ACCT 211 - Chapter 4 Learn Smart

Investing Activity

Selling Equipment

Company's employees who make necessary expenditures during the course of their employment may utilize "purchase cards" which may be in the form of:

-Debit Cards -Credit Cards

Cash

A journal entry that affects a company's statement of cash flows will include an inflow or outflow of __________.

List the steps for a bank reconciliation in correct order:

Adjust bank's cash balance, adjust the company's cash balance, update the company's cash account by recording items identified in the previous step.

Employees purchases should be included in the accounting records:

By the end of the accounting period

Checks Outstanding

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called:

The __________ sets the overall ethical tone of the company with respect to internal control.

Control Environment

The most common source of occupational fraud is:

misuse of company resources

In a bank reconciliation, which items will require journal entries by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books.

Detective Controls

Are deigned to detect errors or fraud that already have occurred. -Performance reviews -Audits -Reconciliation

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collection of funds by the bank

The framework for designing an internal control system is provided by the:

Committee of Sponsoring Organizations (COSO) of the Tread way Commission

Who has the responsibility for preparing financial statements in accordance with generally accepted principles?

Corporate Management

The employee responsible for the petty cash fund is often referred to as the petty cash __________.

Custodian

The bank will show a customer's withdrawal as a _________

Debit, because a withdrawal decreases its liability from the banks point of view.

Control Environment

Formal policies related to management's philosophy, assignment of responsibilities, and organizational structure

Investing Activities

Include cash investments in long-term assets and investment securities.

Operating Activities

Include cash transactions involving revenue and expense events during the period.

Financing Activities

Include transitions designed to raise cash or finance the business.

A company's plans to adhere to policies and procedures, promote operational efficiency minimize efforts and theft, and enhance the reliability and accuracy of accounting data are referred to as:

Internal Controls

Who has the responsibility to apply accounting standards when communicating with investors and creators?

Management

Reconciliation

Most important internal controls for cash is the bank ______________.

Operating Activity

Purchasing inventory from vendors

The ending balance in cash is reported in which financial statements?

The balance sheet and statement of cash flows.

Operating, Investing and Financing

The statement of cash flows classifies items as:

An ________ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction.

Timing

Detective

Two type of control procedures are preventive and _________.

Fraud

When a person intentionally deceives another person or company for personal gain, this is referred to as:

Collusion

When two or more persons work together to circumvent internal control procedures and commit a fraud:

The journal entry necessary to establish a "petty cash fund" is:

debit petty cash credit cash

Auditors of public companies are prohibited from providing ________ services for their audit clients.

non audit

The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash ________ occurs when a company purchases its own securities as treasury stock, and a cash _______ occurs when a company issues stock for cash to investors.

outflow inflow

Which of the following are preventive controls:

Physical controls Separation of duties

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

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

Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?

-Depositing checks into the bank and recording receipts in the accounting records -Opening the mail and deposit of checks in the bank

Internal control consists of plans to:

-Safeguard the company's assets -Improve the accuracy and reliability of accounting information -minimize errors and theft

What are preventable controls?

-Separation of duties -Physical Controls

When adjusting the company's cash account balance in a bank reconciliation, which items must decrease the company's cash account balance?

-Service charges -Charges for NSF check

The statement of cash flows provides information about a company's:

-cash disbursements -cash receipts

The three classifications on the statement of cash flows are cash flows from:

-operating activities -investing activities -financing activities

To segregate duties involving cash receipts, specific responsibilities are assigned to various employees:

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

Risk Assessment

Identifies and analyzes factors that could prevent objectives from being achieved

Monitoring

Includes formal procedures for reporting control deficiencies.

A key factor in helping safeguard cash is a well functioning ________ system.

Internal control system

Sarbanes-Oxley Act Include:

Known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor-client relations and internal control procedures. -Restricting activities of auditors to prevent conflicts of interest -Requiring documentation and assessing effectiveness of internal controls -Requiring that corporate executives certify financial statements.

Which of the following will require a journal entry following a bank reconciliation?

NSF Checks & Notes Collected by the bank

NSF stands for:

Non-Sufficient funds

A small amount of cash on hand to pay for minor purchases is commonly referred to as:

Petty Cash Fund

Control Activities

Policies and procedures that help ensure management's directives are being carried out

Seperation of duties and E-commerce controls are examples of ______ controls.

Preventative

Separation of duties and E-commerce controls are examples of ________ controls.

Preventive

Which of the following are common controls over cash receipts?

Reducing the proportion of transactions that involve cash, having two different employees take custody of the checks and making a deposit, opening mail daily and making a detailed list of checks received.

Financing Activity

Signing a long term promissory note

The financial statement that provides information about cash receipts and cash disbursements for the period is the:

Statement of cash flows