ACG chpt 5

Among the new requirements of SOX is those who willfully misrepresent financial results

face stiff fines and possible jail sentence

incentives for committing fraud in order to satisfy personal greed include

getting a bigger paycheck increasing personal wealth

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 interal control procedure of ____

independent verification

how do banks help business control cash

independently verifying documenting procedures restricting access to cash

a difference between an imprest payroll account and petty cash is petty cash is ____

not held at the bank

if a bank reconciliation include a deposit in transit of $670, the company's journal entry for this reconciling item would include _____

nothing, because the deposit has already been recorded

The quality of financial reporting for publicly traded companies is improved through ____

obtaining an external audit evaluating and reporting on the effectiveness of internal controls

which of the following is subtracted from the bank balance on a bank reconciliation?

outstanding checks

violating loan covenants could lead to

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

petty cash payments are recorded in the accounting system's ledger when

the petty cash fund needs to be replenished

EFT stands for "electronic fund ____"

transfer

This month's bank statement shows interest earned $45. How would this items be treated on the bank reconciliation?

it would be added to the book balance

this month's bank statement shows that the bank incorrectly credited ABC Corp.'s account. How would this item be treated on ABC's bank reconciliation?

it would be deducted from the bank balance

the entry to record the establishment of a petty cash fund is a debtto ____ and a credit to ____

petty cash; cash

which of the following responsibilities should not be given to the accounting department?

preparing the purchase order preparing the purchase requisition preparing the receiving report

Match each of the five principles of internal control with its description

Segregate duties - do not make one employee responsible for all parts of a process Establish responsibilities - Assign each task to only one employee in order to allow one to determine who is at fault for an error or theft Restrict access - do not provide access to asset or information unless it is needed to fulfill the assign task Document procedures - prepare documents to show activities that occurred Independent verify - check others work

a company has a $8,000 cash balance per its books. The bank statement has a balance of $8,450. The bank reconciliation included $800 of deposits-in transits.. $500 of checks outstanding, EFT's of $1,000 were received from customers, a $200 NSF check from a customer, and a $50 bank service charge. Given the following reconciling items, the up-to-date cash balance equals

$8,750

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 included

A debit to Cash of $5,100 credit to Cash Overage of $100 credit to Sales Revenue for $5,000.

If a cashier rang up sales totaling $5,096, but had $5,100 to deposit, which journal would be recorded?

A debt to cash of $5,100; a credit to cash overage of $4; and a credit to sales revenue of $5,096

while preparing the bank reconciliation for March, the account for ABC company discovered that a $694 check in payment of an account payable has been entered incorrectly in the journal as $649. which of the following is true?

An adjusting entry must be made to debt accounts payable and credit cash $45

Match the steps in a vouch system with the appropriate control principle

Establish responsibility - ensure that purchase requisition are made by employees approved to make purchases Document procedures - prepare a receiving report Segregate duties - accounting department prepares the journal entry

true or false: internal controls prevent and detect all errors and fraud

False

a check that you have written has cleared the bank when ____

Funds have been withdrawn from your bank account to cover the check

A ____ system controls the amount paid to others by limiting the total amount of money available for making payments

Imprest

Which of the following are components of the fraud triangle

Incentive Opportunity Rationalization

which of the following are typical reconciling items on the book side of a reconciliation because the company did not know about these items until it got the bank statement?

Interest income Services charges Electronic funds transfers

a $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?

It would be added to the bank balance

This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation?

It would be deducted from the book balance

a goal of the Sarbanes-Oxley Act is improving corporations' internal controls. Which of these may accomplish this goal?

Marketing managers must determine whether the marking team is submitting accurate sales and expense reports an audit committee of independent directors oversees financial matters of the company external auditors must test the effectiveness of the company's internal controls

which of these are cash equivalents

Money market funds investments within 3 months to maturity

NSF checks are the same as ____

Not sufficient funds check Bounced Checks

an internal control system consists of actions taken to achieve objectives. Match the appropriate description with each objective of an internal control system

Operations - objective is to ensure the efficient and effective completion of work and the protection of assets Reporting - objective is to produce reliable and timely accounting information Compliance - objective is to focus on adhering to laws and regulations Risk Abatement - This is not an objective

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

Outstanding checks and deposits in transit

Place the order of the steps in documenting and controlling purchases in a voucher system with the first step listed on the top and final step at the bottom

Request goods or services by submitting a purchase requisition Prepare a purchase order after suppliers and prices have been approved Prepare a receiving report Prepare a supplier invoice and prepare the journal entry

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?

Stronger oversight by directors, internal control audit by external auditors internal control report from management

which element is not part of the fraud triangle?

Sustainability

Business opportunities create incentives for fraud for which of the following reasons

To Satisfy loan covenants To Increase equity financing To Attract business partners

which of the following are limitations in internal control systems?

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

Deposits in transit are ____ on a bank reconciliation

added to the bank balance

in a bank reconciliation interest revenue earned on your bank balance is

added to the book balance

in a bank reconciliation, the electronic funds transfer (EFT), received by the bank from a customer's note receivable owed to the company is

added to the book balance

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

banks provide documentation bank provide statements that are used for independent verification

NSF Checks from customers should be subtracted from the ____ balance on a bank reconciliation

book

which of the following are elements of good internal control over cash receipts

cash receipts are summarized and their total is calculated a different employee deposits the cash at the bank two employee cannot share the same cash drawer

which of following are limitations in internal control systems?

collusion can exist making it impossible to complete 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.

when the cash count sheets for the day equal $10,100 and the cash register reports $10,200, the journal entry to record the sales will include a

debt to cash shortage

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

debt, because a deposit is a liability form the bank's point of view

the bank will show a customer's withdrawal as a

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

Anonymous information about questionable accounting matters sent to the audit committee through tip lines

decreases the risk of fraud

In a bank reconciliation, an outstanding check is

deducted from the bank balance

the bank credited your account for a deposit that should have been deposited into another customer's bank account, not yours. This bank error should a(n) ____ on a bank reconciliation.

deduction from the bank balance

which of the following is added to the bank balance on a bank reconciliation

deposit in transit

a cash register does not ____

reconcile accrual accounting with cash accounting

which of the following are the steps involved in a petty cash system?

replenishing the petty cash fund putting money into petty cash to establish a fund paying money out to reimburse others

physically locking up assets and electronically securing access to other assets and information is required by the internal control principle of ____

restricting access

___ 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

segregation

Restricted cash is reported

separately as an asset on the balance sheet

"NSF" checks stand for "not ____ funds"

sufficient

The Sarbanes-Oxley (SOX) Act provides increased regulations for

Auditors Internal Controls Corporate Executives

When a check is presented to a bank payment and the amount is deducted from the payer's account the check is said to have ____ the bank

Cleared

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 - evaluates the potential for fraud Control Activities - work responsibilities and during completed to reduce risk to an acceptable level Monitoring activities - evaluating the internal control system to see if working as intended

The Sarbanes-Oxley (SOX) Act aim to reduce fraud by

Encouraging honestly in employees Providing penalties for fraud Reducing opportunities

Match the internal control principle associated with each activity

Establish Responsibility - Just one employee receives cash Document Procedures - Cash receipts are summarized and the total is calculated Segregated duties - A person different from whom receives cash makes the deposit in the bank Independently verifies - a company manager compares the compares the cash count sheets the bank deposit slip

A(n) ____ system is a process for approving and documenting all purchases and payments made on account

Voucher

An EFT cash receipt from a customer is

added to the cash balance

Fraud is best defined as

an attempt to decieve others for personal gain

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 statement is accurate and complete

controls

A weak system of internal ____ provides the ____ to commit fraud

controls; opportunity

a loan ____ specifies terms of a loan agreement that, if broken, can allow the lender to renegotiate the terms of the loan or force repayment

covenants

bank reconciliations are needed to reconcile for ____

deposits in transit outstanding checks

Assigning sequential numbers to cash sales, so that the accounting staff can ensure that every sale has been recorded is required by the internal control principle of ____

documenting procedures

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

establishing responsibility

the entry to record to replenishment of the petty cash fund involves debiting ____ and crediting ____

expense accounts; cash

among the new requirements of SOX is those who willfully misrepresent financial result

face stiff fines and possible jail sentence

additional mechanisms of internal control include ____

mandatory vacations bonding anonymous hotlines

fraudulent reporting by management include ____

mismatching revenues and expenses improper asset valuation recording fictitious from a phantom customer

Deposit in ____ are added to the ____ (bank/book) side of the bank reconciliation

transit bank

The 3 categories of employee fraud is ____

Corruption financial statement fraud asset misappropriation

a ____ deposit initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts/

Direct

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

Direct

which of the following provisions of the Sarbanes-Oxley (SOX) Act aim to encourage honestly and the reporting of dishonest acts?

Whistler-blower protection Code of ethics anonymous tip lines

fraudsters rationalize their actions

as legitimate since they are underpaid through a feeling of personal entitlement by convincing themselves their actions are justified

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

cashiers are responsible for collecting cash and issuing a receipt at the point of sale a supervisor is responsible for collecting the cash at the end of each cashier's shift members of the accounting department are responsible for ensuring that cash sales are properly recorded

good internal controls for cash receipts that should be performed by a supervisor include ____

comparing cash in registers with cash count sheets restricting access to cash by locking it up completing bank deposits

good internal control for cash receipts to be performed by the accounting department should include ____

comparing cash register sales with the sales with the cash count sheets and bank deposit slip Recording the cash receipts in the journal