CHAPTER 7

INTERNAL CONTROL AND CASH

CHAPTER STUDY OBJECTIVES

1. Define cash and internal control. Cash not only includes coins and paper currency, it may also include cash equivalents. Cash equivalents are short-term, highly liquid (easily sold) investments that are not subject to significant risk of changes in value. Internal control consists of all the related methods and measures that management implements in order to achieve reliable financial reporting, effective and efficient operations, and compliance with relevant laws and regulations. Control activities include (a) establishment of responsibility, (b) segregation of duties, (c) documentation procedures, (d) physical and IT controls, (e) independent checks of performance, and (f) human resource controls.

2. Apply control activities to cash receipts and cash payments. Internal controls over cash receipts include (a) designating only personnel such as cashiers to handle cash; (b) assigning the duties of handling or receiving cash, and recording cash to different individuals; (c) using remittance advices for mail receipts, cash register tapes (or point-of-sale computerized systems) for over-the-counter receipts, and deposit slips for bank deposits; (d) using company safes and bank vaults to store cash, with only authorized personnel having access, and using cash registers; (e) depositing all cash intact daily; (f) making independent daily counts of register receipts and daily comparisons of total receipts with total deposits; and (g) bonding personnel who handle cash. Debit and credit card transactions increase internal control but have related bank charges. Electronic funds transfer receipts also increase internal control over cash receipts.

Internal controls over cash payments include (a) authorizing only specified individuals such as the controller to sign cheques and authorize electronic funds transfer payments; (b) assigning the duties of approving items for payment, paying for the items, and recording the payment to different individuals; (c) using pre-numbered cheques and accounting for all cheques, with each cheque supported by an approved invoice; (d) storing blank cheques and signing machines in a safe or vault, with access restricted to authorized personnel; (e) comparing each cheque with the approved invoice before issuing the cheque and making monthly reconciliations of bank and book balances; and (f) stamping each approved invoice “Paid” after payment.

3. Describe the operation of a petty cash fund. Companies operate a petty cash fund to pay relatively small amounts of cash. They must establish the fund, make payments from the fund, and replenish the fund. Journal entries are made only when the fund is established and replenished.

4. Describe the control features of a bank account and prepare a bank reconciliation. A bank account contributes to good internal control by giving physical and IT controls for the storage of cash, reducing the amount of currency that must be kept on hand, and creating a double record of a depositor’s bank transactions.

It is customary to reconcile the balance per books and balance per bank to their adjusted balance. Reconciling items include deposits in transit, outstanding cheques, errors by the bank, unrecorded bank memoranda, and errors by the company. Adjusting entries must be made for any errors made by the company and unrecorded bank memoranda (e.g., interest).

5. Report cash on the balance sheet. Cash is usually listed first in the current assets section of the balance sheet. Cash may be reported together with highly liquid, very short-term investments called cash equivalents. Cash that is restricted for a special purpose is reported separately as a current asset or a non-current asset, depending on when the cash is expected to be used.

TRUE-FALSE STATEMENTS

1. Internal control is a process that helps an organization achieve reliable financial reporting.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

2. The Sarbanes-Oxley Act has little impact on Canadian companies as it is legislation enacted in the United States.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

3. A strong system of internal controls will prove that an organization complies with all relevant laws and regulations.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

4. Effective and efficient operations can be a result of a strong system of internal controls.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

5. Internal control is the responsibility of the external auditor of the organization.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

6. Control activities are the actions that must be taken to respond to risks that threaten reliable financial reporting.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

7. Proper segregation of accounting duties eliminates the need for internal controls.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

8. Responsibility for authorizing and approving transactions must be given to the correct person.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

9. A VP of Sales would be the correct person to establish policies for making credit sales.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

10. The responsibility for keeping the records for an asset should be separate from the physical custody of that asset.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

11. In applying the control activity of segregation of duties, the responsibility for related activities should be assigned to the same individual.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

12. When one person is responsible for all related activities, the potential for errors and irregularities increases.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

13. One of the controls for documents is to have all of the documents pre-numbered.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

14. Television monitors are an example of a physical safeguard control.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

15. Independent checks of performance should be carried out only by external auditors.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

16. An independent check of performance would be more effective if it is done by surprise.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

17. An independent check of performance must be done by the supervisor of the employee as they would be the person who would best understand the duties of the employee.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

18. Internal auditors are company employees.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

19. Internal auditors evaluate the effectiveness of the organization’s external controls.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

20. External auditors may be employees of the company.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

21. All private companies are required to have an external audit.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

22. In Canada, the responsibility for internal controls is the responsibility of the management.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

23. The concept of reasonable assurance is based on the belief that the cost of control activities should not be more than their expected benefits.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

24. The size of a business may limit internal controls.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

25. Opportunity to commit fraud occurs when the workplace lacks sufficient controls to deter and detect fraud.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Ethics

26. Too much personal debt creates an opportunity to commit fraud.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Ethics

27. The most important element of the fraud triangle is rationalization.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Ethics

28. A debit card gives customers access to money made available by a bank or other financial institution and is essentially the same as a short-term loan.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

29. Cash lacks owner identification.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

30. The increased use of debit and credit cards improves a company’s internal control.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

31. The person who handles the cash and makes the bank deposit should not be able to make changes to the sales record in the point-of-sale system.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

32. Sales using debit cards are considered “cash” transactions.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

33. One advantage of a debit card is that the retailer knows immediately whether the customer has enough money in their account to pay for the transaction.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

34. One advantage of a cheque is that the retailer knows immediately whether the customer has enough money in their account to pay for the transaction.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

35. Sales using a bank credit card are considered cash sales by the retailer.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

36. Sales using a nonbank credit card are considered cash sales by the retailer.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

37. The fees for credit cards are higher than the fees for debit cards.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

38. An electronic funds transfer will result in less internal control because no cash or cheques are handled by company employees.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

39. EFT Payments increase the risk of lost, stolen, or forged cheques.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

40. Having different people approve and make payments is an example of an independent check of performance control activity over cash payments.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

41. The first journal entry to establish a petty cash fund would be to debit Cash and credit Petty Cash.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

42. To replenish a petty cash fund, the entry would debit the Expense account and credit Petty Cash.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

43. If a petty cash account is short and the fund is replenished, then the account that would be debited is the expense account Cash Over and Short.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

44. The purpose of a petty cash fund is to eliminate the nuisance of making payments by EFT and cheques for common small business purchases, while still maintaining reasonable controls.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

45. For efficiency of operations and better control over all cash activities, a company should maintain only one bank account.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

46. Using a bank increases the internal control over cash.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

47. If a deposit is listed as “in transit” on the bank reconciliation, the balance in the bank account is more than the amount showing in the company’s books.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

48. If there are outstanding company cheques listed on the bank reconciliation, it means that the balance in the bank account is less than the amount showing on the company’s books.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

49. All errors in a bank reconciliation will result in a journal entry being made by the company.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

50. A deposit in transit is a deposit that has been recorded in the company’s books but not yet recorded by the bank.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

51. If a company deposits all its receipts in the bank and pays all its bills by cheque, then the monthly bank statement balance will always agree with the company's record of its chequing account balance.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

52. A company’s cash deposit, while appearing as a debit on the company’s books, would be shown as a credit on company’s bank statement.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

53. An NSF cheque would always result in a journal entry by the company.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

54. The outstanding cheques should always decrease in subsequent months if no new cheques have been issued by the company.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

55. A debit memo by a bank would mean that a journal entry by the bank would be necessary.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

56. Bank service charges are normally debited to Bank Charges Expense.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

57. Stale-dated cheques would not be reported as cash on the balance sheet.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

58. Most Canadian companies list cash first on the balance sheet because it is the most liquid of assets.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

59. Cash is listed in the current asset section of the balance sheet.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

60. International companies frequently list current assets in increasing order of liquidity.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

61. Because cash is a company’s most liquid asset it is typically listed first in the current asset section of the balance sheet.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

MULTIPLE CHOICE QUESTIONS

62. Which of the following is not a control activity?

a) financial reporting

b) independent checks of performance

c) documentation procedures

d) physical and IT controls

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

63. The internal audit function is only effective when

a) control tasks are properly performed.

b) the results of an internal audit are reported to senior management and/or the company’s owners.

c) independent checks of performance are carried out on a regular basis.

d) reports are filed with the CICA.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

64. Internal control helps an organization achieve all of the following except

a) reliable financial reporting.

b) compliance with relevant laws and regulations.

c) absolute assurance that fraud will not occur.

d) effective and efficient operations.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

65. Documentation procedures do not include which of the following?

a) pre-numbered documents

b) source documents sent promptly to the accounting department

c) all controls written down and kept updated

d) alarms set at the close of the business day

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

66. An example of physical and IT controls would not include which of the following?

a) source documents sent promptly to the accounting department

b) alarms set at the close of the business day

c) computer facilities requiring a password or fingerprint

d) time clocks used to record time worked

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

67. Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them

a) increases the potential for errors and fraud.

b) decreases the potential for errors and fraud.

c) is an example of good internal control.

d) is a good example of safeguarding the company's assets.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

68. Internal auditors

a) are hired by CPA firms to audit business firms.

b) are employees of the Canada Revenue Agency who evaluate the internal controls of companies filing tax returns.

c) evaluate the system of internal controls for the companies that employ them.

d) cannot evaluate the system of internal controls of the company that employs them because they are not independent.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

69. When two or more people get together for the purpose of circumventing prescribed controls, it is called

a) a fraud committee.

b) collusion.

c) a division of duties.

d) bonding of employees.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Ethics

70. The control activity related to not having the same person authorize and pay for goods is known as

a) establishment of responsibility.

b) independent check of performance.

c) segregation of duties.

d) rotation of duties.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

71. Independent internal and/or external checks of performance would not include the following:

a) the checking should be done periodically or by surprise.

b) the checking should be done by someone who is independent of the employee who is responsible for the information.

c) locked warehouses are used for storage of inventory.

d) discrepancies should be reported to a management level that can do whatever is necessary to correct the situation.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

72. Two individuals at a retail store work the same cash register. You evaluate this situation as

a) a violation of establishment of responsibility.

b) a violation of segregation of duties.

c) supporting the establishment of responsibility.

d) supporting independent checks of performance.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

73. An accounts payable clerk also can change the approved supplier master file for purchases. The control activity

a) establishment of responsibility is violated.

b) independent check of performance is violated.

c) documentation procedures is violated.

d) segregation of duties is violated.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

74. In terms of segregation of duties, which one of the following is not related to the other three?

a) ordering the merchandise

b) making a sale

c) shipping the goods

d) billing the customer

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

75. In terms of segregation of duties, related buying activities include

a) ordering, receiving, paying.

b) ordering, selling, paying.

c) ordering, shipping, billing.

d) selling, shipping, paying.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

76. Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

a) documentation procedures are violated.

b) internal independent check of performance is violated.

c) segregation of duties is violated.

d) establishment of responsibility is violated.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

77. Peter Griffin has worked for Happy Go Luck Toy Company for 20 years without taking a vacation. An internal control that would address this situation would be

a) human resource control.

b) physical and IT controls.

c) establishment of responsibility.

d) documentation procedures.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

78. A system of internal control

a) can never fail.

b) can be ineffective if employees collude.

c) will have costs exceeding benefits.

d) is based on the concept of absolute assurance.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

79. Which of the following factors does not contribute to fraudulent activities?

a) opportunity

b) promotion

c) financial pressure

d) rationalization

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Ethics

80. Which of the following is not an example of financial pressure to commit fraud?

a) gambling

b) too much debt

c) drug addiction

d) inexpensive lifestyle

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Ethics

81. Which of the following is not considered a control activity?

a) reliable financial reporting

b) physical controls

c) independent checks of performance

d) segregation of duties

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Analytic

82. Which of the following is not an element of the fraud triangle?

a) rationalization

b) opportunity

c) necessity

d) financial pressure

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

CPA: Financial Reporting

AACSB: Ethics

83. Having one person receive all cash and a different person post to the Accounts Receivable account in the general ledger is an example of

a) inadequate internal control.

b) duplication of effort.

c) independent check of performance.

d) segregation of duties.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

84. Stamping paid invoices “PAID” is an example of which of the following controls?

a) independent checks of performance

b) segregation of duties

c) documentation procedures

d) human resource controls

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

85. Documentation procedures over cash payments include all of the following EXCEPT

a) using pre-numbered cheques.

b) ensuring each cheque has an approved invoice.

c) accounting for the numerical sequence of all cheques.

d) reconciling bank statements monthly.

Difficulty: Easy

Learning Objective: Define cash and internal control.

Section Reference: Cash and Internal Control

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

86. From an internal control standpoint, the asset most susceptible to improper diversion and use is

a) inventory.

b) cash.

c) short-term investments.

d) accounts receivable.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

87. Krusty’s Convenience is open 7 days a week. The cash receipts from Saturday and Sunday are kept in an envelope in a back storage room and are deposited each Monday morning. This process violates which internal control activity?

a) establishment of responsibility

b) safeguarding of assets and records

c) segregation of duties

d) independent checks of performance

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

88. All of the following parties are involved when bank credit cards are used to make a retail sale, except

a) the bank credit card company.

b) the retailer.

c) the customer’s supplier.

d) the customer.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

89. Internal control over cash receipts will include all of the following except

a) only designated personnel are authorized to handle cash receipts.

b) only one authorized person will receive the cash and record the cash receipts.

c) use of cash registers.

d) employees are required to take vacation.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

90. Which of the following transactions are not covered by the term “electronic funds transfer”?

a) prepaid smart cards

b) debit and credit card transactions

c) mail-in cheques

d) electronic bill payments using on-line banking

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

91. Brian Griffin purchases books from Book Worms Co. for $1,000, using his Royal Bank Financial Group VISA card. The service fee the bank charges Book Worms is 3%. The entry made to record the transaction by Book Worms is

a) Cash 1,000

Sales 1,000

b) Cash 970

Credit Card Expense 30

Sales 1,000

c) Cash 970

Sales 970

d) Accounts Receivable—VISA 970

Credit Card Expense 30

Sales 1,000

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

92. Daisy Duke filled up her vehicle using her debit card. The cost of the fill up was $50. Each time a customer uses a debit card Petro Canada is charged a transaction fee of $0.50. The entry to record the transaction by Petro Canada is

a) Accounts Receivable 50

Sales 50

b) Cash 49.50

Debit Card Expense 0.50

Sales 50

c) Cash 50

Sales 50

d) Accounts Receivable 49.50

Debit Card Expense 0.50

Sales 50

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

93. Sales using a retailer’s own credit card are considered to be

a) cash.

b) prepaid expenses.

c) accounts receivable.

d) bank loans.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

94. Choose the statement that is most incorrect. Cheques received through the mail should

a) immediately be endorsed "For Deposit Only."

b) sometimes be verified against the customer’s bank balance. A clerk could call the customer’s bank to ensure that the customer has sufficient funds to cover the cheque.

c) be deposited at the bank as soon as possible.

d) be "rung up" on a cash register immediately.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

95. Proper control for over-the-counter cash receipts includes

a) a cash register with totals visible to the customer.

b) using electronic cash registers with no tapes.

c) placing each customer deposit in a separate envelope.

d) placing each customer deposit in a safety deposit box.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

96. The daily cash count of cash register receipts made by department supervisors is an example of

a) documentation procedures.

b) internal independent check of performance.

c) establishment of responsibility.

d) segregation of duties.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

97. When customers make purchases with a bank credit card, the retailer

a) is responsible for maintaining customer accounts.

b) is not involved in the collection process.

c) absorbs any losses from uncollectible accounts.

d) receives cash equal to the full price of the merchandise sold from the credit card company.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

98. The retailer considers VISA and MasterCard sales as

a) cash sales.

b) promissory sales.

c) credit sales.

d) contingent sales.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

99. Which of the following has the greatest internal control?

a) payments made by credit card

b) payments made by cheque

c) payments made by electronic funds transfer

d) payments made by cash

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

100. Electronic funds transfers are used to

a) reduce the risk of lost or stolen cheques.

b) reduce the cost of making payments by cheque.

c) make payroll payments to employees.

d) all of the above

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

101. Control over cash payments is generally more effective when

a) all bills are paid when due.

b) payments are made by the accounts payable subsidiary clerk.

c) payments are made by cheque.

d) all purchases are made by one individual.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

102. The use of automatic pre-authorized monthly bill payments

a) has declined significantly in Canada over the past several years.

b) reduces the effectiveness of an organization’s internal control system.

c) is a form of electronic funds transfer.

d) substantially increases the amount of paperwork required by the accounting department.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

103. An employee authorized to sign cheques should not record

a) owner cash contributions.

b) mail receipts.

c) cash payment transactions.

d) sales transactions.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

104. Which of the following is not considered a control activity over cash receipts?

a) Different individuals approve and make payments.

b) Only designated personnel are authorized to handle cash receipts.

c) Use remittance advices, cash register tapes, and deposit slips.

d) Supervisors count cash receipts daily.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

105. Which of the following is not considered a control activity over cash payments?

a) Different individuals approve and make payments.

b) Compare cheques with invoices.

c) Use remittance advices, cash register tapes, and deposit slips.

d) Use electronic payments when possible.

Difficulty: Easy

Learning Objective: Apply control activities to cash receipts and cash payments.

Section Reference: Cash Controls

CPA: Financial Reporting

AACSB: Analytic

106. The entry to replenish a petty cash fund includes a credit to

a) Petty Cash.

b) Cash.

c) Freight Out.

d) Postage Expense.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

107. The account to debit when the petty cash is short is

a) Petty Cash.

b) Cash.

c) Bank Charges.

d) Cash Over and Short.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

108. A debit balance in Cash Over and Short is reported as a

a) contra asset.

b) miscellaneous asset.

c) miscellaneous expense.

d) miscellaneous revenue.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

109. A petty cash fund of $100 is replenished when the fund contains $5 in cash and receipts for $93. The entry to replenish the fund would include a

a) credit to Cash Over and Short for $2.

b) credit to Miscellaneous Revenue for $2.

c) debit to Cash Over and Short for $2.

d) debit to Miscellaneous Expense for $2.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

110. A petty cash fund is generally established in order to

a) pay for all merchandise purchased on account.

b) pay employees’ wages.

c) make loans internally to employees.

d) pay relatively small expenditures.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

111. A petty cash fund should be replenished

a) every day.

b) at the end of every accounting period.

c) once a year.

d) as soon as an expense is paid from the fund.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

112. A petty cash fund should not be used for

a) postage due.

b) loans to the petty cash custodian.

c) taxi fares.

d) customer lunches.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

113. Water Inc. maintains a petty cash fund with a balance of $100. A disbursement of $10 from the fund for postage is recorded as an expense in the accounting records

a) at the time the cash is taken from the fund.

b) when the postage is used.

c) when the petty cash fund is replenished.

d) when the adjusting entries are prepared at year end.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

114. Entries are made to the Petty Cash account when

a) establishing the fund.

b) making payments out of the fund.

c) recording shortages in the fund.

d) replenishing the fund.

Difficulty: Easy

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

115. Lion Supplies has an established petty cash fund of $100. At the replenish date of June 20, the petty cash fund has $15 cash and receipts for postage $25, office supplies $25, and miscellaneous $30. Lian also decided at the replenish date to increase the petty cash fund by $25 to a total fund of $125. What would be the required debit to Petty Cash in the combined replenish entry on June 20?

a) $110

b) $85

c) $25

d) $0

Difficulty: Medium

Learning Objective: Describe the operation of a petty cash fund.

Section Reference: Petty Cash Fund

CPA: Financial Reporting

AACSB: Analytic

116. Clearing is the process whereby

a) the bank account balance agrees with the company’s accounting records.

b) the signature on the cheque is compared to the signature card.

c) a cheque or deposit is accepted by the maker’s bank.

d) a deposit agrees with the daily cash receipts.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

117. A bank statement

a) lets a depositor know the financial position of the bank as at a certain date.

b) is a credit reference letter written by the depositor's bank.

c) is a bill from the bank for services rendered.

d) shows the activity that increased or decreased the depositor's account balance.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

118. Which one of the following would not cause a bank to debit a depositor's account?

a) bank service charge

b) an electronic funds transfer to the depositor’s account

c) wiring of funds to other locations

d) returned cheques marked NSF

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

119. A company maintains the asset account, Cash in Bank, on its books, while the bank maintains a reciprocal account that is

a) a contra-asset account.

b) a liability account.

c) also an asset account.

d) an owner's equity account.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

120. Which of the following is not a party to a cheque?

a) maker

b) auditor

c) payee

d) bank

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

121. A deposit made by a company will appear on the bank statement as a

a) debit.

b) credit.

c) debit memorandum.

d) credit memorandum.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

122. A cheque marked "NSF" means

a) no service fee.

b) no signature found.

c) not satisfactorily filled out.

d) not sufficient funds.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

123. A debit memorandum would not be issued by the bank for

a) certifying cheques.

b) the issuance of traveller's cheques.

c) transferring funds to other locations.

d) an electronic funds transfer received from a customer’s account.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

124. Electronic funds transfer

a) occurs when a company has a computerized cash register.

b) occurs when a company downloads bank details to a company computer.

c) occurs when a certified cheque is requested.

d) is a system that electronically transfers funds between parties without the use of paper.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

125. A bank reconciliation should be prepared

a) whenever the bank refuses to lend the company money.

b) when an employee is suspected of fraud.

c) to explain any difference between the depositor's balance per books with the balance per bank.

d) by the person who is authorized to sign cheques.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

126. Deposits in transit

a) have been recorded on the company's books but not yet by the bank.

b) have been recorded by the bank but not yet by the company.

c) have not been recorded by the bank or the company.

d) are cheques from customers that have not yet been received by the company.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

127. In preparing a bank reconciliation, outstanding cheques are

a) added to the balance per bank.

b) deducted from the balance per books.

c) added to the balance per books.

d) deducted from the balance per bank.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

128. If a cheque correctly written and paid by the bank for $528 is incorrectly recorded on the company's books for $582, the appropriate treatment on the bank reconciliation would be to

a) add $54 to the bank's balance.

b) add $54 to the book's balance.

c) deduct $54 from the bank's balance.

d) deduct $528 from the book's balance.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

129. Notification by the bank that a deposited customer cheque was returned NSF requires that the company make the following journal entry:

a) Accounts Receivable

Cash

b) Cash

Accounts Receivable

c) Miscellaneous Expense

Accounts Receivable

d) No adjusting entry is necessary.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

130. Dairy Company had cheques outstanding totalling $6,400 on its May 31 bank reconciliation. In June, Dairy Company issued cheques totalling $38,900. The June bank statement shows that $26,300 in cheques cleared the bank in June. A cheque from one of Dairy Company's customers in the amount of $300 was also returned marked "NSF." The amount of outstanding cheques on Dairy Company's June 30 bank reconciliation should be

a) $12,600.

b) $19,000.

c) $17,700.

d) $7,200.

Difficulty: Medium

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

131. Burns Company gathered the following reconciling information in preparing its April bank reconciliation:

Cash balance per books, April 30 $3,500

Deposits in transit 150

EFT collections by bank 850

Bank charge for cheque printing 20

Outstanding cheques 2,000

NSF cheque 170

The adjusted cash balance per books on April 30 is

a) $4,160.

b) $4,010.

c) $2,310.

d) $2,460.

Difficulty: Medium

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

132. Bank errors

a) occur because of time lags.

b) must be corrected by debits.

c) must be corrected by the bank.

d) are corrected by making an adjusting entry on the depositor's books.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

133. A journal entry is not required for

a) outstanding cheques.

b) EFT collections.

c) NSF cheques.

d) bank service charges.

Difficulty: Easy

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

134. Which the following is the primary cause for discrepancy between the bank statement and the company’s general ledger cash account?

a) Time lags that prevent one of the parties from recording a transaction in the same period as the other.

b) Fraudulent activity occurring with the cash account.

c) Unusual items would be the only cause since discrepancies rarely occur between the bank statement and the general ledger cash account.

d) The only reason for discrepancies would be errors made by either the company or the bank.

Difficulty: Medium

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

135. Which the following would result in a journal entry after preparing the bank reconciliation?

a) An error made by the bank for a deposit made in the amount of $650 and recorded as $560 in error.

b) Deposit made by the company in the amount of $650.

c) EFT receipt from customer on account.

d) Outstanding cheque in the amount of $250 issued by the company but not yet cleared by the bank.

Difficulty: Medium

Learning Objective: Describe the control features of a bank account and prepare a bank reconciliation.

Section Reference: Bank Accounts

CPA: Financial Reporting

AACSB: Analytic

136. All of the following are considered to be cash except

a) cheques.

b) debit card receipts.

c) nonbank credit card slips.

d) money orders.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

137. Which one of the following items would not be considered cash?

a) coins

b) money orders

c) currency

d) postdated cheques

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

138. Which of the following would not be reported on the balance sheet as a cash equivalent?

a) money market fund

b) 60-day guaranteed investment certificate

c) restricted funds for plant expansion in two years

d) three-month treasury bill

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

139. A bank overdraft would be reported as

a) a current liability.

b) part of the current asset cash account.

c) restricted funds.

d) accounts receivable.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

140. A bank overdraft occurs

a) after a bank reconciliation.

b) when a cheque is written for more than the amount in the bank account.

c) when a previously deposited customer cheque bounces.

d) when an error is discovered.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

141. When reporting cash, many companies combine cash with

a) cash equivalents.

b) bank overdrafts.

c) short-term investments.

d) accounts receivable.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

142. Restricted cash is defined as

a) a temporary investment that is due in 90 days.

b) cash that is to be used for a special purpose.

c) cash that is held in a U.S. bank.

d) a cash overdraft.

Difficulty: Easy

Learning Objective: Report cash on the balance sheet.

Section Reference: Reporting Cash

CPA: Financial Reporting

AACSB: Analytic

MATCHING QUESTIONs

143. Match the items below by entering the appropriate code letter in the space provided.

A. Pre-numbered documents

B. Custody of an asset should be kept separate from the record-keeping for that asset

C. Cash registers, garment sensors, and burglar alarms are examples

D. Bonding employees

E. Collusion

F. Payee

G. Maker

H. NSF cheques

I. Outstanding cheques

J. Petty cash receipt

K. Cash equivalents

L. Bank service charge

1. Segregation of duties

2. One to whom a cheque is payable

3. Two or more employees circumventing prescribed procedures

4. Prevent a transaction from being recorded more than once

5. Cheques that have been returned by the maker's bank for lack of funds

6. Physical control device

7. One who issues a cheque

8. Insurance protection against misappropriation of assets

9. Document indicating the purpose of a petty cash expenditure

10. Bank charge for the use of its services

11. Issued cheques that have not been paid by the bank

12. Highly liquid investments