Accounting Chapter 4-SB

In bank reconciliation, which of the following will require a journal entry by the company

- Adjustments to the balance per books discovered on the bank reconciliation that were not yet recorded on the books

Internal control procedures for the cash disbursements (other than small disbursements from petty cash) should include that

- All expenditures are authorized - All disbursements are made by check, debit or credit card - Checks are signed by authorized Individuals

Paying by check helps a business to control cash when the

- Checks are prenumbered and written sequentially - Check is signed by an authorized manager

Internal Control Checks

- Checks should be sequentially prenumbered - Checks for large amounts should require two signatures

Which of the following Items are classified as cash Inflows from operating activities on the statement of cash flows

- Collections of an accounts receivable - Interest received on notes received

The bank will show a customer deposit on bank statements as a

- Credit because a deposit is a liability from the banks point of view

Entries effect a company's cash flows

- Debit supplies; Credit cash - Debit rend expense; credit cash

Detective Control examples

- Performance reviews - Reconciliations - Audits

Following are examples of preventive controls

- Physical controls - Separation of duties

Two types of control activities

- Preventative and detective controls

Provisions of Sarbanes-Oxley act

- Require that audit firms are hired by the audit committee of the board of directors - Require auditors to return work papers for 7 years

Key provisions of the Sarbanes-Oxley act:

- Requiring that the company executives certify financial statements - Restricting activities of auditors to prevent conflicts of interest - Requiring documentation and assessing effectiveness of internal controls

When adjusting the companies cash account balance in a banks reconciliation, which items reduce the company's cash account balance

- Service Charges - Charges for NSF checks

Causes a bank statement not to agree with the cash balance in the accounting records

- The bank made an error in recording a deposit made by the company - The company made an error in recording a deposit - The bank paid interest that a company has not recorded - Deposits outstanding that have been recorded on the company's records, but not on the banks

The components if internal control are

- based on the ethical tone set by management

Steps necessary to reconcile

1. Adjust banks cash balance 2. Adjust the company's cash balance 3. Record Items that reconcile the companies cash balance

Effective internal control over cash requires segregation of duties, what should be segregated

1. Opening the mail and deposit of checks in the bank 2. Depositing checks into the bank and recording receipts of accounting records

Internal Control Consists of

1. Safeguard to companies assets 2. provide accurate and reliable accounting information

Not included in cash

Accounts receivable from customers

_________________ ________________ that have been recorded in the company's accounting records but are not yet recorded by the bank are called

Checks outstanding

When adjusting companies cash account balance in a bank reconciliation, which item must be added to the cash account balance

Collections of funds by the bank

Components of Internal Control

Control Environment Monitoring Risk Assessment Control Activities

Cash receipts that have been recorded in a company's accounting records but are not yet recorded by the bank

Deposits outstanding

When adjusting a bank balance in a bank reconciliation, which item must be added to the bank balance

Deposits outstanding

The entry for a sale to customers is different depending on whether the customer pays with cash or a check

False

Control Environment

Formal Policies related to managements philosophy's, assignment of responsibilities and organization structure

Risk Assessment

Identifies and analyzes factors that could prevent objectives from being achieved

A key factor in helping safeguard cash is a well functioning

Internal control system

Final Responsibility for internal controls

Management

The most common source of occupational fraud is:

Misuse of the companies resources

When adjusting the bank balance in bank balance in bank reconciliation, which item must be subtracted from the bank balance

Outstanding checks

One of the most important internal controls for cash is

Reconcilation

Preparation of a bank ________ helps maintain control of cash accounts

Reconciliation

Deposits outstanding

added to the bank balance

A bank reconciliation reconciles the bank statement with companies

cash account in the balance sheet

When two or more persons work together to circumvent internal control procedures and commit a fraud, this is called

collusion

Framework for designing of internal control

committee of sponsoring Organizations (COSO) of the Treadway commissions

The Sarbanes-Oxley Act applies to:

companies that are required to file with SEC

Internal control components are built on the foundation of the ___________ tone established by the management in its control

ethics

monitoring

includes formal procedures for reporting control deficiencies

control activities

policies and procedures that help ensure managements directives are being carried out

Outstanding Checks

subtracted from the bank balance

Charges for NSF checks

subtracted from the book balance

Service Charges

subtracted from the book balance

Who is responsible for providing an opinion on managements assessment of internal controls

the companies auditors

The components of internal control are based off

the ethical tone set by management