ACCOUNTING EXAM 3

A monthly _________________ should be prepared by an independent party.

Bank reconciliation

Describe activities that increase the customer's account balance (the bank's liability).

Bank statement credit memos

Describe transactions that reduce the customer's account balance (the bank's liability).

Bank statement debit memos

To become ______________, an employee's background is investigated.

Bonded

Should be made by prenumbered check.

Cash payments

Should be recorded immediately upon receipt and deposited intact daily.

Cash receipts

These are the activities usually thought of as "the internal controls." They include such things as segregation of duties, account reconciliations, and information processing controls designed to safeguard assets and enable an organization to prepare reliable financial statements in a timely manner.

Control activities

The integrity and ethical values of the company, including its code of conduct, involvement of the board of directors, and other actions that set the tone of the organization.

Control environment

The five interrelated COSO components include:

Control environment Control activities Risk assessment Information and communication Monitoring

Specific authority applies only to a specific position within the organization. For example, all checks must be cosigned by the _______________

Controller and Treasurer

Therefore, in the bank's accounting records a customer's checking account has a ______________ balance. As a result, bank statement debit memos describe transactions that reduce the customer's account balance (the bank's liability). Bank statement credit memos describe activities that increase the customer's account balance (the bank's liability).

Credit

The ability of ________________ to substitute for one another prevents disruptions in the workplace.

Cross-trained employees

The framework established by The Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992 is the

De facto standard by which SOX compliance is judged.

Should be used for all deposits.

Deposit ticket

A ______________ provides insurance that protects a company from losses caused by employee dishonesty.

Fidelity bond

Periodically, management should conduct an investigation to see that required procedures are actually being ______________

Followed

Applies to all members of the organization. For example, all employees are required to fly coach and purchase airline tickets from a specific vendor.

General authority

Internal controls should include ___________________ of employee performance.

Indefinite verification

The internal and external reporting process, including an assessment of the technology environment.

Information and Communication

COSO's framework

Internal Control

The process designed to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations

Internal Control

____________ may help relieve boredom and increase productivity

Job rotation

Assessing the quality of a company's internal control over time and taking actions as necessary to ensure it continues to address the risks of the organization.

Monitoring

All companies should maintain adequate______________ over valuable assets that may be misappropriated.

Physical control

______________________ are used for all important documents such as checks, purchase orders, receiving reports, and invoices.

Prenumbered forms

Management's process of identifying potential risks that could result in misstated financial statements and developing actions to address those risks.

Risk assessment

When duties are _____________ the work of one employee can act as a check on the work of another employee.

Segregated

The likelihood of fraud or theft is greatly reduced when there is

Segregation of Duties

_________________ should be placed on all valuable assets to assist in a physical count of these assets

Serial numbers

An up‐to‐date ________________ should be maintained.

Signature card

____________________ apply to a single individual or a small group of employees. For example, it may be company policy that all checks require two signatures. One of the signers should be in the accounting function to attest to accounting policies being followed, and the other should be from the treasury department. The treasurer has ultimate authority and responsibility for the management of cash.

Specific policies

The bank reconciliation reports on the differences between the balance on the bank statement and the balance in the general ledger cash account. The result of the reconciliation is the _______________ that will appear on the balance sheet

True cash balance

Accounting and other important procedures should be ____________ in a procedures manual.

Written

Because a checking account is an asset (cash) to the depositor, a ____________ requires a __________ to the Cash account on the depositor's books.

bank statement debit memo credit entry

Bank statements normally report

(a) the balance of the account at the beginning of the period; (b) additions for customer deposits made during the period; (c) other additions described in credit memos (e.g., for interest earned); (d) subtractions for the payment of checks drawn on the account during the period; (e) other subtractions described in debit memos (e.g., for service charges); (f) a running balance of the account; (g) the balance of the account at the end of the period.

Key Features of Internal Control

1. Segregation of Duties 2. Quality of Employees 3. Bonded Employees 4. Required Absences 5. Procedures Manual 6. Authority and Responsibility 7. Prenumbered Documents 8. Physical Control 9. Performance Evaluations