AC210 CH5 Learn Smarts

The Sarbanes-Oxley Act contains measures aimed at reducing both opportunities and incentives to commit fraud. Which of the following are designed to reduce the opportunity for fraud?

-internal control report from management -stronger oversight by directors -internal control audit by external auditors

Banks provide important controls surrounding a company's cash. These include which of the following?

Banks restrict access, banks provide statements that are used for independent verification, banks provide documentation.

_____ is an insurance policy that partially reimburses a company for losses caused by employee fraud.

Bonding

To avoid duplicate payment, the voucher should be marked "____" as the final step in the voucher system.

Paid

Which of the following are limitations in internal control systems?

collusion can exist making it impossible to completely prevent fraud; a control may not be implemented because the cost of the control may exceed the benefit of reducing the fraud or potential errors

A weak system of internal ______ can lead to fraudulent financial statements. These procedures and policies help ensure that information entered into the accounting system and reported in the financial statements is accurate and complete.

controls

The bank will show a customer's withdrawal as a ____.

debit, because a withdrawal decreases its liability from the bank's point of view

outstanding checks written by the company should be a(n) ____ on the company's bank reconciliation

deduction from the bank balance

An example of an EFT is _____.

direct deposit of employee paychecks

Which principle of internal control enhances assurance that all transactions, checks, and other business activities have been accounted for?

document procedures

The 3 components of the ___ ___ are incentive, opportunity and rationalization.

fraud triangle

If a company hires an auditor to check that the work done by others within the company is supported by documentation, this is part of the internal control procedure of ____.

independent verification

Service charges are ____ of a bank reconciliation.

subtracted from the book's balance

Which of the following is an example of weak internal controls?

the mail-room clerk records daily cash receipts in the journal

Each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of:

establishing responsibility

Which of the following would be added to your cash balance based on the information on your bank statement?

interest deposited

The ____ ____ system consists of actions taken to promote efficient and effective operations, protect assets, enhance accounting information and adhere to laws and regulations.

internal control

In preparing your bank reconciliation, you notice that you recorded a deposit as $100 instead of $10. You should ____.

subtract $90 from your cash and make an entry

In a bank reconciliation, interest revenue on the bank account balance is added to the _____ balance.

Book

Which of the following poses a high risk of theft because of its high volume and ease of portability?

Cash

Which of the following are true regarding a bank statement?

- It may include service charges - It lists all checks that have cleared the bank - It may include interest earned - It may include NSF checks

Violating loan covenants could lead to ___.

- being forced to put up extra collateral -repaying the loan balance right away -paying higher interest rates

Cards _____.

-Are used by employees to purchase business-related items -Are often used in place of a petty cash fund

Which of these are cash equivalents?

-Investments within 3 months to maturity -Money market funds

Match the following control components of the framework used when analyzing internal control systems with the appropriate description.

-control environment: refers to the attitude of the people in the organization and their commitment to integrity-risk assessment: evaluate potential for fraud-control activities :work responsibilities and duties completed to reduce risks to an acceptable level-monitoring activities: evaluating the internal control system to see if working as intended

Match the principle of internal control with the supervisor's internal control responsibility described

Independent verification - The supervisor reconciles the cashier's count sheet to the cash collected.Restrict access - The supervisor is responsible is responsible for keeping the cash safe and getting the cash to the bank.Document procedures - The supervisor prepares a deposit slipSegregation of duties - The supervisor forwards the verified deposit slip to the accounting record to record the cash receipts.

NSF checks from customers should be a _____ on a bank reconciliation

Subtraction from the book balance

"NSF" checks stands for "non-____ funds."

Sufficient

This document is compared to the internally generated documents of the voucher system to ensure the quantity and costs agree with what has been ordered and received. If all reconciles, the accounting department will record the purchase in the accounting records.

Supplier invoice

Committing financial fraud can result in stiff penalties, including fines and jail sentences

True; penalties may include up to $5 million in fines and up to 20 years in jail.

A ________________ system involves the processing of purchases and payments made on account.

Voucher

when a check is prescribed to a bank for payments and the amount is deducted from the payer's account the check is aid to have _______ the bank

cleared

deposits in ______ are added to the _____ side of the bank reconciliation.

transit; bank

Electronic funds transfers (EFT) discovered on the bank statement ____.

will need to be adjusted on your records because your cash balance is affected

If the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown on the bank reconciliation as a(n) _____.

$27 deduction from the book balance

Which principles of internal control are incorrectly described?

*restrict access - prepare documents that show activities that have occurred* *Document procedures - do no provide access to assets or information unless it is needed to fulfill the assigned task*

Match the internal control principle associated with each activity

1) Establish responsibility -> Just one employee receives cash2) Document procedures -> Cash receipts are summarized and their total is calculated3) Segregate duties -> A person different from whom receives the cash makes the deposit in the bank4) Independently verifies -> A company manger compares the cash count sheets with the bank deposit slips

To segregate duties involving cash receipts, specific responsibilities are assigned to various employees. Put the following steps in the correct chronological order.

1. Cashiers are responsible for collecting cash and issuing a receipt at the point of sale.2. A supervisor is responsible for collecting the cash at the end of each cashier's shift.3. Members of the accounting department are responsible for ensuring that cash sales are properly recorded

While preparing the bank reconciliation for March, the accountant for Oliver & Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. What is true about this statement?

An adjusting entry must be made to debit accounts payable and credit cash for $45.

The Sarbanes-Oxley Act provides increased regulations for:

Corporate executives, auditors, internal controls

the 3 categories of employee fraud are ___.

Corruption, asset misappropriation, financial statement fraud

At the end of the day, the cashiers rung up sales of $5,000 and counted on the cash count sheets and deposited $5,100, the accounting department would make a journal entry for the day's sales that includes _______.

Debit to cash for $5,100 Credit to cash overage of $100 Credit to Sales Revenue of $5,000

On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of time lags?

Deposits in transits and Outstanding checks

A _____________ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts.

Direct

A(n) _____ system controls the amount paid to others by limiting the total amount of money available for making payments.

Imprest system

Match the principles of Internal control with the accounting department's internal control responsibility described.

Independent verification - The accounting department compares the cashier's count sheet to the cash register and to the bank deposit slip.Document procedures - The accounting department records a journal entry for the cash receipts.Segregation of duties - The accounting does not have access to the cash.

This months bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation?

It would be added to the book balance. (the book balance must be increased by the amount of interest revenue as reported on the bank statement)

_____ is one of the 3 fraud triangle components where the fraudsters perceive the misdeed is unavoidable of justified.

Rationalization

Comparing two sets of records is called ______.

Reconciling

Which part of the Sarbanes- oxley (SOX) act may encourage employees to be honest?

Requiring a code of ethics, requiring anonymous tip lines, providing legal protection to whistle-blowers (snitches r bitches tho)

_________ cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific purpose.

Restricted

_____ of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. A person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records.

Separation

If the bank makes an error by depositing your check into another depositor's account, then you should ___ and contact the bank.

not change your records

____ is one of the 3 components of the fraud triangle that relates to taking advantage of weak internal controls.

opportunity

After approval of a purchase has been obtained, the purchasing agent completes a prenumbered ___ that identifies the supplier, the delivery location, and the approved quantity and cost.

purchase order

The purchasing system begins with an authorized employee completing a manual or electronic ____ which is then reviewed and approved by a supervisor before an order is placed with a supplier.

purchase requisition

This document indicates the date, quantity, and condition of the goods. It is then sent to the accounting department to notify so the purchase can be recorded.

receiving report

The _____ principle of internal control requires the use of firewalls and passwords.

restrict access

Increasingly, the basic steps of the voucher system are performed using _____ process automation, which combines automation and artificial intelligence.

robotic

Match the steps in a voucher system with the appropriate control principle.

1. Establish responsibility -> Ensure that purchase requisition are made by employees approved to make purchases. 2. Document procedures -> Prepare a receiving report. 3. Segregate duties -> Accounting department prepares the journal entry.

A company has a $10,000 cash balance per its books. The bank statement has a balance of $9,580. The bank reconciliation included $800 of deposits-in transits, $500 of checks outstanding, a $100 NSF check from a customer, and $20 bank service charge. Given the above reconciling items, the up-to-date cash balance equals ____.

9880; TOTAL CASH BOOK BALANCE = $10000 LESS : Saving interedt = $20 Less - NSF checks dishonoures =$100 Cash book balance ($10000 - $100 - $200) = $9880

Outstanding checks are checks that ____.

Have been written but have not yet cleared the bank

Incentives for committing fraud in order to satisfy personal greed include _______.

Increasing personal wealth; getting a bigger paycheck

Which is used to avoid the time and cost of writing checks for business expenses that are small in amount and is controlled by limiting the amount in it and subjecting it to surprise audits?

Petty cash