Accounting Chapter 4

What requirements for corporate accountability are included in the Sarbanes-Oxley Act?

-Corporate executives must personally certify the financial statements -Corporate executives may be criminally liable for fraudulent financial statements

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

-The bank made an error in recording a deposit made by the company. -The company made an error in recording a deposit. -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.

Which of the following items are included in cash?

-coins and cash -checks -current checking account balance

The three elements present in the fraud triangle are:

-opportunity -motivation -rationalization

Internal controls

A company's plans to (1) safeguard the company's assets and (2) improve the accuracy and reliability of accounting information

Risk assessment

Identifies and analyzes factors that could prevent objectives from being achieved

This month's bank statement shows that the bank incorrectly credited ABC Corp.'s account for a $600 deposit that should have been credited to XYZ Corp.'s account. How would this item be treated on ABC's bank reconciliation?

It would be deducted from the bank 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? Is it added or subtracted from the bank balance or the company's cash (book) balance?

It would be deducted from the company balance.

Which of the following items will require a journal entry following a bank reconciliation?

Notes collected by the bank NSF checks

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the

Sarbanes-Oxley Act.

When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance?

Service charges Charges for NSF checks

Who is responsible for providing an opinion on management's assessment of internal control?

The company's auditors

In a bank reconciliation, a deposit outstanding is

added to the bank balance.

In a bank reconciliation, interest revenue earned on a company's bank account is:

added to the company's cash balance

A check that is NSF (nonsufficient funds) is a check that

cannot be paid because the account does not contain enough funds.

The asset most susceptible to fraudulent activity is(are)

cash

A bank reconciliation reconciles the bank statement with the company's

cash account in the balance sheet.

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding.

The Sarbanes-Oxley Act applies to

companies that are required to file with the SEC.

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a

debit cash

In a bank reconciliation, an outstanding check is ______.

deducted from the bank balance

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding.

An ___ is a mistake in accounting, which can be intentional or unintentional

error

When a person intentionally deceives another person or company for personal gain, this is referred to as

fraud

Monitoring

includes formal procedures for reporting control deficiencies

Separation of duties requires that

individuals who have physical responsibility for assets should not have access to accounting records.

Who has final responsibility for internal controls?

managers

The acronym NSF stands for

nonsufficient funds.

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called

occupational fraud

The element of fraud which is easiest for companies to eliminate is

opportunity

Which of the following are preventive controls?

physical controls, separation of duties

One of the most important internal controls for cash is the bank

reconciliation

Internal control consists of plans to

safeguard company assets. provide accurate and reliable accounting information.

A petty cash fund is used for

small amounts of cash needed for low-cost items.

An ___ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction. (Enter only one word.)

timing

A bank reconciliation compares the company's cash records with the bank statement and discovers differences in those amounts due to

timing differences and errors.

Joyce Inc. sells $5,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 3% fee on the sale. Recording the sale would include which of the following?

-Credit Sales $5,000 -Debit Service Fee Expense $150 -Debit Cash $4,850

In a bank reconciliation, which of the following will require a journal entry by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collections of funds by the bank

Formal policies related to management's philosophy, assignment of responsibilities, and organizational structure

Control environment

Who must personally certify the financial statements and company disclosures or risk financial penalties and criminal prosecution for fraudulent misstatements?

Corporate executives

When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?

Outstanding checks

Control activities

Policies and procedures that help ensure management's directives are being carried out

Separation of duties and E-commerce controls are examples of ______ controls.

Preventative

What is the primary purpose of a bank reconciliation?

To ensure the bank balance per reconciliation is equal to the company balance per reconciliation

A non-sufficient funds check requiring an adjustment to the cash balance was written:

to the company preparing the bank reconciliation

Since debit cards withdraw funds directly from the cardholder's bank account at the time of use, a sale on a debit card is most similar to a sale

with a check.

A debit card

withdraws funds immediately from the cardholders' bank account.