Chapter 8

Internal control is said to be the backbone of all businesses. Which of the following is the best description of internal controls?

Internal controls and company policies are important to protect and safeguard assets and to protect all company data and are designed to protect the company from fraud.

Which of the following is true about the Sarbanes-Oxley Act?

It was passed to ensure that internal controls are properly documented and tested by public companies.

What is the advantage of using technology in the internal control system?

Passwords can be used to allow access by employees.

A company has decided to start a petty cash fund for $150. Which of the following is the correct journal entry?

Petty Cash 150 Cash 150

Which of the following is not considered to be part of the internal control structure of a company?

Publish accurate financial statements on a regular basis.

At what point does revenue recognition occur?

When the seller has met "performance"

There are three employees in the accounting department: payroll clerk, accounts payable clerk, and accounts receivable clerk. Which one of these employees should not make the daily deposit?

accounts receivable clerk

Petty cash is used to ________.

avoid having to retain receipts because the amounts are very small

Which of the following assets require the strongest of internal controls?

cash

Which of the following are found on the bank side of the bank reconciliation?

deposit in transit

Which of the following items are found on a book side of the bank reconciliation?

interest income

Which of the following would a fraudster perceive as a pressure? lack of management oversight everyone does it living beyond one's means lack of an internal audit function

living beyond one's means

Which one of the following documents is not needed to process a payment to a vendor?

packing slip

What would be a reason a company would want to overstate income?

to help nudge its stock price higher

What would be a reason a company would want to understate income?

to lower its tax bill

The external auditor of a company has certain requirements due to Sarbanes-Oxley. Which of the following best describes these requirements?

The auditor is required to only report weaknesses in the internal control design of the company he or she is auditing.

What is the best way for owners of small businesses to maintain proper internal controls?

The owner must have enough knowledge of all aspects of the company and have controls in place to track all assets.

There are several elements to internal controls. Which of the following would not address the issue of having cash transactions reported in the accounting records?

The person behind the cash register should also be responsible for making price adjustments.