Chapter 5 :McGraw Hill

__________ is an insurance policy that partially reimburses a company for losses caused by employee fraud.

Bonding

Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act?

Conceal fraud

Which parts of the SOX Act may encourage employees to be honest?

-providing legal protection to whistle-blowers -requiring a code of ethics -requiring anonymous tip lines

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

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

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

-services charges -interest income -electronic funds transfers

What would cause a bank statement NOT to agree with the cash balance in the accounting records

-the company made an error in recording a deposit -deposits outstanding that have been recorded on the company's records, but not on the bank's -the bank made an error in recording a deposit made by the company -the bank paid interest that the company has not recorded

___________cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific purpose.

Restricted

Cashiers at a supermarket have to talk to a manager before approving price changes at the register. Which internal control principle is being followed?

Segregate duties

__________ is one of the 3 fraud triangle components where the fraudsters perceive the misdeed is unavoidable or justified.

rationalization

Deposits in transit have already been __________.

added to your cash balance per your books and not to the bank balance

Deposits in transit occur when you make a deposit________.

after the bank's normal business hours

Which of the following is added the bank balance on a bank reconciliation

deposits in transit

a bank ___________ is an internal report used to compare the bank statement with the company's cash records and should be prepared by an employee whose duties are separate from recording and handling of cash

reconciliation

Comparing two sets of records is called

reconciling

__________ of duties is essential for safeguarding assets. The person who has custody of an asset 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

A cash _________ occurs when the total of the cash receipts for petty cash expenditures plus the remaining cash is less than the original amount in the petty cash box.

shortage

Service charges are ________ of a bank reconciliation.

subtracted from the book's balance

"NSF" checks stands for "non-_________ funds"

sufficient

Petty cash payments are recorded in the accounting system's ledger when __________.

the petty cash fund needs to be replenished

Mandatory _______ is a policy that is established to make it difficult for fraudsters to cover up their theft while they are away.

vacation

Electronic funds transfers (EFT) discovered on the bank statement ___________.

will need to be adjusted on your records because your cash balance is affected

In a bank reconciliation, interest revenue earned on the bank account balance is ___________

added to the BOOK balance

Bank reconciliations are needed to reconcile for _________.

-deposits in transit -outstanding checks

On a bank reconciliation, which of the following are typical reconciling items the bank would know about because of time lags

- outstanding checks -deposits in transit

Which of the following are limitations in internal control systems?

-A control may bot be implemented because the cost of the control may exceed the benefit of reducing the fraud of potential errors -Collusion can exist making it impossible to completely prevent fraud

Which principles of internal control are incorrectly described?

-Restrict access- prepare documents that show activities that have occurred -document procedures- do not provide access to assets or information unless it is needed to fulfill the assigned task

which of the following are limitations in internal control systems

-a control may 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

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 completely prevent fraud

Additional mechanisms of internal control include __________.

-anonymous hotlines -mandatory vacations -bonding

Fraudsters may rationalize their actions _________.

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

NSF checks are the same as __________.

-bounced checks -non-sufficient funds checks

The entry to record putting money into a petty cash fund includes which of the following?

-credit Cash -debit Petty Cash

T/F: The three elements of the fraud triangle are incentive, theft, and embezzlement

False: incentive, opportunity, and rationalization

Employee _________ is often grouped into 3 categories: corruption, asset misappropriation, financial statement fraud.

Fraud

Which of the following is NOT an accurate statement about internal control

It guarantees the management will behave ethically

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

It would be added to the BOOK 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

_____________ is one of the 3 components of the fraud triangle that relates to taking advantage of weak internal controls.

Opportunity

A common principle of internal control is to ___________.

assign each task to only one employee

In a bank reconciliation, interest revenue on the bank account balance is added to the __________ balance

book

NSF checks from customers should be subtracted from the ________ balance on a bank reconciliation

book

When a check is presented to a bank for payment & the amount is deducted from the payer's account the check is said to have ________ the bank.

cleared

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 statements is accurate and complete.

controls

The bank will show a customer's withdrawal as a __________.

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

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 be a(n) __________ on a bank reconciliation.

deduction from the BANK balance

Outstanding checks written by the company should be a(n) ________ on the company's bank reconciliation

deduction from the bank balance

Cash _________ are short-term, highly_________ investments purchased within _________ of maturity.

equivalents; liquid; 3 months

among the requirements of SOX is those who willfully misrepresent financial results

face stiff fines and possible jail sentence

T/F: Internal controls prevent and detect all errors and fraud

false

The 3 components of the _____________ _____________ are incentive, opportunity and rationalization.

fraud triangle

Outstanding checks are checks that ________.

have been written but have not yet cleared the bank

Firing employees if they are not meeting a certain performance target _________ the risk that others will commit fraud in the future.

increases

The procedure of bank reconciliation is an example of which principle of internal control?

independent verification

Which of the following would be added to your cash balance based on the information on your bank statement?

interest deposited

Which of the following requires companies to achieve financial targets, such as maintaining specific levels of assets or stockholders' equity and sometimes lead dishonest managers to misreport the company's financial statements?

loan covenants

An incentive to commit fraud may be caused by managers who receive bonus payments based on the strength of the company's reported _________.

net income

If the bank makes an error by depositing your check into another depositor's account, then you should __________and contact the bank.

not change your records

A cash ____________ occurs when the total of the cash receipts for petty cash expenditures plus the remaining cash is greater than the original amount in the petty cash box.

overage-+*.

A ___________ cash system involves putting money into a fund, paying money out to reimburse others and putting money back into to replenish the fund.

petty

The entry that debits various expenses and credits Cash is recording the _________.

replenishing of petty cash

The _____________principle of internal control requires the use of firewalls and passwords.

restrict access

What are reasons internal controls can never completely prevent and detect errors and fraud

-human error -costs exceed benefits -collusion

Why might a bank statement and the company's records differ

-deposits were made at the end of the bank statement date in an ATM -Not all checks written cleared the bank -Customer checks that bounced (NSF)

SOX reduces the opportunities for fraud by requiring publicly-traded companies to _________.

-establish an audit committee of independent directors -have external auditors evaluated the companies' internal controls -evaluated and report on its internal controls

The principles underlying the internal control system include __________.

-establishing responsibility -segregating duties -restricting access -documenting procedures -independently verify

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

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

Incentives for committing fraud in order to satisfy personal greed include

-getting a bigger paycheck -increasing personal wealth

Which of the following reconciling items on a bank reconciliation need to be recorded in the company's record to adjust its cash balance so that it up to date?

-interest revenue -customer's check rejected by the bank as NSF -EFT received from customers discovered on the bank statement

Which of these are cash equivalents?

-investments within 3 months to maturity -money market funds

Which of the following are true regarding a bank statement?

-it may include service charges -it lists all checks that have cleared the bank -it may include interest earned -it may include NSF checks

Which principle of internal control enhances assurance that all transactions, checks and other business activities have been accounted for

document procedures

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

A check that you have written has cleared the bank when __________.

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

The ___________ __________________ system consists of actions taken to promote efficient and effective operations, protect assets, enhance accounting information and adhere to laws and regulations.

internal control

deposits in ____________ are added to the __________ (bank/book) side of the bank reconciliation

transit; bank

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