ACCT 402 (Accounting 402 / Advanced
Accounting) Final Exam Questions and
Answers Study Guide
Why is cash considered a high-risk audit area? - ANSWER>>Cash is highly liquid,
portable, and not easily identifiable as company property, making it a prime
target for theft and fraud.
What are the two main cash "streams" auditors focus on? - ANSWER>>Cash
receipts (money coming in) and cash disbursements (money going out).
Give examples of cash receipts transactions - ANSWER>>Revenues and collection
of receivables
Give examples of cash disbursement transactions - ANSWER>>Inventory
purchases, operating expenses, employee salaries
What does the cash audit program generally include? - ANSWER>>Testing internal
controls over receipts/disbursements and performing substantive tests of cash.
What is the biggest assertion concern for cash? - ANSWER>>Existence
What does the "existence" assertion mean for cash? - ANSWER>>The cash
reported on the balance sheet actually exists at the audit date.
What does the "completeness" assertion mean for cash? - ANSWER>>All cash
accounts and cash transactions that should be recorded are recorded.
,What does "accuracy/valuation" mean for cash? - ANSWER>>Cash is recorded at
the correct amount.
What does "cutoff" mean for cash? - ANSWER>>Cash transactions are recorded in
the correct accounting period (especially around year-end).
What does "rights & obligations" mean for cash? - ANSWER>>The company
actually owns the cash and it isn't restricted/misclassified.
Why is segregation of duties crucial for cash? - ANSWER>>Combining duties lets
one person create and conceal errors/fraud; segregation forces collusion, which is
harder.
What four duties should be separated (cash controls conceptually)? -
ANSWER>>Authorization, custody, recording, and reconciliation.
For cash receipts, what duties should be segregated? - ANSWER>>Custody of
cash/checks, recording (no access to cash), and bank reconciliation.
For cash disbursements, what duties should be segregated? - ANSWER>>Custody
of blank checks, authorization (PO/invoices approval), recording (no check-
writing), and bank reconciliation.
What control weakness increases risk of lapping? - ANSWER>>Same person
receives cash and posts to customer accounts (custody + recording combined).
What control weakness increases risk of unauthorized/incorrect payments? -
ANSWER>>A person can prepare checks and also approve/sign them without
independent review.
What control objective is supported by "cash receipts are deposited intact and
daily"? - ANSWER>>Occurrence and accuracy/valuation (and reduces theft risk).
,Test of control: For a sample of recorded cash receipts, what do you vouch to? -
ANSWER>>Vouch cash receipts journal entries to bank statement deposits.
Test of control: What timing comparison helps test receipt handling? -
ANSWER>>Compare date of receipt to date of deposit (deposit lag)
Test of control: How do you test that deposits are posted to customer accounts
correctly? - ANSWER>>Trace receipts to postings in the correct customers' A/R
accounts.
Test of control: How do you test that deposits reconcile to what was recorded? -
ANSWER>>For a sample of daily cash deposits from bank statement, trace to cash
receipts journal.
What control helps prevent checks being issued without support? -
ANSWER>>Checks are not printed until voucher packets are prepared.
What control helps catch incorrect amounts before signing? -
ANSWER>>Employee compares amounts on printed checks with voucher packets
before submission for signature.
What control ensures only appropriate people sign checks? - ANSWER>>Only
authorized signers are permitted to sign checks.
Test of control: For a sample of recorded cash disbursements, what do you vouch
to? - ANSWER>>Supporting documentation (voucher, invoice, approval) for
accuracy, classification, approval, and proper date.
What control tests completeness of disbursements via document sequence? -
ANSWER>>Checks are prenumbered and accounted for; scan sequence for
gaps/duplicates.
, What control supports completeness via oversight of reconciling items? -
ANSWER>>Bank reconciliations are prepared and reviewed timely.
Which control best prevents a paid voucher from being paid again? -
ANSWER>>The signer compares the check with voucher and stamps/cancels
documents "PAID."
List key audit evidence used to test cash. - ANSWER>>Cash receipts journal, cash
disbursements journal, bank reconciliations, cancelled checks (with invoices),
year-end bank statement, cutoff bank statement, bank confirmations.
What is a "cutoff bank statement"? - ANSWER>>The bank statement from the
following month used to verify reconciling items around year-end.
What is typically the FIRST procedure in an audit of cash? - ANSWER>>Obtain a
bank reconciliation for each cash account and audit it.
When auditing bank rec, how do you test "balance per bank"? -
ANSWER>>Confirm directly with the bank and agree to cutoff bank statement.
How do you audit deposits in transit on the bank reconciliation? -
ANSWER>>Trace to cash receipts journal and vouch to cutoff bank statement (to
see it cleared).
How do you audit outstanding checks on the bank reconciliation? -
ANSWER>>Vouch to cash disbursements journal and trace cleared checks on
cutoff bank statement.
How do you audit "other debit/credit memos" on the bank reconciliation? -
ANSWER>>Inspect bank memos and evaluate reasonableness with supporting
documentation.
Accounting) Final Exam Questions and
Answers Study Guide
Why is cash considered a high-risk audit area? - ANSWER>>Cash is highly liquid,
portable, and not easily identifiable as company property, making it a prime
target for theft and fraud.
What are the two main cash "streams" auditors focus on? - ANSWER>>Cash
receipts (money coming in) and cash disbursements (money going out).
Give examples of cash receipts transactions - ANSWER>>Revenues and collection
of receivables
Give examples of cash disbursement transactions - ANSWER>>Inventory
purchases, operating expenses, employee salaries
What does the cash audit program generally include? - ANSWER>>Testing internal
controls over receipts/disbursements and performing substantive tests of cash.
What is the biggest assertion concern for cash? - ANSWER>>Existence
What does the "existence" assertion mean for cash? - ANSWER>>The cash
reported on the balance sheet actually exists at the audit date.
What does the "completeness" assertion mean for cash? - ANSWER>>All cash
accounts and cash transactions that should be recorded are recorded.
,What does "accuracy/valuation" mean for cash? - ANSWER>>Cash is recorded at
the correct amount.
What does "cutoff" mean for cash? - ANSWER>>Cash transactions are recorded in
the correct accounting period (especially around year-end).
What does "rights & obligations" mean for cash? - ANSWER>>The company
actually owns the cash and it isn't restricted/misclassified.
Why is segregation of duties crucial for cash? - ANSWER>>Combining duties lets
one person create and conceal errors/fraud; segregation forces collusion, which is
harder.
What four duties should be separated (cash controls conceptually)? -
ANSWER>>Authorization, custody, recording, and reconciliation.
For cash receipts, what duties should be segregated? - ANSWER>>Custody of
cash/checks, recording (no access to cash), and bank reconciliation.
For cash disbursements, what duties should be segregated? - ANSWER>>Custody
of blank checks, authorization (PO/invoices approval), recording (no check-
writing), and bank reconciliation.
What control weakness increases risk of lapping? - ANSWER>>Same person
receives cash and posts to customer accounts (custody + recording combined).
What control weakness increases risk of unauthorized/incorrect payments? -
ANSWER>>A person can prepare checks and also approve/sign them without
independent review.
What control objective is supported by "cash receipts are deposited intact and
daily"? - ANSWER>>Occurrence and accuracy/valuation (and reduces theft risk).
,Test of control: For a sample of recorded cash receipts, what do you vouch to? -
ANSWER>>Vouch cash receipts journal entries to bank statement deposits.
Test of control: What timing comparison helps test receipt handling? -
ANSWER>>Compare date of receipt to date of deposit (deposit lag)
Test of control: How do you test that deposits are posted to customer accounts
correctly? - ANSWER>>Trace receipts to postings in the correct customers' A/R
accounts.
Test of control: How do you test that deposits reconcile to what was recorded? -
ANSWER>>For a sample of daily cash deposits from bank statement, trace to cash
receipts journal.
What control helps prevent checks being issued without support? -
ANSWER>>Checks are not printed until voucher packets are prepared.
What control helps catch incorrect amounts before signing? -
ANSWER>>Employee compares amounts on printed checks with voucher packets
before submission for signature.
What control ensures only appropriate people sign checks? - ANSWER>>Only
authorized signers are permitted to sign checks.
Test of control: For a sample of recorded cash disbursements, what do you vouch
to? - ANSWER>>Supporting documentation (voucher, invoice, approval) for
accuracy, classification, approval, and proper date.
What control tests completeness of disbursements via document sequence? -
ANSWER>>Checks are prenumbered and accounted for; scan sequence for
gaps/duplicates.
, What control supports completeness via oversight of reconciling items? -
ANSWER>>Bank reconciliations are prepared and reviewed timely.
Which control best prevents a paid voucher from being paid again? -
ANSWER>>The signer compares the check with voucher and stamps/cancels
documents "PAID."
List key audit evidence used to test cash. - ANSWER>>Cash receipts journal, cash
disbursements journal, bank reconciliations, cancelled checks (with invoices),
year-end bank statement, cutoff bank statement, bank confirmations.
What is a "cutoff bank statement"? - ANSWER>>The bank statement from the
following month used to verify reconciling items around year-end.
What is typically the FIRST procedure in an audit of cash? - ANSWER>>Obtain a
bank reconciliation for each cash account and audit it.
When auditing bank rec, how do you test "balance per bank"? -
ANSWER>>Confirm directly with the bank and agree to cutoff bank statement.
How do you audit deposits in transit on the bank reconciliation? -
ANSWER>>Trace to cash receipts journal and vouch to cutoff bank statement (to
see it cleared).
How do you audit outstanding checks on the bank reconciliation? -
ANSWER>>Vouch to cash disbursements journal and trace cleared checks on
cutoff bank statement.
How do you audit "other debit/credit memos" on the bank reconciliation? -
ANSWER>>Inspect bank memos and evaluate reasonableness with supporting
documentation.
