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Audit Answer Key 2

This document contains 7 multiple choice questions testing accounting concepts related to internal controls over cash, cash reconciliations, and the timing of cash receipt recognition. It addresses topics like segregation of duties for cash transactions, returned checks, year-end confirmations of cash balances, compensating balance agreements, equity method investments, what can be detected by a four-column bank reconciliation, and the effect of including cash receipts from the next period in the current period totals.

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Jeane Mae Boo
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283 views1 page

Audit Answer Key 2

This document contains 7 multiple choice questions testing accounting concepts related to internal controls over cash, cash reconciliations, and the timing of cash receipt recognition. It addresses topics like segregation of duties for cash transactions, returned checks, year-end confirmations of cash balances, compensating balance agreements, equity method investments, what can be detected by a four-column bank reconciliation, and the effect of including cash receipts from the next period in the current period totals.

Uploaded by

Jeane Mae Boo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

 Control over the receipt of cash sales is best achieved when two or more employees participate
in each transaction. 
True    False

2. Signed checks should be returned to the cash disbursements clerk for mailing. 
True    False

3. Confirmations for cash balances should be mailed only to the financial institutions with which
the client has a cash balance at year-end. 
True    False

4. A compensating balance agreement generally requires that cash be reclassified as a noncurrent
asset. 
True    False

5. For investments in securities accounted for by the equity method, the auditors are primarily
concerned with verifying the market value of the investments. 
True    False

6. By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will
generally be able to detect: 
A. An unrecorded deposit made at the bank at the end of the month.
B. A second payment of an account payable which had already been paid in full two months
earlier.
C. An embezzlement of cash receipts not recorded in the cash receipts journal before they had
been deposited into the bank.
D. A receivable collected that had previously been written off as uncollectible.

7. Your client left the cash receipts journal open after year-end for an extra day and included
January 1 cash receipts in the 12/31/XX totals. All of those cash receipts were due to cash sales.
Assuming the client uses a periodic inventory system with a 12/31/XX count of the physical
inventory, which of the following is most likely to be true relating to the year XX financial
statements? 
A. Sales are understated.
B. Accounts receivable are understated.
C. Inventory is overstated.
D. Net income is overstated.

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