ACC CH: 5

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? (Select all that apply.)

-electric funds transfer -service charges -interest income

Which principles of internal control are incorrectly described? (Select all that apply.)

1) *restrict access - prepare documents that show activities that have occurred* 2) Establish responsibilities - assign each task to only one employee 3) Independently verify - check others' work 4) *Document procedures - do no provide access to assets or information unless it is needed to fulfill the assigned task* 5) Segregate duties - do not make one employee responsible for all parts of a process

Fraudulent reporting by management includes ______. (Select all that apply.)

Improper assets valuation, recording fictitious revenues from a phantom customer mismatching revenues and expenses

Comparing two sets of records is called ______.

reconciling

Restricted cash is reported ______.

separately as an asset on the balance sheet

When a check is presented to a bank for payment and the amount is deducted from the payer's account, the check is said to have ____ the bank. (Enter one word per blank.)

CLEARED

Which of the following poses a high risk of theft because of its high volume and ease of portability?

Cash

What are reasons internal controls can never completely prevent and detect errors and fraud? (Select all that apply.)

Collusion Human error Costs exceed benefits

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

Conceal fraud

_______ of duties is essential for safeguarding assets. The person who has custody of an asset should 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. (Enter one word per blank.)

SEGREGATION

Deposits in transit occur when you make a deposit ______.

after the bank's normal business hours

A(n) ______ system involves the processing of purchases and payments made on account.

voucher

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

BOOK

Which of these are cash equivalents? (Check all that apply.)

Investments within 3 months to maturity Money market funds

Deposits in transit have already been ______.

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

Paying by check helps a business to control cash when the ______.

checks are prenumbered and written sequentially manager studies the documents supporting the payment before signing the check

Employee _____ is often grouped into 3 categories: corruption, asset misappropriation, financial statement fraud. (Enter only one word per blank.)

fraud

Deposits in transit are ______ on a bank reconciliation.

added to the bank balance

Deposits in _____ are added to the ____ (bank/book) side of the bank reconciliation. (Enter one word per blank.)

transit bank

Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $3,000; deposits in transit of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals ______.

$9,910

True or false: Internal controls prevent and detect all errors and fraud.

FALSE

True or false: Strong internal control surrounding cash receipts requires the cashier to perform the following procedures: count the cash receipts, take the cash to the bank, and record the amount collected in the accounting records.

FALSE

True or false: The person who has custody of an asset should also account for the asset. A person who performs both duties will best know what the balance should be in the accounting records.

FALSE

Cash ______ are short-term, highly ______ investments purchased within ______ of maturity.

equivalents; liquid; 3 months

Outstanding checks are checks that ______.

have been written but have not yet cleared the bank

Internal control for cash is important because ______. (Check all that apply.)

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

Which of the following is not an accurate statement about internal control?

1) It promotes efficient and effective operations 2) It helps protect against the theft of assets 3) It enhances the reliability of accounting information 4) *It guarantees the management will behave ethically* - FALSE

On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of time lags? (Select all that apply.)

1) bounced checks 2) *outstanding checks* 3) electronic funds transfers 4) *deposits in transit*

The principles underlying the internal control system include ______. (Select all that apply.)

1) keeping expenses as low as possible 2) *independently verify* 3) increasing sales each year 4) *establishing responsibility* 5) *restricting access* 6) *segregating duties* 7) *documenting procedures*

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.

_____ checks written by the company that have not cleared the bank are subtracted from the_____ balance on a bank reconciliation. (Enter one word per blank.)

OUTSTANDING BANK

True or false: Committing financial fraud can result in stiff penalties, including fines and jail sentences.

TRUE

A goal of the Sarbanes-Oxley Act is improving corporations' internal controls. Which of these may accomplish this goal? (Select all that apply.)

a. External auditors must test the effectiveness of the company's internal controls. b. Marketing managers must determine whether the marketing team is submitting accurate sales and expense reports. c. An audit committee of independent directors oversees financial matters of the company.

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

added to the book balance

In a bank reconciliation, an outstanding check is ______.

deducted 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

Bank reconciliations are needed to reconcile for ______. (Select all that apply.)

outstanding checks deposits in transit

The services provided by a bank help business control cash by ______.

restricting access and providing documentation and independent verification

How do banks help businesses control cash? (Select all that apply.)

restricting access to cash independently verifying documenting procedures

What would cause a bank statement not to agree with the cash balance in the accounting records? (Check all that apply.)

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

A(n) ______ is a collection of documents prepared in the process of approving, processing and documenting all purchases and payment made on account.

voucher

The Sarbanes-Oxley (SOX) Act aims to reduce fraud by ______. (Select all that apply.)

Encouraging honestly in employees counteract incentives Reducing opportunities

Purchase requisition Purchase order Receiving report Supplier invoice

Ensures the request is made by someone who is approved to order goods or services of the type and amount requested ---- Ensures the order is placed with an approved supplier at approved prices ----- Is used to verify amounts ordered agree with the suppliers actual shipment. ---- Is used to ensure that the appropriate amount is paid for goods received

The _____ _______ system consists of actions taken to promote efficient and effective operations, protect assets, enhance accounting information and adhere to laws and regulations. (Enter only one word per blank.)

INTERNAL CONTROL

Which of the following responsibilities should not be given to the accounting department? (Select all that apply.)

Preparing the purchase order Preparing the purchase requisition Preparing the receiving report

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. (Enter one word per blank.)

RECONCILIATION

______ cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific purpose. (Enter one word per blank.)

RESTRICTED

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

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

Among the requirements of SOX is those who commit fraud face ______. (Select all that apply.)

stiff fines of up to $5 million plus repayment of fraud proceeds possible jail time up to 20 years for each violation

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

Which of the following duties should not be the responsibility of an employee who has access to cash? (Select all that apply.)

- record cash collected in the journal -perform bank reconciliations