After preparing a bank reconciliation, adjustments must be made for items reconciling the book balance.

⊚ true
⊚ false

52) Outstanding checks, deposits in transit, deductions for bank fees, additions for interest, and errors are all factors that can cause the bank statement balance for a checking account to be different from the company's checking account balance.

⊚ true
⊚ false

53) Outstanding checks, deposits in transit, and bank service charges are added to the beginning balance of the bank statement to determine the adjusted bank balance.

⊚ true
⊚ false

54) A department manager informs the purchasing department of its needs by preparing and signing a purchase requisition which lists the merchandise requested to be purchased.

⊚ true
⊚ false

55) An invoice is an itemized statement of goods prepared by the customer, listing the customer's name, items sold, sales prices, and terms of sale.

⊚ true
⊚ false

56) Approved vouchers are recorded in a journal called the voucher register.

⊚ true
⊚ false

57) A receiving report is a document used within a company to notify the appropriate persons that ordered goods have been received and to describe the quantities and condition of the goods.

⊚ true
⊚ false

58) When a voucher system is used, an invoice approval is not needed as long as the purchase is evidenced by an invoice and purchase order.

⊚ true
⊚ false

59) In order to streamline the purchasing process, department managers should place orders directly with suppliers.

⊚ true
⊚ false

60) A purchase order is a document the purchasing department uses to place an order with a vendor.

⊚ true
⊚ false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.
61) Which of the following is not accomplished with an internal control system?

A) Protect assets.
B) Ensure reliable accounting.
C) Guarantee a return to investors.
D) Uphold company policies.
E) Promote efficient operations.

62) Managers place a high priority on internal control systems because the systems assist managers in all of the following except:

A) Promoting efficient operations.
B) Protecting assets.
C) Upholding company policies.
D) Ensuring reliable accounting.
E) Assuring that no loss will occur.

63) The principles of internal control include:

A) Separate recordkeeping from custody of assets.
B) Maintain minimal records.
C) Use only computerized systems.
D) Bond all employees.
E) Require automated sales systems.

64) Which of the following is not a principle of internal control?

A) Apply technological controls.
B) Maintaining security by having one person track and record assets.
C) Perform regular and independent reviews.
D) Separate recordkeeping from custody of assets.
E) Divide responsibilities for related transactions.

65) Managers use an internal control system:

A) To monitor and control business activities.
B) To ensure profitable operations.
C) To eliminate the need for an audit.
D) To guarantee a return to investors.
E) Only if the company uses a computerized system.

66) A company's internal control system:

A) Eliminates the company's risk of loss.
B) Monitors company and employee performance.
C) Eliminates human error.
D) Eliminates the need for audits.
E) Eliminates the need for managers' certification of controls.

67) Two clerks sharing the same cash register is a violation of which internal control principle?

A) Establish responsibilities.
B) Maintain adequate records.
C) Insure assets.
D) Bond key employees.
E) Apply technological controls.

68) Which internal control principle prescribes the use of pre-numbered sales slips?

A) Technological controls.
B) Maintain adequate records.
C) Perform regular and independent reviews.
D) Establish responsibilities.
E) Divide responsibility for related transactions.

69) The impact of technology on internal controls includes:

A) Reduced processing errors.
B) Elimination of the need for regular audits.
C) Elimination of the need to bond employees.
D) Elimination of separation of duties.
E) Elimination of fraud.

70) All of the following are limitations of internal control policies and procedures except for:

A) Human error.
B) Human fraud.
C) Cost-benefit constraint.
D) Collusion.
E) Establishing responsibilities.

71) Internal control systems are:

A) Developed by the Securities and Exchange Commission for public companies.
B) Developed by the Small Business Administration for non-public companies.
C) Developed by the Internal Revenue Service for all U.S. companies.
D) Required by Sarbanes-Oxley (SOX) to be documented and verified if the company's stock is traded on an exchange (a public company).
E) Required only if a company plans to engage in interstate commerce.

72) Cash and cash equivalents includes:

A) Postage stamps.
B) Customer checks, cashier checks, certified checks, and money orders.
C) Accounts payable.
D) Two-year certificates of deposit.
E) Accounts receivable.

73) Cash equivalents:

A) Are short-term, highly liquid investment assets.
B) Include 6-month certificates of deposit.
C) Include checking accounts.
D) Are recorded in petty cash.
E) Include money orders.

74) Cash equivalents:

A) Include savings accounts.
B) Include checking accounts.
C) Are readily convertible to a known cash amount.
D) Include time deposits.
E) Have no immediate value.

75) Which of the following pertaining to cash equivalents is false?

A) They are readily convertible to a known cash amount.
B) They must usually be within three months of their due date.
C) They are close enough to their due date so that their market value will not greatly change.
D) They include short-term U.S. treasury bills.
E) They are more liquid than cash.

76) The following information is available for Birch Company at December 31:

Based on this information, Birch Company should report Cash and Cash Equivalents on December 31 of:

A) $41,116
B) $38,501
C) $39,536
D) $54,901
E) $43,533

77) The following information is available for Birch Company at December 31:

Based on this information, Birch Company should report Cash and Cash Equivalents on December 31 of:

A) $41,345
B) $29,420
C) $31,345
D) $39,420
E) $38,770

78) The following information is available for Fenton Manufacturing Company at June 30:

Based on this information, Fenton Manufacturing Company should report Cash and Cash Equivalents on June 30 of:

A) $23,152
B) $23,240
C) $23,802
D) $19,402
E) $22,145

79) The following information is available for Fenton Manufacturing Company at June 30:

Based on this information, Fenton Manufacturing Company should report Cash and Cash Equivalents on June 30 of:

A) $28,495
B) $29,286
C) $23,286
D) $12,095
E) $22,495

80) The following information is available for Montrose Company at December 31:

Based on this information, the determine the amount reported as Cash and Cash Equivalents on December 31.

A) $30,830
B) $36,830
C) $35,190
D) $34,940
E) $24,940

81) Basic bank services do not include:

A) Bank accounts.
B) Bank deposits.
C) Checking.
D) Electronic funds transfer.
E) Petty cash management.

82) The three parties involved with a check are:

A) The writer, the cashier, and the bank (payer).
B) The maker, the payee, and the bank (payer).
C) The maker, the manager, and the payee.
D) The bookkeeper, the payee, and the bank (payer).
E) The signer, the cashier, and the company.

83) Which of the following statements about an electronic funds transfer (EFT) is not true?

A) EFT are checks written by the depositor, subtracted on the depositor’s books, and sent to the payee but not yet turned in for payment at the bank statement date.
B) Companies are increasingly using EFT because of its convenience and low cost.
C) Payroll, rent, utilities, insurance, and interest payments are usually done by EFT.
D) EFT is the electronic transfer of cash from one party to another.
E) Cash receipts by EFT are listed with deposits and other additions.

84) A bank statement provided by the bank includes:

A) A list of outstanding checks.
B) A list of petty cash amounts.
C) The beginning and the ending account balance.
D) A listing of deposits in transit.
E) A reconciliation to the depositor cash account.

85) A bank does not reduce the account of the depositor for which of the following?

A) All withdrawals through an ATM.
B) A fee assessed to the depositor's account.
C) An uncollectible check.
D) Periodic payments arranged in advance, by a depositor.
E) A deposit to their account.

86) Preparing a bank reconciliation on a monthly basis is an example of:

A) Establishing responsibility.
B) Separation of duties.
C) Protecting assets by proving the accuracy of cash records.
D) A technological control.
E) Poor internal control.

87) The number of days' sales uncollected:

A) Is used to measure how quickly a company can convert its accounts receivable into cash.
B) Is calculated by multiplying accounts receivable by sales.
C) Measures a company's profit margin.
D) Measures a company's debt to income.
E) Is calculated by dividing sales by accounts receivable.

88) The number of days' sales uncollected is used to:

A) Measure how many days of sales remain until the end of the year.
B) Determine the number of days that have passed without collecting on accounts receivable.
C) Identify the likelihood of collecting sales on account.
D) Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.
E) Measure the amount of cash sales during a period.

89) The number of days' sales uncollected is calculated by:

A) Dividing accounts receivable by net sales.
B) Dividing accounts receivable by net sales and multiplying by 365.
C) Dividing net sales by accounts receivable.
D) Dividing net sales by accounts receivable and multiplying by 365.
E) Multiplying net sales by accounts receivable and dividing by 365.

90) Which of the following about the days’ sales uncollected ratio is false?

A) It is most effective in evaluating the cash sales of a company.
B) It can be used for comparisons to other companies in the same industry.
C) It can be used for comparisons between current and prior periods.
D) It can be used to determine if cash is being collected quickly enough to pay upcoming obligations.
E) It measures how much time is likely to pass before the current amount of accounts receivable is received in cash.

91) A company had net sales of $29,900 and accounts receivable of $4,300 for the current period. Its days' sales uncollected equals: (Use 365 days a year.)

A) 6.95 days.
B) 63.69 days.
C) 52.49 days.
D) 44.49 days.
E) 67.79 days.

92) A company had net sales of $21,000 and accounts receivable of $2,520 for the current period. Its days' sales uncollected equals: (Use 365 days a year.)

A) 8.0 days.
B) 58.9 days.
C) 43.8 days.
D) 7.4 days.
E) 45.2 days.

93) Freeman Company had net sales of $4,200,000 and accounts receivable of $672,000. Its days' sales uncollected equals:

A) 16.0 days
B) 58.4 days.
C) 19.2 days.
D) 11.5 days.
E) 292 days.

94) The following information is taken from Reagan Company's December 31 balance sheet:

If net sales for the current year were $610,500, the firm's days' sales uncollected for the year is: (Use 365 days a year.)

A) 154.7 days
B) 71.2 days
C) 36.7 days
D) 42.7 days
E) 61.2 days

95) The following information is taken from Reagan Company's December 31 balance sheet:

If net sales for the current year were $612,000, the firm's days' sales uncollected for the year is: (Use 365 days a year.)

A) 60 days
B) 85 days
C) 42 days
D) 154 days
E) 70 days

96) An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

A) Cash Lost.
B) Bank Reconciliation.
C) Petty Cash.
D) Cash Over and Short.
E) Cash Receivable.

97) A set of procedures and approvals for verifying, approving and recording liabilities for cash payment, and for issuing checks for payment of verified, approved, and recorded liabilities is referred to as a(n):

A) Internal cash system.
B) Petty cash system.
C) Cash disbursement system.
D) Voucher system.
E) Cash control system.

98) Internal control procedures for cash receipts do not require that:

A) Handling of cash is kept separate from its recordkeeping.
B) All collections for sales are received immediately upon making the sales.
C) Clerks having access to cash in a cash register should not have access to the register tape or file.
D) An employee with no access to cash receipts should compare the total cash recorded by the register with the record of cash receipts reported by the cashier.
E) Cash sales should be recorded on a cash register at the time of each sale.

99) The Cash Over and Short account:

A) Is used when the cash account reports a credit balance.
B) Is used to record the income effects of cash overages and cash shortages.
C) Is not necessary in a computerized accounting system.
D) Can never have a debit balance.
E) Can never have a credit balance.

100) The voucher system of control:

A) Is a set of procedures and approvals designed to control cash receipts and the acceptance of liabilities.
B) Establishes procedures for verifying, approving, and recording liabilities for cash payment.
C) Establishes procedures for receiving checks for the sale of verified, approved, and recorded activities.
D) Applies only when multiple purchases are made from the same supplier.
E) Is required in large companies but not beneficial for small to mid-sized companies.

101) A voucher is an internal document or file:

A) Used to prepare a bank reconciliation.
B) Used as a substitute for an invoice if the supplier fails to send one.
C) Used to collect information needed to control cash payments and to ensure that transactions are properly recorded.
D) Takes the place of a bank check.
E) Used by large companies to control cash receipts.

102) Which of the following procedures would weaken control over cash receipts that arrive through the mail?

A) After the mail is opened, a list (in triplicate) of the money received is prepared with a record of the sender's name, the amount, and an explanation of why the money is sent.
B) The bank reconciliation is prepared by a person who does not handle cash or record cash receipts.
C) For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank.
D) The cashier deposits the money in the bank and the recordkeeper records the amounts received in the accounting records.
E) The employees handling the cash receipts are bonded.

103) At the end of the day, the cash register's record shows $1,256, but the count of cash in the cash register is $1,248. The correct entry to record the cash sales is

A) Debit Cash $1,256; credit Cash Over and Short $1,248; credit Sales $8.
B) Debit Cash Over and Short $8, credit Sales $8.
C) Debit Cash $1,248; debit Cash Over and Short $8; credit Sales $1,256.
D) Debit Cash $1,256; credit Sales $1,256.
E) Debit Cash $1,248; Credit Sales $1,248.

104) At the end of the day, the cash register's record shows $2,050, but the count of cash in the cash register is $2,058. The correct entry to record the cash sales is

A) Debit Cash $2,058; credit Sales $2,058.
B) Debit Cash $2,058; credit Cash Over and Short $8; credit Sales $2,050.
C) Debit Cash $2,050; credit Sales $2,050.
D) Debit Cash $2,050; debit Cash Over and Short $8; credit Sales $2,058.
E) Debit Cash Over and Short $8, credit Sales $8.

105) At the end of the day, the cash register tape shows $1,140 in cash sales, but the count of cash in the register is $1,185. The proper entry to account for this excess is:

A) Debit Cash $1,140; credit Sales $1,140.
B) Debit Cash $1,185; credit Sales $1,185.
C) Debit Cash $1,185; credit Sales $1,140; credit Cash Over and Short $45.
D) Debit Cash $1,140; debit Cash Over and Short for $45; credit Sales $1,185.
E) Debit Cash Over and Short $45; credit Cash $45.

106) At the end of the day, the cash register tape shows $1,000 in cash sales but the count of cash in the register is $1,010. The proper entry to account for this excess is:

A) Debit Cash $1,000; credit Sales $1,000.
B) Debit Cash $1,010; credit Sales $1,010.
C) Debit Cash $1,010; credit Sales $1,000; credit Cash Over and Short $10.
D) Debit Cash $1,000; debit Cash Over and Short for $10; credit Sales $1,010.
E) Debit Cash Over and Short $10; credit Cash $10.

107) Which of the following is not true pertaining to the voucher system?

A) Only approved departments and individuals are authorized to incur liabilities.
B) Procedures for purchasing, receiving and paying for merchandise are divided among several departments.
C) It is a set of procedures and approvals designed to control cash payments and the acceptance of liabilities.
D) It is applied to all payments (except those using petty cash).
E) It is not necessary if the supplier provides both receiving report and invoice with the merchandise shipped.

108) The entry to establish a petty cash fund includes:

A) A debit to Cash and a credit to Petty Cash.
B) A debit to Cash and a credit to Cash Over and Short.
C) A debit to Petty Cash and a credit to Cash.
D) A debit to Petty Cash and a credit to Accounts Receivable.
E) A debit to Cash and a credit to Petty Cash Over and Short.

109) Spencer Company decides to establish a petty cash fund with a beginning balance of $200. The company decides that any purchase under $25 can be processed through petty cash instead of the voucher system. The journal entry to record establishing the account is:

A) Debit Cash $200 and credit Petty Cash $200.
B) Debit Cash $200 and credit Cash Over and Short $200.
C) Debit Petty Cash $200 and credit Cash $200.
D) Debit Petty Cash $200; credit Cash $175; and credit Cash Over and Short $25.
E) Debit Cash $200 and credit Petty Cash Over and Short $200.

110) The entry to record reimbursement of the petty cash fund for postage expense should include:

A) A debit to Postage Expense.
B) A debit to Petty Cash.
C) A debit to Cash.
D) A debit to Cash Short and Over.
E) A debit to Supplies.

111) Spencer Company has a $220 petty cash fund. At the end of the first month the accumulated receipts represent $45 for delivery expenses, $135 for merchandise inventory, and $14 for miscellaneous expenses. The fund has a balance of $26. The journal entry to record the reimbursement of the account includes a:

A) Debit to Petty Cash for $220.
B) Debit to Cash Over and Short for $26.
C) Credit to Cash for $194.
D) Credit to Inventory for $135.
E) Credit to Cash Over and Short for $26.

112) Spencer Company has a $200 petty cash fund. At the end of the first month the accumulated receipts represent $43 for delivery expenses, $127 for merchandise inventory, and $12 for miscellaneous expenses. The fund has a balance of $18. The journal entry to record the reimbursement of the account includes a:

A) Debit to Petty Cash for $200.
B) Debit to Cash Over and Short for $18.
C) Credit to Cash for $182.
D) Credit to Inventory for $127.
E) Credit to Cash Over and Short for $18.

113) When a petty cash fund is in use:

A) Expenses paid with petty cash are recorded when the fund is replenished.
B) Petty Cash is debited when funds are replenished.
C) Petty Cash is credited when funds are replenished.
D) Expenses are not recorded.
E) Cash is debited when funds are replenished.

114) When reimbursing the petty cash fund:

A) Cash is debited.
B) Petty Cash is credited.
C) Petty Cash is debited.
D) Appropriate expense accounts are debited.
E) No expenses are recorded.

115) Assume that the custodian of a $450 petty cash fund has $58.90 in coins and currency plus $385.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include:

A) A debit to Petty Cash for $385.50.
B) A credit to Cash for $391.10.
C) A debit to Cash for $379.90.
D) A debit to Cash for $391.10.
E) A credit to Cash Over and Short for $5.60.

116) Assume that the custodian of a $450 petty cash fund has $65 in coins and currency plus $382 in receipts at the end of the month. The entry to replenish the petty cash fund will include:

A) A debit to Cash for $382.
B) A credit to Cash Over and Short for $3.
C) A debit to Petty Cash for $385.
D) A credit to Cash for $385.
E) A debit to Cash for $450.

117) Assume that the custodian of a $465 petty cash fund has $67.50 in coins and currency plus $391.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include:

A) A debit to Cash for $386.
B) A debit to Cash Over and Short for $6.00.
C) A debit to Petty Cash for $391.50.
D) A credit to Cash for $391.50.
E) A credit to Cash Over and Short for $398.

118) Assume that the custodian of a $450 petty cash fund has $62 in coins and currency plus $383 in receipts at the end of the month. The entry to replenish the petty cash fund will include:

A) A debit to Cash for $378.
B) A debit to Cash Over and Short for $5.
C) A debit to Petty Cash for $383.
D) A credit to Cash for $383.
E) A credit to Cash Over and Short for $5.

119) A company wants to decrease its $200.00 petty cash fund to $75.00. The entry to reduce the fund is:

A) Debit to Cash $125.00; credit Petty Cash $125.00.
B) Debit Miscellaneous Expenses $25.00; credit Cash $25.00.
C) Debit Petty Cash for $75.00; debit Cash Over and Short $175.00; credit Cash $200.00.
D) Debit Cash Over and Short for $12.50; credit Petty Cash $12.50.
E) Debit Petty Cash $100.00; credit Cash $100.00.

120) A company wants to decrease its $200 petty cash fund to $175. The entry to reduce the fund is:

A) Debit Cash Over and Short for $25; credit Petty Cash $25.
B) Debit to Cash $25; credit Petty Cash $25.
C) Debit Miscellaneous Expenses $25; credit Cash $25.
D) Debit Petty Cash for $175; debit Cash Over and Short $25; credit Cash $200.
E) Debit Petty Cash $25; credit Cash $25.

121) A company had $53 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to:

A) Debit Cash Over and Short for $53.
B) Credit Cash Over and Short for $53.
C) Debit Petty Cash for $53.
D) Credit Petty Cash for $53.
E) Debit Cash for $53.

122) A company had $43 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to:

A) Debit Cash Over and Short for $43.
B) Credit Cash Over and Short for $43.
C) Debit Petty Cash for $43.
D) Credit Petty Cash for $43.
E) Debit Cash for $43.

123) On a bank reconciliation, a bank fee for check printing not yet recorded by the company is:

A) Noted as a memorandum only.
B) Added to the book balance of cash.
C) Deducted from the book balance of cash.
D) Added to the bank balance of cash.
E) Deducted from the bank balance of cash.

124) Bank fees for check printing are recorded by the bank as:

A) An increase in the bank’s asset account.
B) A decrease in the bank’s asset account.
C) A decrease in the depositor’s bank account.
D) An increase in the depositor’s bank account.
E) An increase in the bank’s expense account.

125) Interest earned on the cash balance in the bank is recorded by the bank as:

A) An increase in the bank’s asset account.
B) A decrease in the bank’s asset account.
C) A decrease in the depositor’s bank account.
D) An increase in the depositor’s bank account.
E) An increase in the bank’s expense account.

126) Childers Company, which uses a perpetual inventory system, has an established petty cash fund in the amount of $500. The fund was last reimbursed on November 30. At the end of December, the fund contained the following petty cash receipts:

If, in addition to these receipts, the petty cash fund contains $279.75 of cash, the journal entry to reimburse the fund on December 31 will include:

A) A credit to Office Supplies Expense of $71.
B) A credit to Cash Over and Short of $11.25.
C) A credit to Cash of $220.25.
D) A debit to Petty Cash of $83.
E) A debit to Transportation-In of $83.

127) Childers Company, which uses a perpetual inventory system, has an established petty cash fund in the amount of $400. The fund was last reimbursed on November 30. At the end of December, the fund contained the following petty cash receipts:

If, in addition to these receipts, the petty cash fund contains $201 of cash, the journal entry to reimburse the fund on December 31 will include:

A) A debit to Transportation-In of $62.
B) A debit to Petty Cash of $189.
C) A credit to Office SuppliesExpense of $30.
D) A credit to Cash Over and Short of $10.
E) A credit to Cash of $199.

128) An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):

A) Internal audit.
B) Bank reconciliation.
C) Bank audit.
D) Trial reconciliation.
E) Analysis of debits and credits.

129) Outstanding checks refer to checks that have been:

A) Written, recorded, sent to payees, and received and paid by the bank.
B) Written and not yet recorded in the company books.
C) Held as blank checks.
D) Written by the depositor, subtracted on the depositor’s books, and sent to the payee but not yet turned in for payment at the bank statement date.
E) Issued by the bank.

130) On a bank reconciliation, the amount of an unrecorded bank service charge should be:

A) Added to the book balance of cash.
B) Deducted from the book balance of cash.
C) Added to the bank balance of cash.
D) Deducted from the bank balance of cash.
E) Noted in memorandum form only.

131) If a check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period, in preparing this period's reconciliation, the amount of this check should be:

A) Added to the book balance of cash as an outstanding check.
B) Deducted from the book balance of cash as an outstanding check.
C) Added to the bank balance of cash as an outstanding check.
D) Deducted from the bank balance of cash as an outstanding check.
E) Ignored in preparing the period's bank reconciliation as an outstanding check.

132) If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30, in preparing the September 30 bank reconciliation, the company should:

A) Deduct the deposit from the bank statement balance.
B) Skip the bank reconciliation this month.
C) Deduct the deposit from the September 30 book balance and add it to the October 1 book balance.
D) Add the deposit to the book balance of cash.
E) Add the deposit to the bank statement balance.

133) If a check correctly written and paid by the bank for $246 is incorrectly recorded in the company's books for $264, how should this error be treated on the bank reconciliation?

A) Subtract $18 from the bank's balance and add $45 to the book's balance.
B) Subtract $18 from the book balance.
C) Subtract $18 from the bank's balance.
D) Add $18 to the bank's balance.
E) Add $18 to the book balance.

134) If a check correctly written and paid by the bank for $749 is incorrectly recorded in the company's books for $794, how should this error be treated on the bank reconciliation?

A) Subtract $45 from the bank's balance.
B) Add $45 to the bank's balance.
C) Subtract $45 from the book balance.
D) Add $45 to the book balance.
E) Subtract $45 from the bank's balance and add $45 to the book's balance.

135) If a check correctly written and paid by the bank for $372 is incorrectly recorded in the company's books for $317, how should this error be treated on the bank reconciliation?

A) Add $55 to the book balance.
B) Subtract $55 from the bank's balance and add $55 to the book's balance.
C) Subtract $55 from the bank's balance.
D) Add $55 to the bank's balance.
E) Subtract $55 from the book balance.

136) If a check correctly written and paid by the bank for $272 is incorrectly recorded in the company's books for $227, how should this error be treated on the bank reconciliation?

A) Subtract $45 from the bank's balance.
B) Add $45 to the bank's balance.
C) Subtract $45 from the book balance.
D) Add $45 to the book balance.
E) Subtract $45 from the bank's balance and add $45 to the book's balance.

137) During the month of July, Clanton Industries issued a check in the amount of $867 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

A) Deduct the check amount from the book balance of cash.
B) Add the check amount to the book balance of cash.
C) Deduct the check amount from the bank balance.
D) Add the check amount to the bank balance.
E) Make a journal entry in the company records for an error.

138) During the month of July, Clanton Industries issued a check in the amount of $845 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

A) Deduct the check amount from the book balance of cash.
B) Add the check amount to the book balance of cash.
C) Deduct the check amount from the bank balance.
D) Add the check amount to the bank balance.
E) Make a journal entry in the company records for an error.

139) In the process of reconciling its bank statement for April, Donahue Enterprises' accountant compiles the following information:

The adjusted cash balance per the books on April 30 is:

A) $5,750
B) $4,150
C) $6,820
D) $8,070
E) $6,250

140) In the process of reconciling its bank statement for April, Donahue Enterprises' accountant compiles the following information:

The adjusted cash balance per the books on April 30 is:

A) $6,900
B) $8,160
C) $4,600
D) $6,520
E) $5,840

141) In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information:

The adjusted cash balance per the books on January 31 is:

A) $7,368
B) $6,678
C) $5,228
D) $6,311
E) $6,752

142) In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information:

The adjusted cash balance per the books on January 31 is:

A) $5,855
B) $5,335
C) $4,055
D) $4,815
E) $4,585

143) Which of the following events would cause a bank to reduce a depositor's account?

A) The depositor orders new checks through the bank at a cost of $50.
B) The bank collects a note receivable and related interest on the depositor's behalf.
C) There are outstanding checks drawn on the account at month-end.
D) There are deposits in transit on the account at month-end.
E) The bank corrects an error from previous month by adding $75 to the depositor account.

144) A seller (or supplier) of goods or services to a business organization is known as a:

A) Vendor.
B) Payee.
C) Vendee.
D) Creditor.
E) Debtor.

145) The internal document prepared by a department manager that informs the purchasing department of its merchandise needs and requests that the merchandise be purchased is the:

A) Purchase requisition.
B) Purchase order.
C) Invoice.
D) Receiving report.
E) Invoice approval.

146) The document that the purchasing department uses to place an order with a vendor is called the:

A) Purchase requisition.
B) Purchase order.
C) Invoice.
D) Receiving report.
E) Invoice approval.

147) The itemized statement of goods prepared by a vendor listing the customer's name, items sold, sales prices, and terms of the sale is called the:

A) Purchase requisition.
B) Purchase order.
C) Invoice.
D) Receiving report.
E) Invoice approval.

148) The internal document that notifies that ordered goods have been received and describes the quantities and condition of the goods is the:

A) Purchase requisition.
B) Purchase order.
C) Invoice.
D) Receiving report.
E) Invoice approval.

149) The checklist of steps necessary for approving an invoice for recording and payment, also known as the check authorization, is the:

A) Purchase requisition.
B) Purchase order.
C) Invoice.
D) Receiving report.
E) Invoice approval.

150) A voucher system is a set of procedures and approvals:

A) Designed to eliminate the need for subsidiary ledgers.
B) Designed to determine if the company is operating profitably.
C) Used almost exclusively by small companies.
D) Used to ensure that the company sells on credit only to creditworthy customers.
E) Designed to control cash payments and the acceptance of liabilities.

151) Purchasing insurance against theft by employees who frequently handle cash follows which principle of internal control?

A) Establish responsibilities.
B) Maintain adequate records.
C) Insure assets and bond key employees.
D) Separate recordkeeping from custody of assets.
E) Apply technological controls.

152) Which of the following is not considered an effective cash management strategy?

A) Encouraging collection of receivables by offering discounts for early payments.
B) Keeping only necessary assets.
C) Planning expenditures.
D) Retaining excess cash for unexpected expenditures.
E) Delaying payment of liabilities until the last possible day.

153) Ryan Company deposits all cash receipts on the day they are received and makes all cash payments by check. Ryan's June bank statement shows $19,361 on deposit in the bank. Ryan's comparison of the bank statement to its cash account revealed the following:

Additionally, a $35 check written and recorded by the company was incorrectly recorded by the bank as a $53 deduction.
The adjusted cash balance per the bank records should be:

A) $20,120
B) $20,102
C) $21,920
D) $20,138
E) $16,838

154) Ryan Company deposits all cash receipts on the day they are received and makes all cash payments by check. Ryan's June bank statement shows $18,361 on deposit in the bank. Ryan's comparison of the bank statement to its cash account revealed the following:

Additionally, a $29 check written and recorded by the company was incorrectly recorded by the bank as a $92 deduction.
The adjusted cash balance per the bank records should be:

A) $18,974
B) $18,911
C) $20,711
D) $19,037
E) $16,137

155) Clayborn Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on May 31, its Cash account shows a debit balance of $28,525. Clayborn's May bank statement shows $25,000 on deposit in the bank. Determine the adjusted cash balance using the following information:

The adjusted cash balance should be:

A) $26,750
B) $18,100
C) $33,650
D) $26,775
E) $28,385

156) Clayborn Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on May 31, its Cash account shows a debit balance of $17,025. Clayborn's May bank statement shows $15,800 on deposit in the bank. Determine the adjusted cash balance using the following information:

The adjusted cash balance should be:

A) $16,400
B) $11,200
C) $21,000
D) $16,425
E) $17,000

157) Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on August 31, its Cash account shows a debit balance of $14,662. Franklin's August bank statement shows $15,437 on deposit in the bank. Determine the adjusted cash balance using the following information:

The adjusted cash balance should be:

A) $20,387
B) $11,237.
C) $16,252
D) $14,597
E) $16,187

158) Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on August 31, its Cash account shows a debit balance of $13,162. Franklin's August bank statement shows $14,237 on deposit in the bank. Determine the adjusted cash balance using the following information:

The adjusted cash balance should be:

A) $18,737
B) $10,337
C) $14,887
D) $13,112
E) $14,837

159) Clayborn Company' bank reconciliation as of May 31 is shown below.

One of the adjusting journal entries that Clayborn must record as a result of the bank reconciliation includes:

A) A debit to Cash of $625
B) A debit to Cash of $5,200
C) A credit to Cash of $4,600
D) A credit to Cash of $600
E) A debit to cash of $25

160) Franklin Company's bank reconciliation as of August 31 is shown below.

An adjusting journal entry that Clayborn must record as a result of the bank reconciliation include:

A) Debit Cash $4,500; credit Sales $4,500.
B) Debit Cash $1,725; credit Notes Receivable $1,725.
C) Debit Cash $50; credit Bank Service Fee Expense $50.
D) Debit Misc. Expense $3,900; credit Cash $3,900.
E) Debit Notes Receivable $1,725; credit Cash $1,725.

161) Easton Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on June 30, its Cash account shows a debit balance of $70,209. Easton's June bank statement shows $66,349 on deposit in the bank. Determine the adjusted cash balance using the following information:

The adjusted cash balance should be:

A) $70,174
B) $70,259
C) $73,149
D) $63,424
E) $70,224

162) Easton Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on June 30, its Cash account shows a debit balance of $60,209. Easton's June bank statement shows $58,349 on deposit in the bank. Determine the adjusted cash balance using the following information:

The adjusted cash balance should be:

A) $60,194
B) $60,239
C) $62,149
D) $56,424
E) $60,224

163) Great Falls Company's bank reconciliation as of February 28 is shown below.

One of the adjusting journal entries that Great Falls must record as a result of the bank reconciliation includes:

A) Debit Note Payable $745; credit Cash $745.
B) Debit Cash $745; credit Note Receivable $745.
C) Debit Cash $2,950; credit Sales $2,950.
D) Debit Cash $2,950; credit Accounts Receivable $2,950.
E) Debit Miscellaneous Expense $35; credit Accounts Payable $35.

164) Havermill Company establishes a $380 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $86 for Office Supplies, $163 for Merchandise Inventory, and $35 for Miscellaneous Expenses. The fund has a balance of $96. On October 1, the accountant determines that the fund should be increased by $76. The journal entry to record the establishment of the fund on September 1 is:

A) Debit Cash $380; credit Petty Cash $380.
B) Debit Petty Cash $380; credit Accounts Payable $380.
C) Debit Miscellaneous Expense $380; credit Cash $380.
D) Debit Petty Cash $380; credit Cash $380.
E) Debit Cash $380; credit Accounts Payable $380.

165) Havermill Company establishes a $250 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $73 for Office Supplies, $137 for Merchandise Inventory, and $22 for Miscellaneous Expenses. The fund has a balance of $18. On October 1, the accountant determines that the fund should be increased by $50. The journal entry to record the establishment of the fund on September 1 is:

A) Debit Cash $250; credit Petty Cash $250.
B) Debit Petty Cash $250; credit Accounts Payable $250.
C) Debit Miscellaneous Expense $250; credit Cash $250.
D) Debit Petty Cash $250; credit Cash $250.
E) Debit Cash $250; credit Accounts Payable $250.

166) Havermill Company establishes a $400 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $88 for Office Supplies, $167 for Merchandise Inventory, and $37 for Miscellaneous Expenses. The fund has a balance of $108. On October 1, the accountant determines that the fund should be increased by $80. The journal entry to record the reimbursement of the fund on September 30 includes a:

A) Debit to Office Supplies Expense for $88.
B) Credit to Merchandise Inventory for $167.
C) Credit to Cash for $400.
D) Debit Petty Cash for $292.
E) Credit to Cash for $108.

167) Havermill Company establishes a $250 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $73 for Office Supplies, $137 for Merchandise Inventory, and $22 for Miscellaneous Expenses. The fund has a balance of $18. On October 1, the accountant determines that the fund should be increased by $50. The journal entry to record the reimbursement of the fund on September 30 includes a:

A) Debit to Office SuppliesExpense for $73.
B) Credit to Merchandise Inventory for $137.
C) Credit to Cash for $250.
D) Debit Petty Cash for $232.
E) Credit to Cash for $18.

168) Havermill Company establishes a $250 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $73 for Office Supplies, $137 for Merchandise Inventory, and $22 for Miscellaneous Expenses. The fund has a balance of $18. On October 1, the accountant determines that the fund should be increased by $50. The journal entry to record the increase in the fund balance on October 1 is:

A) Debit Petty Cash $300; credit Cash $300.
B) Debit Cash $50; credit Petty Cash $50.
C) Debit Miscellaneous Expense $50; credit Cash $50.
D) Debit Petty Cash $50; credit Accounts Payable $50.
E) Debit Petty Cash $50; credit Cash $50.

169) Meng Company maintains a $300 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $80 for office supplies, $160 for merchandise inventory, and $20 for miscellaneous expenses. There is a cash shortage of $8. Based on this information, the amount of cash in the fund before the replenishment is:

A) $300.
B) $260.
C) $40.
D) $48.
E) $32.

170) Meng Company maintains a $300 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $80 for office supplies, $160 for merchandise inventory, and $20 for miscellaneous expenses. There is a cash shortage of $8. The journal entry to replenish the fund on January 31 is:

A) Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Debit Cash Over and Short, $8; Credit Petty Cash, $268.
B) Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Credit Cash Over and Short, $8; Credit Petty Cash, $252.
C) Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Credit Cash Over and Short, $8; Credit Cash, $252.
D) Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Debit Cash Over and Short, $8; Credit Cash, $268.
E) Debit Office Supplies Expense, $80; Debit Merchandise Inventory, $160; Debit Miscellaneous Expenses, $20; Credit Cash Over and Short, $8; Credit Petty Cash, $400.

171) Pelcher Company maintains a $400 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $110 for office supplies, $140 for merchandise inventory, and $70 for miscellaneous expenses. There is a cash overage of $4. Based on this information, the amount of cash in the fund before the replenishment is:

A) $400.
B) $320.
C) $80.
D) $76.
E) $84.

172) Pelcher Company maintains a $400 petty cash fund. On January 31, the fund is replenished. The accumulated receipts on that date represent $110 for office supplies, $140 for merchandise inventory, and $70 for miscellaneous expenses. There is a cash overage of $4. The journal entry to replenish the fund on January 31 is:

A) Debit Office Supplies Expense, $110; Debit Merchandise Inventory, $140; Debit Miscellaneous Expenses, $70; Debit Cash Over and Short, $4; Credit Petty Cash, $324.
B) Debit Office Supplies Expense, $110; Debit Merchandise Inventory, $140; Debit Miscellaneous Expenses, $70; Debit Cash Over and Short, $4; Credit Cash, $324.
C) Debit Office Supplies Expense, $110; Debit Merchandise Inventory, $140; Debit Miscellaneous Expenses, $70; Credit Cash Over and Short, $4; Credit Petty Cash, $316.
D) Debit Office Supplies Expense, $110; Debit Merchandise Inventory, $140; Debit Miscellaneous Expenses, $70; Credit Cash Over and Short, $4; Credit Cash, $316.
E) Debit Office Supplies Expense, $110; Debit Merchandise Inventory, $140; Debit Miscellaneous Expenses, $70; Debit Cash Over and Short, $4; Credit Petty Cash, $400.

Answer Key

Test name: John Wild Ch06 Algorithmic and Static

1) TRUE

2) FALSE

3) TRUE

4) FALSE

5) TRUE

6) TRUE

7) FALSE

8) FALSE

9) FALSE

10) FALSE

11) FALSE

12) TRUE

13) TRUE

14) TRUE

15) TRUE

16) TRUE

17) FALSE

18) FALSE

19) FALSE

20) TRUE

21) TRUE

22) FALSE

23) FALSE

24) TRUE

25) TRUE

26) TRUE

27) TRUE

28) FALSE

29) TRUE

30) FALSE

31) TRUE

32) TRUE

33) TRUE

34) TRUE

35) FALSE

36) TRUE

37) TRUE

38) FALSE

39) FALSE

40) TRUE

41) TRUE

42) FALSE

43) FALSE

44) TRUE

45) TRUE

46) FALSE

47) TRUE

48) FALSE

49) TRUE

50) TRUE

51) TRUE

52) TRUE

53) FALSE

54) TRUE

55) FALSE

56) TRUE

57) TRUE

58) FALSE

59) FALSE

60) TRUE

61) C

62) E

63) A

64) B

65) A

66) B

67) A

68) B

69) A

70) E

71) D

72) B

73) A

74) C

75) E

76) B

77) B

78) C

79) E

80) A

81) E

82) B

83) A

84) C

85) E

86) C

87) A

88) D

89) B

90) A

91) C

92) C

93) B

94) D

95) C

96) D

97) D

98) B

99) B

100) B

101) C

102) C

103) C

104) B

105) C

106) C

107) E

108) C

109) C

110) A

111) C

112) C

113) A

114) D

115) B

116) D

117) B

118) B

119) A

120) B

121) A

122) A

123) C

124) C

125) D

126) C

127) E

128) B

129) D

130) B

131) D

132) E

133) E

134) D

135) E

136) C

137) C

138) C

139) E

140) D

141) C

142) C

143) A

144) A

145) A

146) B

147) C

148) D

149) E

150) E

151) C

152) D

153) D

154) D

155) A

156) A

157) E

158) E

159) D

160) B

161) E

162) E

163) B

164) D

165) D

166) A

167) A

168) E

169) E

170) D

171) E

172) D