Atrills Accounting for Business Students 1st Australian Edition Atrill McLaney - Test Bank

Atrills Accounting for Business Students 1st Australian Edition Atrill McLaney – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 5

Accounting systems and internal control

 

Choose the one alternative that best completes the statement or answers the question.

1) Which of the following is not a component of internal control in financial areas?

1. A) Approval authority
2. B) Good records maintenance
3. C) Consolidation of duties
4. D) Safeguards

Answer: C

Difficulty: Basic

Learning Objective: 5.1 Identify the main elements of internal control and explain the need for sound internal control in accounting systems.

Topic: What is internal control?

AACSB: 3 Analytical thinking

 

2) Determining the difference between the balance on the bank statement and the balance in the cash account is:

1. A) reconciling the bank statement.
2. B) auditing the cash account.
3. C) preparing the trial balance.
4. D) running a spot check.

Answer: A

Difficulty: Basic

Learning Objective: 5.1 Identify the main elements of internal control and explain the need for sound internal control in accounting systems.

Topic: What is internal control?

AACSB: 3 Analytical thinking

 

3) An organisation determines that any check for an amount greater than $5 000 must require approval from the controller. This is an example of:

1. A) segregation of duties.
2. B) approval authority.
3. C) rotating key jobs.
4. D) reconciling the bank statement.

Answer: B

Difficulty: Moderate

Learning Objective: 5.1 Identify the main elements of internal control and explain the need for sound internal control in accounting systems.

Topic: What is internal control?

AACSB: 8 Application of knowledge

 

4) Using a bar coding system to track equipment and other non-current assets is an example of:

1. A) segregation of duties.
2. B) physical audits.
3. C)
4. D) appropriate control over assets.

Answer: D

Difficulty: Moderate

Learning Objective: 5.1 Identify the main elements of internal control and explain the need for sound internal control in accounting systems.

Topic: What is internal control?

AACSB: 8 Application of knowledge

 

Write ‘True’ if the statement is correct and ‘False’ is the statement is incorrect.

5) Like the trial balance, internal control procedures can identify or prevent all errors before they are carried forward to the financial statements.

Answer: False

Difficulty: Basic

Learning Objective: 5.1 Identify the main elements of internal control and explain the need for sound internal control in accounting systems.

Topic: What is internal control?

AACSB: 3 Analytical thinking

 

6) The move to e-commerce has created new and varied difficulties in the area of internal control.

Answer: True

Difficulty: Basic

Learning Objective: 5.1 Identify the main elements of internal control and explain the need for sound internal control in accounting systems.

Topic: What is internal control?

AACSB: 3 Analytical thinking

 

Write your answer in the space provided or on a separate sheet of paper.

7) Define segregation of duties and explain how it benefits internal control.

_____________________________________________________________________________________________

_____________________________________________________________________________________________

Answer:

Segregation of duties is an internal control procedure in which no one person is responsible for all of the records and documents for an activity. An example would be that one person should not prepare the purchase order, verify the receipt of the merchandise, prepare the invoice and receive the payment for an order. By separating these responsibilities, the opportunity for fraud or theft is minimised. Segregation of duties also makes it less likely that an error will go undetected. This is the purpose of internal control policies and procedures.

Difficulty: Moderate

Learning Objective: 5.1 Identify the main elements of internal control and explain the need for sound internal control in accounting systems.

Topic: What is internal control?

AACSB: 1 Written and oral communication

 

Choose the one alternative that best completes the statement or answers the question.

8) Which of the following is not an advantage of using subsidiary records?

1. A) The actual posting can be done later by a different person.
2. B) Every transaction will be recorded prior to being entered into the ledger.
3. C) They can only be used in computerised accounting systems.
4. D) Totals can be posted when it is appropriate to do so.

Answer: C

Difficulty: Basic

Learning Objective: 5.2 Explain why in a typical manual system the ledger needs to be split up, identify common ways of doing this, and outline the purpose and structure of a traditional manual system of subsidiary records.

Topic: The ledger and subsidiary records

AACSB: 3 Analytical thinking

 

9) Which of the following would not be included in a good recording system?

1. A) A well thought out chart of accounts
2. B) A method of cross-referencing transactions
3. C) The elimination of subsidiary records
4. D) A well-developed system of ledger accounts

Answer: C

Difficulty: Basic

Learning Objective: 5.2 Explain why in a typical manual system the ledger needs to be split up, identify common ways of doing this, and outline the purpose and structure of a traditional manual system of subsidiary records.

Topic: The ledger and subsidiary records

AACSB: 3 Analytical thinking

 

10) The ledger containing revenue and expense accounts is the:

1. A) nominal ledger.
2. B) general ledger.
3. C) sales ledger.
4. D) purchases ledger.

Answer: A

Difficulty: Basic

Learning Objective: 5.2 Explain why in a typical manual system the ledger needs to be split up, identify common ways of doing this, and outline the purpose and structure of a traditional manual system of subsidiary records.

Topic: The ledger and subsidiary records

AACSB: 3 Analytical thinking

 

11) In which ledger would you find a list of debtors and the amount owed by each?

1. A) Purchases ledger
2. B) General ledger
3. C) Sales ledger
4. D) Cash ledger

Answer: C

Difficulty: Basic

Learning Objective: 5.2 Explain why in a typical manual system the ledger needs to be split up, identify common ways of doing this, and outline the purpose and structure of a traditional manual system of subsidiary records.

Topic: The ledger and subsidiary records

AACSB: 3 Analytical thinking

 

Write ‘True’ if the statement is correct and ‘False’ is the statement is incorrect.

12) The records for all accounts are kept in a single, large book called the ledger.

Answer: False

Difficulty: Basic

Learning Objective: 5.2 Explain why in a typical manual system the ledger needs to be split up, identify common ways of doing this, and outline the purpose and structure of a traditional manual system of subsidiary records.

Topic: The ledger and subsidiary records

AACSB: 3 Analytical thinking

 

13) Subsidiary records are not part of the double-entry accounting system.

Answer: True

Difficulty: Basic

Learning Objective: 5.2 Explain why in a typical manual system the ledger needs to be split up, identify common ways of doing this, and outline the purpose and structure of a traditional manual system of subsidiary records.

Topic: The ledger and subsidiary records

AACSB: 3 Analytical thinking

 

Choose the one alternative that best completes the statement or answers the question.

14) Which of the following is not a name used to describe the subsidiary record in which credit transactions are usually first recorded?

1. A) Journal
2. B) Book of original entry
3. C) Ledger
4. D) Day book

Answer: C

Difficulty: Basic

Learning Objective: 5.3 Explain the nature and role of sales and purchases journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The sales and purchases journals

AACSB: 3 Analytical thinking

 

15) Which of the following businesses would be most likely use sales and purchases books?

1. A) A hardware store
2. B) A real estate agent
3. C) A physician
4. D) A hair salon

Answer: A

Difficulty: Moderate

Learning Objective: 5.3 Explain the nature and role of sales and purchases journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The sales and purchases journals

AACSB: 8 Application of knowledge

 

16) The Ledger column is a purchases book is used:

1. A) to record the amount to be debited to the purchases account.
2. B) to record the amount to be credited to the purchase account.
3. C) to record items that don’t fit under any of the main headings in the book.
4. D) to record purchase returns.

Answer: C

Difficulty: Moderate

Learning Objective: 5.3 Explain the nature and role of sales and purchases journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The sales and purchases journals

AACSB: 8 Application of knowledge

 

17) In recording a sales return in a sales return book ________.

1. A) there is a single credit entry of the total to the sales return account
2. B) there is a single debit entry of the total to the sales return account
3. C) there is a single credit entry of the total to the sales account
4. D) there is a single debit entry of the total to the sales account

Answer B

Difficulty: Moderate

Learning Objective: 5.3 Explain the nature and role of sales and purchases journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The sales and purchases journals

AACSB: 8 Application of knowledge

 

Write ‘True’ if the statement is correct and ‘False’ is the statement is incorrect.

18) A sales book is used to record sales returns.

Answer: False

Difficulty: Basic

Learning Objective: 5.3 Explain the nature and role of sales and purchases journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The sales and purchases journals

AACSB: 3 Analytical thinking

 

Write your answer in the space provided or on a separate sheet of paper.

19) Enter the following transactions into a purchases book:

March 1                Credit purchase from Nathaniel Ray                        $1 000

March 5                Credit purchase from Wayne Alvarez                          750

March 10             Credit purchase from Ralph Runner                          1 250

March 20             Credit purchase from Stuart Winters                             900

March 30             Credit purchase from Summer Steward                    2 150

 

_____________________________________________________________________________________________

_____________________________________________________________________________________________

Answer:

Sales Book
Date	Detail	Invoice Number	Folio/Account number	Amount $
2018
March 1	N Ray	NR1245	P210	1 000.00
March 5	W Alvarez	WA 34568	P220	750.00
March 10	R Runner	RR 7364	P250	1 200.00
March 20	S Winters	SW942	P270	900.00
March 30	S Steward	SS 98126	P290	2 150.00
			Total to purchases account	6 000.00

 

Difficulty: Complex

Learning Objective: 5.3 Explain the nature and role of sales and purchases journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The sales and purchases journals

AACSB: 8 Application of knowledge

 

Choose the one alternative that best completes the statement or answers the question.

20) Which of the following is a subsidiary record?

1. A) Two-column cash book
2. B) Three-column cash book
3. C) A cash account in a separate ledger
4. D) A cash journal

Answer: D

Difficulty: Basic

Learning Objective: 5.4 Explain the nature and role of the cash book and cash journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The cash book and cash journals

AACSB: 3 Analytical thinking

 

21) In a cash payments journal, the total column would be:

1. A) credited to the cash account.
2. B) credited to the purchases account.
3. C) debited to the sales account.
4. D) credited to the sales returns account

Answer: A

Difficulty: Moderate

Learning Objective: 5.4 Explain the nature and role of the cash book and cash journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The cash book and cash journals

AACSB: 8 Application of knowledge

 

22) Which of the following would not be a prime document for the cash receipts journal?

1. A) Invoices
2. B) Receipts
3. C) Bank statements
4. D) Credit card receipt summaries

Answer: A

Difficulty: Basic

Learning Objective: 5.4 Explain the nature and role of the cash book and cash journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The cash book and cash journals

AACSB: 3 Analytical thinking

 

23) The columns to the right of the total in a petty cash book represent:

1. A) all of the company’s expense accounts.
2. B) the accounts for which petty cash was spent.
3. C) the amounts of petty cash spent.
4. D) the balances in the petty cash account.

Answer: B

Difficulty: Basic

Learning Objective: 5.4 Explain the nature and role of the cash book and cash journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The cash book and cash journals

AACSB: 3 Analytical thinking

 

24) When petty cash is replenished, the transaction to replenish it includes:

1. A) a debit to petty cash.
2. B) a credit to petty cash.
3. C) a debit to cash.
4. D) a credit to cash.

Answer: D

Difficulty: Moderate

Learning Objective: 5.4 Explain the nature and role of the cash book and cash journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The cash book and cash journals

AACSB: 8 Application of knowledge

 

Write ‘True’ if the statement is correct and ‘False’ is the statement is incorrect.

25) The difference between a cash book and a cash journal is that the cash book allows for the use of analysis columns.

Answer: False

Difficulty: Moderate

Learning Objective: 5.4 Explain the nature and role of the cash book and cash journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The cash book and cash journals

AACSB: 8 Application of knowledge

 

Write your answer in the space provided or on a separate sheet of paper.

26) It’s time to reconcile petty cash. Vouchers indicate that the following amounts have been used:

 

Purchase of toner for copy machine for $60 on August 1

Purchase of postage for $25 on August 7

Purchase of petrol for the company truck for $125 on August 14

Purchase of lunch for employee training for $78.90 on August 21

Cost to send an overnight cheque to a vendor of $15.75 on August 28

 

August began with a balance of $150 in petty cash and fund was replenished with an additional $350 on August 1. Complete the petty cash book for August.

_____________________________________________________________________________________________

_____________________________________________________________________________________________

Answer:

Receipts	Folio	Date	Detail	Voucher number	Total	Postage	Office Sundries	Meals	Petrol
		August
150.00		1	Balance b/d
350.00		1	Cash
		1	Toner	1	60.00		60.00
		7	Postage	2	25.00	25.00
		14	Petrol	3	125.00				125.00
		21	Lunch	4	78.90			78.90
		28	Overnight postage	5	15.75	15.75	______	_____	_____
					304.65	40.75	60.00	78.90	125.00
______			Balance c/d	195.35		Total to Postage account	Total of Office Sundries account	Total to Meals account	Total to Petrol account
500.00
195.35		31	Balance b/d
304.65
500.00

 

Difficulty: Complex

Learning Objective: 5.4 Explain the nature and role of the cash book and cash journals and show how they are used in posting figures to the accounts in a traditional manual system.

Topic: The cash book and cash journals

AACSB: 8 Application of knowledge

 

Choose the one alternative that best completes the statement or answers the question.

27) Which of the following is a disadvantage of using the general journal for recording transactions?

1. A) Using the general journal provides no grouping of transactions by type.
2. B) Using the general journal lessens the risk of omission of entries.
3. C) Using the general journal provides more details on each transaction.
4. D) Using the general journal makes fraud easier to discover.

Answer: A

Difficulty: Basic

Learning Objective: 5.5 Explain the nature and role of the journal and show how they are used in posting figures to the accounts.

Topic: The journal

AACSB: 3 Analytical thinking

 

28) A furniture company purchases a new milling machine costing $350 000 on account. Which of the following statements is true?

1. A) This transaction would be recorded in the purchases book and would include a credit to Cash.
2. B) This transaction would be recorded in the cash payments book and would include a debit to Purchases.
3. C) This transaction would be recorded in the general journal and would include a credit to Payables/Creditors.
4. D) This transaction would be recorded in the general journal and would include a credit to Equipment.

Answer: C

Difficulty: Complex

Learning Objective: 5.5 Explain the nature and role of the journal and show how they are used in posting figures to the accounts.

Topic: The journal

AACSB: 8 Application of knowledge

 

29) C. Palmer opens a new computer sales and repairs business. His assets are: Premises $700 000, Equipment $100 000, Inventory $150 000 and Cash $30 000. His liabilities are: Payables – M Rice $25 000. The journal entry to record the opening would include:

1. A) a credit to Inventory for $150 000.
2. B) a debit to Cash for $50 000.
3. C) a credit to Payables – M Rice for $25 000.
4. D) a credit to Accumulated Depreciation for $10 000.

Answer C

Difficulty: Complex

Learning Objective: 5.5 Explain the nature and role of the journal and show how they are used in posting figures to the accounts.

Topic: The journal

AACSB: 8 Application of knowledge

 

30) C. Palmer opens a new computer sales and repair business. His assets are: Premises $700 000, Equipment $100 000, Inventory $150 000, and Cash $30 000. His liabilities are: Payables – M Rice $25 000. The journal entry to record the opening would include:

1. A) a credit to Capital for $955 000.
2. B) a debit to Capital for $955 000.
3. C) a credit to Capital for $1 050 000.
4. D) a debit to Capital for $1 050 000.

Answer: A

Difficulty: Complex

Learning Objective: 5.5 Explain the nature and role of the journal and show how they are used in posting figures to the accounts.

Topic: The journal

AACSB: 8 Application of knowledge

 

Write ‘True’ if the statement is correct and ‘False’ is the statement is incorrect.

31) While, in practice, most transactions are recorded in a subsidiary record, any transaction could be posted in the general journal.

Answer: True

Difficulty: Moderate

Learning Objective: 5.5 Explain the nature and role of the journal and show how they are used in posting figures to the accounts.

Topic: The journal

AACSB: 8 Application of knowledge

 

32) The owner of a business withdraws $100 from the ATM and neglects to let anyone know so that the transaction can be recorded. This results in an error of commission and does not affect the agreement of the trial balance.

Answer: False

Difficulty: Moderate

Learning Objective: 5.5 Explain the nature and role of the journal and show how they are used in posting figures to the accounts.

Topic: The journal

AACSB: 8 Application of knowledge

 

Write your answer in the space provided or on a separate sheet of paper.

33) Explain the difference between errors of omission, errors of commission, and errors of principle. Give an example of each.

_____________________________________________________________________________________________

_____________________________________________________________________________________________

Answer:

Errors of omission are errors in which an entire entry has been omitted. It could be any entry that was overlooked, but one example might be a sale that was never recorded at all. Errors of commission occur when an incorrect account has been debited or credited. An example is that when the owner withdrew money from the business, Cash was debited and Drawings was credited instead of the correct recording which would debit Drawings and credit Cash. Errors of principle occur when an account is incorrectly debited or credited and the account is completely the wrong type of account. An example would be when office supplies are purchased on credit and, instead of debiting Stationary and crediting Receivable/Debtors, Stationary is debited and Payables/Creditors is credited. None of these errors affect the agreement of the trial balance.

Difficulty: Moderate

Learning Objective: 5.5 Explain the nature and role of the journal and show how they are used in posting figures to the accounts.

Topic: The journal

AACSB: 1 Written and oral communication

 

Choose the one alternative that best completes the statement or answers the question.

34) Which of the following is not an advantage of using a control account?

1. A) A control account provides a check and balance on the postings from the subsidiary records.
2. B) A control account contributes to internal control by allowing a different person to keep the control account than the person making the more detailed posting.
3. C) Balances from the control account are readily available.
4. D) Agreement between the control account and the ledger account guarantees accuracy in the ledger account.

Answer: D

Difficulty: Basic

Learning Objective: 5.6 Explain the importance of control accounts and reconciliations, and prepare control accounts for debtors and creditors and a bank reconciliation.

Topic: Control accounts and reconciliations

AACSB: 3 Analytical thinking

 

35) The bank statement arrives and shows a balance of $2 468. The cash account balance is $3 128. In reconciling the bank statement, which of the following would require a deduction from the cash account balance?

357. A) Unpresented cheques totalling $ 357.00.
358. B) A dishonoured cheque in the amount of $150.
359. C) A deposit made on the day of the statement which does not appear on the statement in the amount of $319.
360. D) Interest received on the account of $35.

Answer: B

Difficulty: Complex

Learning Objective: 5.6 Explain the importance of control accounts and reconciliations, and prepare control accounts for debtors and creditors and a bank reconciliation.

Topic: Control accounts and reconciliations

AACSB: 8 Application of knowledge

 

36) Which of the following is true concerning bank reconciliations?

1. A) The decline in the use of cheques will ultimately result in bank reconciliations no longer being needed.
2. B) Bank reconciliations are among the most difficult of accounting procedures.
3. C) Bank reconciliations confirm the accuracy of the cash balance on a particular date.
4. D) Bank reconciliations are done annually along with the closing off process.

Answer: C

Difficulty: Basic

Learning Objective: 5.6 Explain the importance of control accounts and reconciliations, and prepare control accounts for debtors and creditors and a bank reconciliation.

Topic: Control accounts and reconciliations

AACSB: 3 Analytical thinking

 

37) The bank statement arrives and shows a balance of $2 468. The cash account balance is $3 128. In reconciling the bank statement, which of the following would require an addition to the cash account balance?

357. A) Unpresented cheques totalling $ 357.00.
358. B) A dishonoured cheque in the amount of $150.
359. C) A deposit made on the day of the statement which does not appear on the statement in the amount of $319.
360. D) Interest received on the account of $35.

Answer: D

Difficulty: Complex

Learning Objective: 5.6 Explain the importance of control accounts and reconciliations, and prepare control accounts for debtors and creditors and a bank reconciliation.

Topic: Control accounts and reconciliations

AACSB: 8 Application of knowledge

 

Write ‘True’ if the statement is correct and ‘False’ is the statement is incorrect.

38) The control account for receivables has a balance of $150 000. The receivables ledger account has a debit balance of $150 000. This agreement shows that the account is error free.

Answer: False

Difficulty: Moderate

Learning Objective: 5.6 Explain the importance of control accounts and reconciliations, and prepare control accounts for debtors and creditors and a bank reconciliation.

Topic: Control accounts and reconciliations

AACSB: 8 Application of knowledge

 

39) Disagreement between the bank statement balance and the cash account balance indicates one of more errors in the cash account.

Answer: False

Difficulty: Moderate

Learning Objective: 5.6 Explain the importance of control accounts and reconciliations, and prepare control accounts for debtors and creditors and a bank reconciliation.

Topic: Control accounts and reconciliations

AACSB: 8 Application of knowledge

 

Choose the one alternative that best completes the statement or answers the question.

40) Which of the following is true of a computerised accounting system?

1. A) Card files are used for employees, creditors and debtors.
2. B) A coding system is used which does not require linkage to the chart of accounts.
3. C) A computerised accounting system eliminates the need for internal controls.
4. D) Because a computerised accounting system updates automatically, the files do not need to be backed up.

Answer: A

Difficulty: Moderate

Learning Objective: 5.7 Explain the major elements of computerised accounting systems and explain how these systems still use the same basic principles of accounting and internal control used by a manual system, but that they deal with large volumes of transactions more effectively, and can be linked with appropriate documentation or file production and maintenance.

Topic: Computerised accounting systems

AACSB: 8 Application of knowledge

 

41) With a computerised accounting system, there is no need for:

1. A) internal controls.
2. B) checks and balances.
3. C) updating each subsystem manually.
4. D) data backups.

Answer: C

Difficulty: Basic

Learning Objective: 5.7 Explain the major elements of computerised accounting systems and explain how these systems still use the same basic principles of accounting and internal control used by a manual system, but that they deal with large volumes of transactions more effectively, and can be linked with appropriate documentation or file production and maintenance.

Topic: Computerised accounting systems

AACSB: 3 Analytical thinking

 

42) Cloud computing:

1. A) can be expensive because of frequent version updating requirements.
2. B) utilises an online server instead of a physical computer for data storage.
3. C) eliminates privacy and legal concerns.
4. D) does not eliminate the need for redundant bookkeeping.

Answer: B

Difficulty: Moderate

Learning Objective: 5.7 Explain the major elements of computerised accounting systems and explain how these systems still use the same basic principles of accounting and internal control used by a manual system, but that they deal with large volumes of transactions more effectively, and can be linked with appropriate documentation or file production and maintenance.

Topic: Computerised accounting systems

AACSB: 3 Analytical thinking

 

43) A cloud computing system:

1. A) looks quite different from a traditional manual accounting system.
2. B) does not eliminate the chance of a mathematical error.
3. C) does not eliminate the need for internal control policies and procedures
4. D) are safe from hacking.

Difficulty: Basic

Learning Objective: 5.7 Explain the major elements of computerised accounting systems and explain how these systems still use the same basic principles of accounting and internal control used by a manual system, but that they deal with large volumes of transactions more effectively, and can be linked with appropriate documentation or file production and maintenance.

Topic: Computerised accounting systems

AACSB: 3 Analytical thinking

 

44) In terms of reporting:

1. A) a manual traditional accounting system offers a wider range of reports.
2. B) reports are easier to extract from a traditional manual reporting system.
3. C) a computerised accounting system eliminates the need for reports.
4. D) a computerised accounting system offers a wider range of reports.

Difficulty: Moderate

Learning Objective: 5.7 Explain the major elements of computerised accounting systems and explain how these systems still use the same basic principles of accounting and internal control used by a manual system, but that they deal with large volumes of transactions more effectively, and can be linked with appropriate documentation or file production and maintenance.

Topic: Computerised accounting systems

AACSB: 8 Application of knowledge