Cash Management and Control – Test Bank | Edition 11e

View Product website:

https://selldocx.com/docx/cash-management-and-control-test-bank-edition-11e-1101

Testbank

to accompany

Accounting

11^th edition

by

Hoggett et al.

© John Wiley & Sons Australia, Ltd 2020

Chapter 11: Cash management and control

Multiple-choice questions

1. The asset most commonly subject to misappropriation is:

a. plant and equipment.

b. investments.

c. land and buildings.

d. cash.

General Feedback:

Learning objective 11.1: define the term cash as it is used in accounting.

2. Which of the following is not included in the definition of cash?

a. Accounts receivable

b. Cheque

c. EFTPOS transactions

d. Petty cash

General Feedback:

Learning objective 11.1: define the term cash as it is used in accounting.

3. Which of the following is not a benefit of a sound system of internal control?

a. Less errors.

b. Greater reliability of the accounting information.

c. Reduced likelihood of fraud.

d. A highly marketable product.

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

4. Which of the following does not represent proper internal control of cash receipts?

a. Paying accounts directly out of the cash register.

b. Balancing the cash register after each employees' shift.

c. Two people opening the mail.

d. Daily banking of receipts.

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

5. The procedures adopted by a business to safeguard its assets, promote the reliability of accounting data and encourage compliance with management policies are:

a. internal controls.

b. bank reconciliations.

c. cash budgets.

d. physical controls.

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

6. If the cash in the cash register is $1450 and the cash register tape at the end of the shift shows a total of $1350, this would indicate:

a. the cash register and the tape agree.

b. the cashier is dishonest.

c. cash over of $100.

d. a cash shortage of $100.

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

7. As a business grows and the owner must rely more on others to help in managing operations, internal control becomes:

a. more important.

b. business growth has no effect on the importance of internal control.

c. less important.

d. unnecessary.

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

8. Which of the following is not a characteristic of good internal control?

a. Rotation of employees over a range of tasks

b. Insurance of assets

c. Regular bank reconciliations

d. Joint responsibility for assets

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

9. Which of the following is not a feature of good internal control?

a. Regular bank reconciliations

b. Making cash payments from unbanked cash receipts

c. Labelling of fixed assets

d. Regular stocktakes

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

10. Which of the following is not a good internal control practice?

a. The use of passwords for computer access

b. Use of a safe to store unused blank cheques

c. The pre-numbering of source documents

d. Handwriting cheques

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

11. Internal controls that apply to computerised accounting systems include which of the following?
I Passwords
II Back ups
III Computer viruses
IV Programming controls

a. I, II and IV

b. II, III and IV

c. I, III and IV

d. I, II, and III

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

12. Two key elements of effective control for cash payments are:

a. business bank account and cheque book

b. business bank account and petty cash fund

c. cheque book and petty cash fund

d. personal bank account and business bank account

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

13. Total cash sales for the day amounted to $1890 but the amount of total cash in the register at the end of the day was only $1850. Ignoring GST, the journal entry to record the day's cash sales would be:

a. DR Bank $1850, DR Cash short and over $40; CR Sales $1890

b. DR Bank $1890, CR Cash short and over $40; CR Sales $1850

c. DR Cash short and over $40; CR Sales $40

d. DR Bank $1890; CR Sales $1890

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

14. Which of the following is not an important principle for the control of cash payments?

a. Employees who receive delivery of the goods should not be involved in recording the invoices into the accounting system.

b. Only senior staff should have the authority to approve invoices for payment.

c. Cheques should be written out promptly even if the invoice is not yet provided..

d. Random checks on the balance of the petty cash fund

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

15. The cash short and over ledger account, which records the difference between the total of the cash register tape and the actual cash counted from the register:

a. is closed to the profit or loss summary account.

b. appears on the balance sheet as liability.

c. is deducted from the bank account balance in the ledger.

d. is included in the bank reconciliation.

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

16. How many of the following are features of good internal control of cash receipts?
· Employees who handle cash from customers do not prepare the daily banking.
· Use of a safe for temporary cash storage
· Pre-numbering of sales dockets and receipts
· Use of cash registers and EFTPOS to record cash sales

a. Four

b. Three

c. Two

d. One

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

17. Which of the following is not a principle of internal control?

a. Placing excess cash on fixed deposit to earn interest

b. Establishing clear lines of responsibility

c. Separation of record keeping and custody of assets

d. Division of responsibility for related transactions

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

18. Which of the following is a limitation of internal control?
I The accounting standards
II The cost of the controls
III The possibility of collusion between two or more employees

a. II and III

b. I and III

c. I, II and III

d. I and II

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

19. Which of the following statements concerning internal control is true?

a. Fraud will be eliminated by good internal control practices.

b. It is OK to pay accounts out of unbanked receipts as long as a note is made of what has occurred.

c. Double entry accounting is an internal control.

d. Physical counts of stock on hand are not part of internal control procedures.

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

20. Which of the following is not necessarily one of the benefits of effective internal control?

a. A more efficient accounting system

b. More accurate accounting data

c. Safeguarding of assets

d. A sound liquidity position

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

21. Which of the following is not a measure of good internal control?

a. Combining authority to purchase goods and sign cheques

b. Requiring all employees to take annual leave

c. Reconciling a control account with its subsidiary ledger

d. Daily banking

General Feedback:

Learning objective 11.2: explain internal control procedures relevant to the control of cash receipts and cash payments.

22. When preparing a bank reconciliation what would cause the bank statement balance to be less than the adjusted cash balance in the general ledger? (Assume the bank is not in overdraft.)

a. Outstanding deposits

b. Bank fees

c. Dishonoured cheques

d. Outstanding cheques

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

23. The essential element of the internal control of cash is:

a. the bank reconciliation.

b. a strong safe.

c. the double entry accounting system.

d. a petty cash system.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

24. The 30 April bank reconciliation of Perth Co was prepared using the information below.
Ledger bank balance $14 805 Dr (adjusted)
Outstanding deposit $2 680
Unpresented cheques $6 575
What was the bank statement balance at 30 April?

a. $17 485

b. $10 910

c. $24 060

d. $18 700

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.
Feedback: $18 700 Cr = $14 805 - $2680 + $6575.

25. When reconciling a bank account, the bank's transaction fees are:

a. deduced from the bank statement balance in the reconciliation.

b. added to the general ledger bank balance.

c. deducted from the general ledger bank balance.

d. added to the bank statement balance in the reconciliation.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

26. The main purpose of a bank reconciliation is:

a. to prove the accuracy of the ledger bank account.

b. to prove the accuracy of the bank

c. to prove the accuracy of the general ledger.

d. to prove the accuracy of the bookkeeper.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

27. Ignoring GST, what is the correct accounting entry that would need to be made for a customer's cheque for $2800 that has been dishonoured?

a. DR Accounts receivable $2800; CR Discount allowed $2800

b. DR Bank $2800; CR Accounts receivable $2800

c. DR Accounts receivable $2800; CR Bank $2800

d. DR Accounts receivable $2800; CR Accounts payable $2800

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

28. Which of the following statements relating to a bank statement is true?

a. The bank's customer is viewed as a debtor.

b. A direct deposit is listed in the debit column.

c. A positive balance in the bank account will be shown as a debit balance.

d. It constitutes a source document for the entity for direct debits and credits such as bank charges.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

29. When preparing a bank reconciliation, any bank fees and interest charged by the bank are:

a. deducted from the general ledger bank balance.

b. deducted from the bank statement balance in the reconciliation.

c. added to the bank statement balance in the reconciliation.

d. bank balance added to the general ledger bank balance.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

30. When reconciling the bank ledger account and the bank statement, if both are in overdraft, unpresented cheques will be:

a. deducted from the bank statement balance in the reconciliation.

b. added to the general ledger bank balance.

c. deducted from the general ledger bank balance.

d. added to the bank statement balance in the reconciliation.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

31. Which of the following statements relating to dishonoured cheques is incorrect?

a. They are adjusted for by entering a negative amount into the cash receipts journal.

b. They are cheques from debtors deposited into the firm's bank account but not paid by the drawer's bank due to lack of funds or for other reasons.

c. They appear as credits on the bank statement.

d. They are not listed in the bank reconciliation.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

32. When reconciling the ledger with the bank statement (assuming a positive bank balance) a returned (dishonoured) cheque should be:

a. added to the bank statement balance in the reconciliation.

b. added to the general ledger bank balance.

c. subtracted from the bank statement balance.

d. subtracted from the general ledger bank balance.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

33. While preparing the bank reconciliation Terry discovered that the bank had incorrectly paid cheque number 100389 for $900 more than the amount written on the cheque by the company. The bank account has a positive balance. The proper procedure to correct this bank error is to:

a. add the error to the bank statement balance in the reconciliation and notify the bank.

b. deduct the error from the bank statement balance in the reconciliation.

c. add the error to the bank balance in the general ledger.

d. deduct the error from the bank balance in the general ledger and notify the bank.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

34. The correct order in which the steps in the bank reconciliation process occur is:
I. Prepare the bank reconciliation
II. Tick off the items in the prior reconciliation with the bank statement
III. Tick off the cash receipts and cash payments journals with the bank statement
IV. Update the cash receipts and cash payments journals with unticked items from the bank statement

a. IV, II, III, I

b. III, IV, II, I

c. II, III, IV, I

d. III, II, IV, I

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

35. When preparing the bank reconciliation James found that the bank had incorrectly debited the business' bank account with $200. The proper procedure is to:

a. add $200 to the bank statement balance in the bank reconciliation and notify the bank.

b. deduct $200 from the bank balance in the general ledger.

c. deduct $200 from the bank balance in the general ledger and notify the bank.

d. do nothing as the bank will adjust the error when they balance.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

36. Assuming the account is not in overdraft, when reconciling the ledger with the bank statement a deposit in transit should be:

a. added to the general ledger bank balance.

b. added to the bank statement balance in the reconciliation.

c. subtracted from the general ledger bank balance.

d. subtracted from the bank statement balance in the reconciliation.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

37. Storybrook Ltd had an unadjusted ledger bank balance at 31 July of $17 000 Dr. The bank statement for the month shows a balance of $28 082 Cr. The bank statement also shows bank fees and charges of $138 and direct deposits from customers paid into the bank of $4500. Deposits not yet credited are $3 600 and unpresented cheques are $10 320. What is the cash at bank ledger balance at 31 July?

a. $28 082

b. $21 362

c. $21 638

d. $21 500

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.
Feedback: $21 362 = $17 000 - $138 + $4 500.

38. Flynn and Associates had an unadjusted bank account ledger balance at 30 November of $3552 Dr. The bank statement at the same date showed a balance of $3460 Cr. Bank service charges for the month were $22 and outstanding cheques totalled $630. The bank statement revealed that the bank had collected dividends for the firm of $450 and a deposit of $1150 is not yet recorded on the statement. What is the corrected bank account ledger balance at 30 November?

a. $4 130

b. $3 530

c. $3 460

d. $3 980

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.
Feedback: $3552 - $22 + $450.

39. Bowen Ltd received its monthly bank statement showing a balance of $35 894 Cr at 31 March. On this date cash received from debtors and not yet deposited at the bank totalled $8971 and outstanding cheques were $3465. The amount to appear as cash at bank on the 31 March balance sheet is:

a. $44 865

b. $41 400

c. $48 330

d. $35 894

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

40. The bank statement of Mellon Company shows an overdraft of $10 000 at 28 February. In reconciling the account at that date indicate how the company will treat cheque no. 4500 for $80 that was drawn on 25 February but had not yet been presented for payment.

a. Subtract from the bank statement balance in the bank reconciliation.

b. Record in the cash payments journal.

c. Record in the cash receipts journal.

d. Add to the bank statement balance in the bank reconciliation.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

41. William's bank account is not in overdraft. When preparing the bank reconciliation he found that the bank had incorrectly credited his account with $50. The proper procedure is to:

a. deduct $50 from the bank statement balance in the bank reconciliation and notify the bank.

b. add $50 to the bank balance in the general ledger.

c. do nothing as the bank will adjust the error when it balances.

d. add $50 to the bank balance in the general ledger and notify the bank.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

42. Which of the following would appear as a credit on the bank statement of Central Motors?

a. A cheque received by Central Motors from a customer

b. A cheque paid by Central Motors to a supplier.

c. Employees' salaries paid by electronic funds transfer.

d. A dishonoured cheque.

General Feedback:

Learning objective 11.3: identify the purpose and control features in maintaining a bank account and prepare a bank reconciliation statement.

43. The correct journal entry at the end of the month to reimburse the petty cash for the amount spent is:

a. DR Petty cash asset; CR Bank

b. DR Petty cash asset; CR Petty cash expenses

c. DR Bank; CR Petty cash asset

d. DR Petty cash expenses; CR Bank

General Feedback:

Learning objective 11.4: explain the purpose of a petty cash fund, understand how one operates, and account for petty cash.

44. The petty cash fund should be reimbursed at the time the financial statements are prepared so that:

a. petty cash asset is not overstated and expenses understated.

b. expenses are not overstated and the petty cash asset understated.

c. petty cash expenses are not overstated and bank understated.

d. expenses are not understated and equity overstated.

General Feedback:

Learning objective 11.4: explain the purpose of a petty cash fund, understand how one operates, and account for petty cash.

45. Which of the following is not an essential feature of the petty cash imprest system?

a. Reimbursement to the fund for the exact amount spent in the period.

b. Deciding on a fixed sum that becomes the imprest balance or 'float'.

c. Several people being authorised to reimburse expenses.

d. Cash in the fund together with vouchers always equalling the imprest amount.

General Feedback:

Learning objective 11.4: explain the purpose of a petty cash fund, understand how one operates, and account for petty cash.

46. The correct journal entry to establish the petty cash fund is:

a. DR Petty cash expenses; CR Bank

b. DR Petty cash asset; CR Petty cash expenses

c. DR Petty cash asset; CR Bank

d. DR Bank; CR Petty cash asset

General Feedback:

Learning objective 11.4: explain the purpose of a petty cash fund, understand how one operates, and account for petty cash.

47. The petty cash account is what type of account?

a. Current Asset

b. Expense

c. Equity

d. Current Liability

General Feedback:

Learning objective 11.4: explain the purpose of a petty cash fund, understand how one operates, and account for petty cash.

48. The preparation of a cash budget ensures that:

a. all of the other options.

b. an entity can meet its commitments as they fall due.

c. cash funds are not left lying idle.

d. wasteful cash outlays are minimised.

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.

49. A cash budget is a projection of:

a. the present value of the future cash receipts and cash payments.

b. the expected bank statement balance.

c. the cash receipts and cash payments received during the financial period.

d. the expected future cash receipts and cash payments.

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.

50. Harry & Sons makes all of its purchases on credit; 50% are paid in the month of purchase; 30% during the month following the purchase and 20% in the second month following the purchase.

Given the following data, determine the cash paid to creditors during June.

a. $30 000

b. $60 000

c. $54 000

d. $64 000

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.
Feedback: ($50 000 × 20%) + ($80 000 × 30%) + ($60 000 × 50%).

51. Darling Inc makes all of its purchases on credit; 50% are paid in the month of purchase, 30% during the month following the purchase and 20% in the second month following the purchase.

The budgeted balance of creditors at the end of June is:

a. $51 000

b. $16 700

c. $11 500

d. $15 000

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.
Feedback: $11 500 = 20% x $20 000 + 50% x $15 000.

52. Viva Vacuums makes all sales on credit, with 80% of the payments received in the month of sale, 15% in the month following the sale and 5% never collected. Budgeted sales are:
October $120 000
November $140 000
What is the estimated amount received from debtors in November?

a. $ nil

b. $136 000

c. $140 000

d. $130 000

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.
Feedback: $130 000 = 80% x $140 000 + 15% x $120 000.

53. Just Cookware makes 75% of its sales on credit. Of those credit sales, 60% of the payment is received in the month of sale, 30% in the month following sale and the remaining 10% in the subsequent month. Budgeted sales are:
January $100 000
February $140 000
March $120 000
The budgeted balance of debtors at 31 March is:

a. $46 500

b. $36 000

c. $37 500

d. $10 500

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.
Feedback: ($120 000 x 75% × 40%) + ($140 000 x 75% × 10%).

54. Sugar Industries makes all sales on credit with 60% of the payment received in the month of sale, 20% in the month following the sale, 15% in the 2nd month following sale, and the remaining 5% remains uncollected.
Budgeted sales are:
July $100 000
August $140 000
September $120 000
October $150 000
The budgeted receipts from debtors for September are:

a. $100 000

b. $120 000

c. $135 000

d. $115 000

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.
Feedback: ($100 000 × 15%) + ($140 000 × 20%) + ($120 000 × 60%).

55. Jumbo Playgrounds makes 90% of its sales on credit. Of those credit sales, 70% of the payments are received in the month of sale and 30% in the month following sale. Budgeted sales are:
November $100 000
December $120 000
What is the estimated amount to be received from debtors in December?

a. $102 600

b. $ 75 600

c. $120 000

d. $ 63 000

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.
Feedback: $102 600 = (90% x $120 000 x 70%) + (90% x $100 000 x 30%).

56. Which of the following statements relating to a cash budget is true?

a. It is a statement of expected income and expenses.

b. The longer the time period involved the easier it is to predict future cash flows.

c. It is usually prepared on a weekly basis.

d. Non-cash items such as depreciation are excluded.

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget

57. A cash budget measures the:

a. estimated future cash position.

b. working capital.

c. expected profitability.

d. estimated financial position.

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.

58. Which of the following is not an advantage of cash budgeting?

a. Cash is safeguarded.

b. Idle funds are kept to a minimum.

c. Future planning is facilitated.

d. Cash shortages can be predicted.

General Feedback:

Learning objective 11.5: identify the purpose and control features of a cash budget and prepare a cash budget.

59. Which of the following is a broad principle of cash management that helps ensure that a business remains solvent?

a. Invest any cash that is surplus to requirements to earn a return for the business.

b. All of the other options.

c. Collect cash owing from accounts receivable as quickly as possible.

d. Pay accounts payable just before the due date rather than when the statement is first received.

General Feedback:

Learning objective 11.6: explain the essential principles of cash management.

60. Which of the following principles of cash management is not true?

a. Payments to creditors should not be delayed if it means discounts on offer are lost.

b. There are disadvantages for a business in holding very low levels of inventory.

c. Generally, cash surpluses should be used to acquire necessary non-current assets rather than being kept in a fixed deposit.

d. The longer the operating cycle the longer it takes to pay creditors.

General Feedback:

Learning objective 11.6: explain the essential principles of cash management.

61. Which of the following is a principle of good cash management?

a. Keeping inventory at a level where no item required by a customer is ever out of stock.

b. Paying creditors before the due date.

c. Investing surplus cash.

d. Offering large cash discounts to debtors to pay within 30 days.

General Feedback:

Learning objective 11.6: explain the essential principles of cash management.

62. The ratio that measures solvency by relating cash flows from operating activities to current liabilities is the:

a. short-term cash flow adequacy ratio.

b. times interest ratio.

c. working capital ratio.

d. cash flow adequacy ratio.

General Feedback:

Learning objective 11.7: describe and apply measures of cash adequacy.

63. __________refers to the ability of a firm to pay its debts as they fall due.

a. being in surplus.

b. the acid test.

c. cash management.

d. solvency.

General Feedback:

Learning objective 11.7: describe and apply measures of cash adequacy.

64. Which ratio measures solvency by relating cash flows from operating activities to total liabilities?

a. cash flow adequacy ratio.

b. operations index.

c. turnover of cash flow ratio.

d. gearing ratio.

General Feedback:

Learning objective 11.7: describe and apply measures of cash adequacy.