Accounting Chp 8

The use of internal controls provides guaranteed protection against losses due to operating activities
True False

A properly designed internal control system is a key part of accounting info systems design, analysis and preformance
True False

Internal control policies and procedures are identical across companies

Maintaining adequate records is an important internal control principle
True False

Proper internal control means that responsibilitiy for a task is clearly established and assigned to one person.
True False

Technology such as cash registers, check protectors, time clocks and personal identification scanners can improve internal control.
True False

An internal control system refers to the policies and procedures companies use to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.
True False

Internal control systems used to monitor and control operations are a low priority for managers.
True False

The principles of internal control include: establish responsibilities, maintain adequate records, insure assets, separate recordkeeping from custody of assets, and perform regular and independent reviews.
True False

Bonding does not discourage loss from theft because employees know that bonding is an insurance policy against loss from theft.
True False

Good internal control dictates that a person who controls an asset also maintains that asset's accounting records.
True False

Once a good system of internal control is in place, it rarely needs review.
True False

Two important limitations of internal control systems are (1) human error or human fraud, and (2) cost-benefit.
True False

Collusion is when a person embezzles money from a company and tries to hide the evidence.
True False

Separation of duties divides responsibility for a transaction or a series of transactions between two or more individuals or departments. Separation of duties reduces the risk of error and fraud.
True False

Cash includes currency, coins, and the deposits in most checking accounts.
True False

Cash equivalents are short-term highly liquid investment assets that are easily converted to cash, and have maturities of one year.
True False

Liquidity refers to a company's ability to pay its near-term obligations.
True False

Money orders, cashier's checks, and certified checks are examples of cash equivalents.
True False

Checking accounts are also called demand deposits.
True False

Basic bank services such as bank accounts, bank deposits, and checking contribute to the control and safeguarding of cash.
True False

The payee is the person who signs a check, authorizing its payment.
True False

Electronic funds transfer (EFT) is the use of electronic communicattion transfer of cash from one party to another.
True False

Cancelled checks are checks the bank has paid and deducted from the customer's account during the period.
True False

A check involves 3 parties: the maker who signs the check, the payee who is the recipient, and the bank on which the check is drawn.
True False

Internal control devices for banking activities include signature cards, deposit tickets, checks, and bank statements
True False

The days' sales uncollected ratio reflects on the liquidity of accounts receivable.
True False

The days' sales uncollected ratio is calculated by dividing accounts receivable by net sales and multiplying this quotient by 365
True False

When evaluating the days' sales uncollected ratio, generally the less time that money is tied up in receivables often translates into increased profitability.
True False

Internal control of cash receipts aims to ensure that all cash received is properly recorded and depositied
True False

If the Cash Over and Short account has a debit balance at the end of the period, the amount is reported as miscellaneous revenue.
True False

The clerk who has access to the cash in the cash register should not have access to the cash register tape or file.
True False

To streamline a voucher system, procedures for purchasing, receiving, and paying for merchandise can be performed by one department or individual.
True False

Cash receipts by mail requires only two people: One to open the mail, and a second person to deposit the cash in the bank and record the cash receipt in the accounting records.
True False

A voucher is an internal document or file used to accumulate information to control cash disbursements and to ensure that a transaction is properly recorded.
True False

Assume that cash sales according to the register file total $805 but the amount of cash in the register is $785. This cash shortage of $20 represents a Miscellaneous Expense.
True False

The Petty Cash account is a separate checking account used for small amounts.
True False

All disbursements from petty cash should be documented by a petty cash receipt.
True False

The journal entry for petty cash reimbursement involves a debit to the appropriate expenses and a credit to Petty Cash.
True False

A bank reconciliation explains any differences between the balance of a checking account on the depositor's records and the balance reported on the bank statement.
True False

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

When merchandise is needed, a department manager must inform the purchasing dept of its needs by preparing and signing a purchase requisition, which lists the merchandise needed and requests that it be purchased.
True False

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

The Discounts Lost account represents the savings earned in taking advantage of purchase discounts.
True False