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Chapter 23 Audit of Cash Balances
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Chapter 23 Audit of Cash Balances Auditing and Assurance Services 14th Edition Test Bank
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Auditing and Assurance Services, 14e (Arens)
Chapter 23 Audit of Cash Balances
Learning Objective 23-1
1)Which of the following misstatements is most likely to be uncovered during an audit of a
client's bank reconciliation?
A) Duplicate payment of a vendor's invoice.
B) Billing a customer at a lower price than indicated by company policy.
C) Failure to record a collection of a note receivable by the bank on the
client's behalf. D) Payment to an employee for more than the hours
actually worked.
Answer: C
Terms: Bank reconciliation
Diff: Easy
Objective: LO 23-1
AACSB: Reflective thinking skills
2)Which of the following is likely to be detected as part of the audit of the bank
reconciliation?
A) Failure to bill a customer
B)Duplicate payment of a vendor invoice
C) Cash received by the client after year end, but included in cash receipts in the current
year
D) An embezzlement of cash by intercepting cash receipts from customers before
they are recorded Answer: C
Terms: Bank reconciliation
Diff: Easy
Objective: LO 23-1
AACSB: Reflective thinking skills
3)Which of the following cycles does not affect cash
in bank? A) Capital acquisitions cycle.
B) Inventory and
warehousing. C) Payroll
and personnel cycle.
D) Acquisitions and
disbursements. Answer: B
Terms: Cash in bank
Diff: Easy
Objective: LO 23-1
AACSB: Reflective thinking skills
4)Which of the following would normally be discovered as part of the audit of the bank
reconciliation? A) Failure to bill a customer.
B) Failure to include a deposit in transit on the bank
reconciliation. C) Duplicate payment of a vendor's
invoice.
D) Payment to an employee for more hours than she
worked. Answer: B
Terms: Bank reconciliation
Diff: Easy
Objective: LO 23-1
AACSB: Reflective thinking skills
1
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
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5)The general cash account is considered a significant account in
almost all audits: A) where the ending balance is material.
B) even when the ending balance is
immaterial. C) except those of not-for-
profit organizations.
D) where either the beginning or ending balance is
material. Answer: B
Terms: General cash account
Diff: Moderate
Objective: LO 23-1
AACSB: Reflective thinking skills
6)Which of the following errors would be least likely to be discovered during the
audit of the acquisitions and payments cycle?
A) Duplicate payment of a vendor's invoice.
B) Improper payments of officers' personal expenditures.
C) Payment of interest to a related party for an amount in excess of
the going rate. D) Payment for raw materials that were not received.
Answer: C
Terms: Acquisitions and payments cycle
Diff: Moderate
Objective: LO 23-1
AACSB: Reflective thinking skills
7)Bank reconciliation audit tests are designed to detect misstatements other than through
the improper payment of cash or failure to receive cash normally would not be detected
as part of the tests of the bank reconciliation. List below at least THREE misstatements
that are designed to be detected by bank reconciliation.
Answer: Failure to include a check that has not cleared the bank on the outstanding
checklist, even though it has been recorded on the cash disbursement journal
Cash received by the client subsequent to the balance sheet date, but recorded as
cash receipts in the current year
Deposits recorded as cash receipts near the end of the year, deposited in the bank in the
same month, and included in the bank reconciliation as a deposit in transit
Payments on notes payables debited directly to the bank balance by the bank but not
entered in the client's records
Terms: Bank reconciliation audit tests; Detected misstatements
Diff: Easy
Objective: LO 23-1
AACSB: Reflective thinking skills
2
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
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8)"Failure to bill a customer" is an example of an error that results in the failure to
receive cash, but would not be discovered as part of the audit of the bank reconciliation.
State three other examples of errors or irregularities that result in the improper payment
of, or failure to receive, cash, but that would not be discovered during the audit of the
bank reconciliation. How are these types of misstatements normally uncovered in the
audit?
Answer:
• An embezzlement of cash by interception of cash receipts from customers before they
are recorded with the account charged off as a bad debt.
• Duplicate payment of a vendor's invoice.
• Improper payments of officers' personal expenditures.
• Payment for raw materials that were not received.
• Payment to an employee for more hours than he or she worked.
• Payment of interest to a related party for an amount in excess of the going rate.
If these misstatements are to be uncovered in the audit, their discovery must occur
through tests of controls and substantive tests of transactions.
Terms: Improper payment or failure to receive cash but not discovered during audit of bank
reconciliation
Diff: Challenging
Objective: LO 23-1
AACSB: Reflective thinking skills
Learning Objective 23-2
1)Which of the following is not a "cash
equivalent"? A) Time deposits
B) Certificates of
deposit C) Money
market funds D)
Marketable securities
Answer: D
Terms: Cash equivalent
Diff: Moderate
Objective: LO 23-2
AACSB: Reflective thinking skills
2)An imprest petty cash fund would least likely be used to pay for which of the
following items? A) Minor office supplies
B) Monthly interest
expense C) Stamps for
small mailings
D) Small contributions to a local
charity Answer: B
Terms: Imprest petty cash fund
Diff: Moderate
Objective: LO 23-2
AACSB: Reflective thinking skills
3
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
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To downloaddownload moremore ebooks,ebooks, slides,slides, SMSM andand TBTB visit:visit: http://testbanklancerhtp:/testbanklancer..blogspotblogspot..comcom
3)Under which of the following circumstances would an auditor be most likely to
intensify an examination of a $500 imprest petty cash fund?
A) Reimbursement occurs twice each week.
B) The custodian endorses reimbursement
checks. C) Reimbursement vouchers are not
prenumbered.
D) The custodian occasionally uses the cash fund to cash
employee checks. Answer: A
Terms: Examination of imprest petty cash fund
Diff: Challenging
Objective: LO 23-2
AACSB: Analytic skills
4)Describe each of the major types of cash accounts maintained by business entities.
Answer:
• General cash account. This is the focal point of cash for most organizations because
virtually all cash receipts and disbursements flow through this account.
• Imprest payroll account. As a means of improving internal control, many companies
establish a separate imprest bank account for making payroll payments to employees. In
such an account, a fixed balance, such as $1,000, is maintained. Immediately before
each pay period, one check is drawn on the general cash account to deposit the total
amount of the net payroll in the imprest payroll account.
• Branch bank account. For a company operating in multiple locations, it is often
desirable to have a separate bank balance at each location. Branch bank accounts are
useful for building public relations in local communities and permitting the
centralization of operations at the branch level.
• Imprest petty cash fund. This fund is used for small cash acquisitions that can be paid
more conveniently and quickly by cash than by check, or for the convenience of employees
in cashing personal or payroll checks.
• Cash equivalents. Excess cash accumulated during certain parts of the operating cycle
that will be
needed in the reasonably near future is often invested in short-term, highly liquid cash
equivalents such as time deposits, certificates of deposit, and money market funds.
Terms: Major types of cash accounts
Diff: Moderate
Objective: LO 23-2
AACSB: Reflective thinking skills
5)One disadvantage of using an imprest bank account is the increased time needed to
reconcile bank accounts.
A) True
B) False
Answer:
B
Terms: Imprest bank account
Diff: Moderate
Objective: LO 23-2
AACSB: Reflective thinking skills
4
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
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