Chapter 6 & 7 HW

Gross Profit = Sales Revenue - Cost of Goods Sold

Gross Profit = Sales Revenue - Cost of Goods Sold

Encryption

Rearranging​ plain-text messages by a mathematical process - the primary method of achieving security in​ e-commerce.

The ________ deposits the customer checks in the bank.

treasurer (or cashier)

The same trusted employee has served as cashier for 12 years.

Internal Control Failure: Other; no job rotation

After approving all​ documents, the purchaser sends​ a(n) __________ to the vendor.

check

365 / Inventory Turnover = Days' Sales in Inventory

365 / Inventory Turnover = Days' Sales in Inventory

Outstanding​ checks

A subtraction from the bank balance

NSF check from​ customer

A subtraction from the book balance

Service​ charge

A subtraction from the book balance

The business credited Cash for​ $200. The correct amount was​ $2,000.

A subtraction from the book balance

Deposits in​ transit

An addition to the bank balance

The bank incorrectly decreased the​ business's by​ $350 for a check written by another business.

An addition to the bank balance

Bank collection of note receivable and interest

An addition to the book balance

Interest earned on bank balance

An addition to the book balance

Cost of Goods Sold / Average Merchandise Inventory = Inventory Turnover

Cost of Goods Sold / Average Merchandise Inventory = Inventory Turnover

Separation of Duties

Dividing responsibilities between two or more people.

Internal Auditors

Employees of the business who ensure that the​ company's employees are following company policies and meeting legal requirements and that operations are running efficiently.

Grocery stores such as Convenience Market and Natural Foods purchase most merchandise from a few suppliers. At another grocery​ store, the manager decides to reduce paperwork. He eliminates the requirement that the receiving department prepare a receiving report listing the goods actually received from the supplier.

Internal Control Failure: Other; Documents and records - no receiving report

When business is​ brisk, Fast Mart deposits cash in the bank several times during the day. The manager at one store wants to reduce the time employees spend delivering cash to the​ bank, so he starts a new policy. Cash will build up over​ weekends, and the total will be deposited on Monday.

Internal Control Failure: Other; Not depositing cash soon enough for adequate security

Business is slow at Amazing Amusement Park on​ Tuesday, Wednesday, and Thursday nights. To reduce​ expenses, the business decides not to use a ticket taker on those nights. The ticket seller​ (cashier) is told to keep the tickets as a record of the number sold.

Internal Control Failure: Separation of Duties

While reviewing the records of Quality ​Pharmacy, you find that the same employee orders merchandise and approves invoices for payment.

Internal Control Failure: Separation of Duties

Define Internal Control

Internal control is the organizational plan and all the related measures designed to do the​ following: Safeguard assets Encourage employees to follow company policy Promote operational efficiency Ensure accurate and reliable accounting records

The _________ opens the mail and sends customer checks to the treasurer.

Mailroom Employee

Internal Control

Organizational plan and all the related measures adopted by an entity to safeguard​ assets, encourage employees to follow company​ policies, promote operational​ efficiency, and ensure accurate and reliable accounting records.

Sarbanes-Oxley Act

Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

The system of internal control must be tested by external auditors. What law or rule requires this​ testing?

Sarbanes-Oxley Act

The FIFO method results in the largest gross profit because during times of increasing inventory prices, this method will produce the lowest cost of goods sold

The FIFO method results in the largest gross profit because during times of increasing inventory prices, this method will produce the lowest cost of goods sold

Sandra Kristof sells furniture for McKinney Furniture Company. Kristof is having financial problems and takes​ $650 that she received from a customer. She rang up the sale through the cash register. What will alert Megan​ McKinney, the​ controller, that something is​ wrong?

The cash in the cash drawer will be $650 lower than the amount recorded in the cash register

A purchasing agent for Franklin Office Supplies receives the goods that he purchases and also approves payment for the goods. a. How could this purchasing agent cheat his​ company? b. How could Franklin avoid this internal control​ weakness?

a. A dishonest purchasing agent​ could: Approve payment for an excessive amount and split the excess with the supplier; Purchase goods and have them delivered to his home. b. Companies avoid this internal control weakness​ by: separating the duties of purchasing goods, receiving goods, approving payments for goods.

Review the internal controls over cash receipts by mail. Exactly what is accomplished by the final step in the​ process, performed by the​ controller? a. What would the controller look at to see the amount of cash that went into the​ bank, and who would provide him with the​ backup? b. What would the controller look at to see what was recorded by the​ Company, and who would provide him with the​ data? c. This comparison ensures that _____________

a. Bank deposit amount from the treasurer b. Debit to Cash from the accounting department c. That the debit to Cash is equal to the amount deposited in the bank

Internal controls are designed to safeguard​ assets, encourage employees to follow company​ policies, promote operational​ efficiency, and ensure accurate accounting records. a. Which objective do you think is most​ important? b. Which objective do you think must the internal controls accomplish for the business to​ survive? Give your reason.

a. Safeguarding Assets b. Businesses need to safeguard assets to survive. If this is not done assets may slip away which is ultimately throwing away resources.

Dogtopia sells pet supplies and food and handles all sales with a cash register. The cash register displays the amount of the sale. It also shows the cash received and any change returned to the customer. The register also produces a customer receipt but keeps no internal record of the transactions. At the end of the​ day, the clerk counts the cash in the register and gives it to the cashier for deposit in the company bank account. a. Identify the internal control weakness over cash receipts. b. What could you do to correct the​ weakness?

a. The cash register does not keep an internal record of the sale; The clerk counts the cash in the cash draw at the end of the day. b. A manager counts the cash in the cash drawer at the end of the day and compares it to the register tape; The cash register will keep an internal record of the sale; The register tape will go to the accounting department to record the cash and sale in the journals.

​Gary's Great Cars purchases​ high-performance auto parts from a Nebraska vendor. Dave​ Simon, the accountant for​ Gary's, verifies receipt of merchandise and​ then, prepares,​ signs, and mails the check to the vendor. a. Identify the internal control weakness over cash payments. b. What could you do to correct the​ weakness?

a. The same person is responsible for verifying receipt of merchandise, authorizing payment, and preparing the payment. b. The receipt of goods should be verified by someone other than the accountant or the person authorizing the purchase order; Purchase orders, utilizing authority from operations, should be used to authorize inventory purchases; The accountant should receive the receipt of goods and purchase order forms from other departments before issuing payment; The accountant should not place the purchase order.

Identify each item as either a strength or a weakness in internal control and give your reason for each answer. a. Top managers delegate all internal control procedures to the accounting department. b. Accounting department staff​ (or the​ bookkeeper) orders merchandise and approves invoices for payment. c. Cash received over the counter is controlled by the sales​ clerk, who rings up the sale and places the cash in the register. The sales clerk matches the total recorded by the register to each​ day's cash sales. d. The employee who signs checks need not examine the payment packet because he is confident the amounts are correct.

a.Weakness; The control environment would be more effective if top management led in establishing controls. b. Weakness; Accounting should not order goods. They could have goods sent to their homes and approve payment. c. Weakness; The sales clerk should not have access to the cash register total, as the clerk could change the record. d. Weakness; The officer should examine the payment packet to ensure that the payment is for the correct amount.

The ___________ uses the remittance advices to record the journal entries for cash receipts.

accounting department

The _________ compares the bank deposit to the journal entry for cash receipts.

controller

EFT Collection

db Cash cr Rent Revenue To record rent collection by EFT.

The vendor ships the inventory and sends​ a(n) _________ back to the purchaser.

invoice

When ordering merchandise​ inventory, the purchaser sends​ a(n) __________ to the vendor.

purchase order

The purchaser receives the inventory and prepares​ a(n) __________.

receiving report.