BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A.

Diaz
1.

INTERNAL CONTROL

Which one of the following is not an objective of a system of internal controls? a. Safeguard company assets b. Overstate liabilities in order to be conservative c. Enhance the accuracy and reliability of accounting records d. Reduce the risks of errors B is correct. Section "Internal control" Internal controls incorporate policies to safeguard assets, enhance the completeness, accuracy and reliability of accounting records and reduce the risk of errors. Which one of the following is not an objective of a system of internal controls? a. Safeguard company assets b. Enhance the accuracy and reliability of accounting records c. Fairness of the financial statements d. Reduce the risks of errors C is correct. Section "Internal control" Internal controls incorporate policies to safeguard assets, enhance the completeness, accuracy and reliability of accounting records and reduce the risk of errors. All of the following are examples of internal control procedures except a. using pre-numbered documents b. reconciling the bank statement c. customer satisfaction surveys d. insistence that employees take vacations C is correct. Section "Internal control" Customer satisfaction surveys are not an internal control procedure. Each of the following is a feature of internal control except a. an extensive marketing plan b. safeguard its assets from theft c. separation of duties d. recording of all transactions A is correct. Section "Internal control" An extensive marketing plan is not a feature of internal control. Each of the following is a feature of internal control except a. limited access to assets b. independent internal verifications c. authorisation of transactions d. adequate design of documents D is correct. Section "Internal control" Adequate document design is not a feature of internal control. Which of the following is not a limitation of internal control? a. cost of establishing control procedures should not exceed their benefit b. the human element c. collusion d. the size of the company C is correct. Section "Internal control" Collusion is not a limitation of internal control. Internal controls are concerned with a. only manual systems of accounting b. the extent of government regulations c. safeguarding assets d. preparing income tax returns C is correct. Section "Internal control" Internal controls include a focus on safeguarding assets. 7. 6. 5. 4. 3. 2.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

8.

INTERNAL CONTROL

Internal control is defined, in part, as a plan that safeguards a. all balance sheet accounts. b. assets c. liabilities d. capital B is correct. Section "Internal control" Internal control is defined, in part, as a plan that safeguards a companys assets. 9. Internal controls are not designed to safeguard assets from a. natural disasters b. employee theft c. robbery d. unauthorised use A is correct. Section "Internal control" Internal controls are not designed to safeguard assets from natural disasters. 10. 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 A is correct. Section "Internal control" Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them increases the potential for errors and fraud. The custodian of a company asset should a. have access to the accounting records for that asset b. be someone outside the company c. not have access to the accounting records for that asset d. be an accountant C is correct. Section "Internal control" The custodian of a company asset should not have access to the accounting records for that asset. Internal auditors a. are external consultants hired to audit business firms b. are employees of the ATO 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 C is correct. Section "Internal control" Internal auditors evaluate the system of internal controls for the companies that employ them. 13. 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 B is correct. 12. 11.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

INTERNAL CONTROL

Section "Internal control" Collusion is when two or more people get together for the purpose of circumventing prescribed controls. The principle of establishing responsibility does not include a. one person being responsible for one task b. authorisation of transactions c. independent internal verification d. approval of transactions C is correct. Section "Internal control" Independent internal verification is not one of the principles of establishing authority. 15. The control principle related to not having the same person authorise and pay for goods is known as a. establishment of responsibility b. independent internal verification c. separation of duties d. rotation of duties C is correct. Section "Internal control" Separation of duties does not have the same person authorise and pay for goods. 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 separation of duties c. supporting the establishment of responsibility d. supporting internal independent verification A is correct. Section "Internal control over cash" When two individuals work at the same cash register it violates the establishment of responsibility. 17. An accounts payable clerk has access to the approved supplier master file for purchases. The control principle of a. establishment of responsibility is violated b. independent internal verification is violated c. documentation procedures is violated d. separation of duties is violated 16. 14.

D is correct. Section "Internal control" If one person has access to a supplier master file and is responsible for making payments to those suppliers the control principle of separation of duties is violated. Related selling activities do not include a. ordering the merchandise b. making a sale c. shipping the goods d. billing the customer A is correct. Section "Internal control" Ordering the merchandise is not related to selling activities, it is related to purchasing activities. 19. Related buying activities include a. ordering, receiving, paying b. ordering, selling, paying c. ordering, shipping, billing d. selling, shipping, paying A is correct. 18.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

INTERNAL CONTROL

Section "Internal control" Ordering, receiving and paying are related buying activities. Physical controls to safeguard assets do not include a. cashier department supervisors b. vaults c. safety deposit boxes d. locked warehouses A is correct. Section "Internal control" Cashier department supervisors are not safeguards to assets. In large companies, the independent internal verification procedure is often assigned to a. computer operators b. management c. internal auditors d. outside accounting firms C is correct. Section "Internal control" Internal auditors often provide an independent internal verification for large companies. Maximum benefit from independent internal verification is obtained when a. it is made on a pre-announced basis b. it is done by the employee possessing custody of the asset c. discrepancies are reported to management d. it is done at the time of the audit C is correct. Section "Internal control" The maximum benefit from independent internal verification is obtained when discrepancies are reported to management. A system of internal control a. is infallible b. can be rendered ineffective by employee collusion c. invariably will have costs exceeding benefits d. is premised on the concept of absolute assurance B is correct. Section "Internal control" A system of internal control can be rendered ineffective by employee collusion. 24. use is From an internal control standpoint, the asset most susceptible to improper diversion and a. b. c. d. prepaid insurance cash buildings land 23. 22. 21. 20.

B is correct. Section "Internal control over cash" Cash is most susceptible to improper diversion and use from an internal control point. Which one of the following items would not be considered cash? a. Coins b. Money orders c. Currency d. Postdated cheques D is correct. Section "Internal control over cash" Postdated cheques are not considered cash. 26. Cash equivalents do not include 25.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

a. b. c. d. money market accounts commercial paper Treasury bills investment securities

INTERNAL CONTROL

D is correct. Section "Internal control over cash" Investment securities are not considered cash or cash equivalents. The reconciliation of the cash register tape with the cash in the register is an example of a. other controls b. independent internal verification c. establishment of responsibility d. segregation of duties B is correct. Section "Internal control over cash" The reconciliation of the cash register tape with the cash in the register is an example of independent internal verification. Which of the following is not an internal control procedure for cash? a. Payments should be made with cash b There should be limited access to cash c. The amount of cash on hand should be kept to a minimum d. Cash should be deposited daily A is correct. Section "Internal control over cash" Making payments with cash is not an internal control procedure for cash. Control over cash disbursements is generally more effective when a. all bills are paid in cash b. disbursements are made by the accounts payable subsidiary clerk c. payments are made by cheque d. all purchases are made on credit C is correct. Section "Internal control over cash" when payments are made by cheque, control over cash disbursements is generally more effective. Supervisors counting cash receipts daily is an example of a. other controls b. independent internal verification c. establishment of responsibility d. segregation of duties B is correct. Section "Internal control over cash" A supervisor counting cash receipts daily is an example of independent internal verification. Which of the following is not a suggested procedure to establish internal control over cash disbursements? a. Anyone can sign the cheques b. Different individuals approve and make the payments c. Blank cheques are stored with limited access d. The bank statement is reconciled monthly A is correct. Section "Internal control over cash" One suggested procedure to establish internal control over cash disbursements is to have only authorised persons such as a manager sign the cheques. 32. Which of the following is not an internal control procedure for cash? a. Only designated personnel are authorised to handle cash b. The same individual receives the cash and pays the bills 31. 30. 29. 28. 27.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

c. d.

INTERNAL CONTROL

Surprise audits of cash on hand should be made occasionally Access to cash is limited

B is correct. Section "Internal control over cash" Having the same individual receive the cash and pay the bills is not an internal control procedure for cash. The use of pre-numbered cheques is an example of a. documentation procedures b. independent internal verification c. establishment of responsibility d. segregation of duties A is correct. Section "Internal control over cash" Using pre-numbered cheques is an example of documentation. 33.

An exception to disbursements being made by cheque is acceptable when cash is paid a. to an owner b. to employees as wages c. from petty cash d. to employees as loans C is correct. Section "Internal control over cash" Making payments from petty cash is an exception to making disbursements by cheque. Allowing only the financial controller to sign cheques is an example of a. documentation procedures b. separation of duties c. other controls d. establishment of responsibility D is correct. Section "Internal control over cash" Allowing only the financial controller to sign cheques is an example of the establishment of responsibility. An employee authorised to sign cheques should not record a. owner cash contributions b. mail receipts c. cash disbursement transactions d. sales transactions C is correct. Section "Internal control over cash" An employee who is authorised to sign cheques should not record cash disbursement transactions. Electronic funds transfer (EFT) is a disbursement system that transfers cash from one location to another using a. telephone b. telegraph c. computer d. all of these D is correct. Section "Internal control over cash" electronic funds transfers can be made using any of these methods. 38. A bank statement a. lets a depositor know the financial position of the bank as of a certain date b. is a credit reference letter written by the depositors bank 37. 36. 35.

34.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

c. d.

INTERNAL CONTROL

is a bill from the bank for services rendered shows the activity that increased or decreased the depositors account balance

D is correct. Section "Bank reconciliation" A bank statement shows the activities that caused changes to the depositors bank balance. Which one of the following would not cause a bank to debit a depositors account? a. Bank service charge b. Collection of a note receivable c. EFT of funds to other locations d. Cheques marked NSF B is correct. Section "Bank reconciliation" The collection of a not receivable would cause a bank to credit a depositors account. A company maintains the asset account, Cash, 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 B is correct. Section "Bank reconciliation" If a company maintains an asset account, Cash, then the bank maintains a reciprocal account that is a liability account. A deposit made by a company will appear on the bank statement as a a. debit b. credit c. debit memorandum d. credit memorandum B is correct. Section "Bank reconciliation" a deposit made by a company will appear on the bank statement as a credit. Which of the following would be deducted from the balance per books on a bank reconciliation? a. Outstanding cheques b. Deposits in transit c. Notes collected by the bank d. Service charges B is correct. Section "Bank reconciliation" Deposits in transit are deducted from the book balance on a bank reconciliation. 43. Which of the following would be added to the balance per books on a bank reconciliation? a. Outstanding cheques b. Deposits in transit c. Notes collected by the bank d. Service charges C is correct. Section "Bank reconciliation" Notes collected by the bank are added to the book balance on a bank reconciliation. 44. Which of the following would be deducted from the balance per bank on a bank 42. 41. 40. 39.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

INTERNAL CONTROL

reconciliation? a. Outstanding cheques b. Deposits in transit c. Notes collected by the bank d. Service charges A is correct. Section "Bank reconciliation" Outstanding cheques are deducted from the bank balance on a bank reconciliation. 45. Which of the following would be added to the balance per bank on a bank reconciliation? a. Outstanding cheques b. Deposits in transit c. Notes collected by the bank d. Service charges B is correct. Section "Bank reconciliation" Deposits in transit are added to the bank balance on a bank reconciliation. 46. 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 authorised to sign cheques

C is correct. Section "Bank reconciliation" A bank reconciliation should be prepared to explain any difference between the depositors balance per books and the balance per bank. 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 customers cheques that have not yet been received by the company A is correct. Section "Bank reconciliation" Deposits in transit have been recorded on the companys books but not yet by the bank. 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 D is correct. Section "Bank reconciliation" In preparing a bank reconciliation, outstanding cheques are deducted from the balance per bank. 49. If a cheque correctly written and paid by the bank for $438 is incorrectly recorded on the company's books for $483, the appropriate treatment on the bank reconciliation would be to a. add $45 to the bank's balance b. add $45 to the book's balance c. deduct $45 from the bank's balance d. deduct $438 from the book's balance 48. 47.

B is correct.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

INTERNAL CONTROL

Section "Bank reconciliation" The appropriate treatment in this situation is to add $45 to the books balance. A cheque for $157 is incorrectly recorded by a company as $175. On the bank reconciliation, the $18 error should be a. added to the balance per books b. deducted from the balance per books c. added to the balance per bank d. deducted from the balance per bank A is correct. Section "Bank reconciliation" In this situation the $18 error should be added to the balance per books. 51. For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation? a. Cheque for $43 recorded as $34 b. Deposit of $500 recorded by bank as $50 c. A returned $200 cheque recorded by bank as $20 d. Cheque for $35 recorded as $53 B is correct. Section "Bank reconciliation" A deposit recorded by the bank as less than it actually is would be added to the balance per bank on a bank reconciliation. Which of the following bank reconciliation items would not result in an adjusting entry? a. Service charge b. Outstanding cheques c. A dishonoured cheque of customer d. Collection of a note by the bank B is correct. Section "Bank reconciliation" Outstanding cheques do not require an adjusting entry in a bank reconciliation. Which of the following items on a bank reconciliation would require an adjusting entry on the companys books? a. An error by the bank b. Outstanding cheques c. A bank service charge d. A deposit in transit C is correct. Section "Bank reconciliation" A bank service charge would require an adjusting entry following a bank reconciliation. Management of cash is the responsibility of the company a. accountant b. finance director or finance manager c. president d. chief executive officer B is correct. Section "Managing and monitoring cash" Cash management is usually the responsibility of the finance director or finance manager. 55. Which of the following is not a basic principle of cash management? a. Increase collection of receivables b. Keep inventory levels high c. Delay payment of liabilities d. Invest idle cash 54. 53. 52. 50.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

INTERNAL CONTROL

B is correct. Section "Managing and monitoring cash" Maintaining high inventory levels is not a principle of cash management. Which of the following is not a basic principle of cash management? a. Increase collection of receivables b. Keep inventory levels low c. Pay all liabilities early d. Invest idle cash C is correct. Section "Managing and monitoring cash" Paying liabilities when they are due i.e. not late and not early, is a principle of cash management. 57. The ratio of cash to daily cash expenses is calculated by dividing a. cash by total expenses b. cash and cash equivalents by total expenses c. cash by daily cash expenses d. cash and cash equivalents by average daily cash expenses 56.

D is correct. Section "assessing cash adequacy" The ratio of cash to daily cash expenses is calculated by dividing cash and cash equivalents by average daily cash expenses. The following information is available for Gibson Company: net income $1,200 million; net cash provided by operating activities $950 million; total expenses $1,700 million; depreciation expense $240 million; cash dividends $200 million; capital expenditures $500 million; and cash and cash equivalents $800 million. Gibsons cash to daily cash expenses ratio is calculated as a. $950 ($1,700 365) b. $800 ($1,700 365) c. $950 [($1,700 - $240) 365] d. $800 [($1,700 - $240) 365] D is correct. Section "assessing cash adequacy" The ratio of cash to daily cash expenses is calculated by dividing cash and cash equivalents by average daily cash expenses. 59. The following information is available for Donner Company: net income $1,100 million; net cash provided by operating activities $800 million; total expenses $1,500 million; depreciation expense $240 million; cash dividends $200 million; capital expenditures $500 million; and cash and cash equivalents $600 million. Donners cash to daily cash expenses ratio is calculated as a. $800 ($1,500 365) b. $600 ($1,500 365) c. $800 [($1,500 - $240) 365] d. $600 [($1,500 - $240) 365] D is correct. Section "assessing cash adequacy" The ratio of cash to daily cash expenses is calculated by dividing cash and cash equivalents by average daily cash expenses. Receivables are claims that are expected to be met in a. cash b. inventory c. liabilities d. shares A is correct. Section "Receivables" receivables are claims that are expected to be met in cash. 60. 58.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

61.

INTERNAL CONTROL

Accounts receivable includes a. non-trade receivables b. amounts owed by customers on account c. interest receivable d. loans to company officers B is correct. Section "Receivables" Accounts receivable includes amounts owed by customers on account. Accounts receivable are reported on the balance sheet as a/an a. liability b. equity c. asset d. revenue C is correct. Section "Receivables" Accounts receivable are reported on the balance sheet as an asset. Under the direct write-off method, when a particular account is considered to be uncollectible, the loss is charged to a. revenue b. accounts receivable c. allowance for doubtful debts d. bad debts expense D is correct. Section "Receivables" Under the direct write-off method, when a particular account is considered to be uncollectible, the loss is charged to bad debts expense. The method being used to determine the amount of the allowance for doubtful debts that relies on a schedule in which customers balances are classified by the length of time they have been unpaid, is known as the a. direct write-off method b. net realisable method c. aged accounts receivable method d. conservatism method C is correct. Section "Receivables" Ageing the accounts receivable allows the allowance for doubtful debts to be determined. 64. 63. 62.

Receivables that mature within the entitys operating cycle are classified in the balance sheet as a. equity b. liabilities c. non-current assets d. current assets D is correct. Section "Receivables" Receivables that mature within the entitys operating cycle are classified in the balance sheet as current assets. The recoverable amount of trade receivables is shown in the a. income statement b. balance sheet c. statement of changes in equity d. cash flow statement B is correct. Section "Receivables" The recoverable amount of receivables is shown in the balance sheet. 66.

65.

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BOOKKEEPING REVIEW MATERIALS Reviewer: Mr. Marlon A. Diaz

67.

INTERNAL CONTROL

Managing accounts receivable involves five steps of which the following occurs first a. determine to whom to extend credit b. accelerate cash receipts from receivables c. establish a payment period d. monitor the collection A is correct. Section "Managing receivables" The management of accounts receivable firstly involves the determination of whom to extend credit to. The credit risk ratio is calculated by dividing the allowance for doubtful debts by a. total sales b. total assets c. accounts receivable d. 365 days C is correct. Section "Managing receivables" The credit risk ratio is calculated by dividing the allowance for doubtful debts by accounts receivable. 69. Which of the following will not help minimise potential losses resulting from credit customers a. Letters of credit/bank guarantees b. Cash on delivery c. bank/supplier references d. Extended payment period D is correct. Section "Cash" An extended payment period will not minimise potential losses from credit customers. The receivables turnover ratio is used to assess the liquidity of the: a. customer b. receivables c. business d. assets B is correct. Section "Managing receivables" The receivables turnover ratio is used to assess the liquidity of the receivables. 70. 68.

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