Chapter 4

A business's administrative controls are concerned with

Assessing the extent of compliance with laws and company policies

While performing its monthly bank reconciliation, the bookkeeper for the Partin Company discovered that a check written for $421 for advertising expense was recorded in the firm's books as $241. Which of the following shows the effect of the correcting entry on the financial statements?

Choice B: Assets = Liab. + Equ, Rev. - Exp = NI, Cash Flow (180) = NA + (180) NA - 180 = (180) (180) OA

A bank statement debit memo describes a transaction that increases a customer's account balance.

False

A company's outside, independent auditors are responsible for preparing its financial statements.

False

A good system of internal controls cannot be overridden by collusion among employees.

False

A well-designed system of internal controls will eliminate employee theft and fraud in a company.

False

In preparing a bank reconciliation, typical adjustments to the bank balance are deposits in transit and bank service charges.

False

Internal controls that assess degree of compliance with company policies are classified as accounting controls.

False

The qualified opinion is the most favorable opinion that can be expressed by an independent auditor.

False

The usual form for a bank reconciliation begins with the ending cash balance shown on the bank statement and reconciles it to the ending cash balance on the company's books.

False

When a customer's NSF check is returned to a business, the business should record an uncollectible account loss.

False

In preparing bank reconciliations, typical adjustments to the book balance include

Interest earned on the checking account

How is a business's certified check treated in doing the business's bank reconciliation?

It is not included in doing the bank reconciliation

How will a certified check be treated in a company's bank reconciliation?

None of these.

Which of the following is not a generally recognized internal control procedure?

The minimization of labor cost

A bank reconciliation adjusts both the cash balance reported by the bank and the book cash balance to the true cash balance.

True

A business learns about customers' NSF checks through debit memos that are included with the bank statement.

True

A company's outside, independent auditors are responsible for expressing an opinion on the company's financial statements. True

True

Effective separation of duties in a business allows the work of one employee to serve as a check on the work of other employees.

True

Effective separation of duties in an organization reduces the likelihood of theft.

True

In preparing a bank reconciliation, typical adjustments to the book balance include bank service charges, customer NSF checks, and interest earned on the account.

True

One of the requirements of the code of ethics of the AICPA is that members must act in a way that serves the public interest.

True

Preparing a bank reconciliation is an important internal control for a business.

True

The three elements that are typically present when fraud occurs are opportunity, pressure, and rationalization.

True

What documentation issued by a bank increases a company's checking account balance at the bank?

a credit memo

The Sarbanes-Oxley Act

all of these: was prompted by corporate bankruptcies and audit failures. limits an auditor's ability to provide non-audit services to a client. clarifies the responsibility of a company's management for its financial statements.

To reduce the likelihood of conflicts of interest, SOX prohibits registered public accounting firms from providing the following contemporaneously with the audit:

all of these: internal audit outsourcing financial-information-system design and implementation expert services

To have a strong internal control system, a business must have good administrative controls. Administrative controls include:

assessing compliance with company policies

Check no. 147 for $200 was outstanding as of September 30. In performing the September bank reconciliation, this outstanding check should be

subtracted from the unadjusted bank balance

Rich Company's unadjusted book balance at October 31, 2014 is $2,550. The following information is available for the bank reconciliation. Outstanding checks, $600 Deposits in transit, $450 Bank service charges, $90 Bank collected an accounts receivable for Rich Company, $1,000 NSF check written by one of Rich's customers, $600 Based on this information Rich's true cash balance is:

$2,860