AC chapter 5

One of the components of an internal control system is the control environment which refers to the

attitude employees hold regarding internal control

the benefits of internal control procedures are that they

enhance the reliability of accounting information, improve the efficiency and effectiveness of operations, and protect against theft of assets

Do not make one employee responsible for all parts of a process

segregate duties

Fraudulent reporting by management includes

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

After approval of a purchase has been obtained, the purchasing agent completes a prenumbered ______ that identifies the supplier, the delivery location, and the approved quantity and cost.

purchase order

Ensures the order is placed with an approved supplier at approved prices

purchase order

Is used to verify amounts ordered agree with the suppliers actual shipment.

receiving report

Is used to ensure that the appropriate amount is paid for goods received

supplier invoice

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 are limitations in internal control systems?

collusion can exist making it impossible to completely 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

refers to the work responsibilities and duties completed to reduce risks to an acceptable level

control activities

3 categories of employee fraud

corruption, asset misappropriation, financial statement fraud

assign each task to only one employee in order to allow one to determine who is at fault for an error or theft

establish responsibility

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, electronic funds transfers, service charges

The risk assessment component in a system of internal controls refers to the assessment of the

potential for fraud

A bank reconciliation is an

internal report prepared to compare the company's cash records with the bank statement

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; Customer checks that bounced (NSF); Not all checks written cleared the bank

The ______ component of an internal control system refers to the evaluation of internal controls to identify deficiencies. Multiple choice question.

monitoring activities

refers to the evaluation of internal controls to determine if they are working as intended

monitoring activities

objectives of the SOX act

reduce opportunities for fraud, counteract incentives for fraud, and encourage good character

refers to the continuous evaluation of the potential for fraud

risk assessment

Internal control for cash is important because..

the risk of cash-handling errors is significant; of the high risk of theft; of the large volume of cash transactions; cash is portable and is "owned" by whomever possesses it

Ensures the request is made by someone who is approved to order goods or services of the type and amount requested

purchase requisition

The purchasing system begins with an authorized employee completing a manual or electronic ______ which is then reviewed and approved by a supervisor before an order is placed with a supplier.

purchase requisition

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true

An adjusting entry must be made to debit Accounts payable and credit Cash for $45.

One of the components of an internal control system is "control activities" which refers to the activities

completed by employees to reduce risks to an acceptable level

Bank reconciliations are needed to reconcile for ______

outstanding checks and deposits in transit

Which of the following control components are part of the framework used when analyzing an internal control system?

risk assessment control activities information and communication monitoring activities control environment

refers to helping people in the organization to understand the importance of internal control

control environment

refers to the documentation of activities that promote effective internal controls

information and communication