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Exam 8: Cash and Internal Controls

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Question 81

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Internal control systems are subject to limitations that usually arise from either (1)human error or human fraud, or (2)the cost-benefit principle.

A) True
B) False

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Question 82

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The clerk who has access to the cash in the cash register should also have access to the cash register tape or file.

A) True
B) False

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Question 83

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Liquidity refers to a company's ability to pay its long-term obligations.

What is a voucher system and what are the two areas for which it establishes control procedures?

Internal control systems are:

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.

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: $\begin{array}{|l|r|}\hline \text { Deposit in transit } & \$ 4,500 \\\hline \text { Outstanding checks } & \$ 3,900 \\\hline \text { Bank service fees, not yet recorded by company } & \$ 50 \\\hline \text { The bank collected on a note receivable, not yet recorded by the company } & \$ 1,725\\\hline\end{array}$ The adjusted cash balance should be:

When using a voucher system, what are the steps on the invoice approval checklist that must be completed before an invoice approval is complete and a voucher prepared?

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

All of the following are considered effective cash management principles except:

A bank does not issue a debit memorandum to notify the depositor of which of the following?

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

A credit memorandum on a bank statement indicates:

Maintaining adequate records is an important internal control principle.

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

Principles of internal control include all of the following except:

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

The days' sales uncollected ratio measures the liquidity of accounts receivable.

The treasurer of a company is responsible for cash management. List five cash management principles that are essential for effective cash management.

A debit memorandum on a bank statement indicates: