Accouting 6

Liquidity refers to a company's ability to pay for its _____ term obligations.

near

Responsibility for a task should be clearly established and assigned to

one person

The document used by the purchasing department to place an order is called a(n) purchase

order

The internal control of ______ of duties means that the responsibility for a transaction should be divided between two or more individuals.

separation or segregation

To maintain control of cash payments, all payments should be made by check except

small payments made by petty cash

Summarize the internal control principle of establishing responsibility by completing the following sentence. Proper internal control means that responsibility for a _______ is clearly __________ and assigned to one person.

task established

An ID scanner is a type of _______ control

technological

When cash is received by mail, a list should be prepared with copies sent to all of the following:

the person who opened the mail with the money to the cashier recordkeeper

In addition to the cashier and clerk who have access to the cash a third employee should have access to

the records for cash, but not the actual cash

Cash equivalents include short term investments within

three months of their due date

A receiving report is a document that describes when goods have been received. It contains information about the quantity received as well as its condition and whether it agrees with the purchase order.

true

The adjusted book balance and the adjusted bank balance must equal each other on a bank reconciliation; otherwise, the cash account is not reconciled.

true

internal controls designed to control cash payments

All payments should be made by check. Use of a voucher system. Use of a petty cash system. Only authorized individuals should be allowed to sign checks.

Describe what an invoice approval is by selecting the correct answer below

An invoice approval is completed by the accounting department to approve an invoice for payment.

Which of the statements below describe the goals and principles of cash management?

Encourage quick collection of receivables. Plan cash receipts to meet cash payments when due. Money should be spent only when it is available. Keep a minimum level of cash necessary to operate.

Identify the principles of internal control

Insure assets. Apply technological controls. Separate recordkeeping from custody of assets. Maintain adequate records. Establish responsibilities. Perform regular and independent reviews.

Identify the bank reconciliation items that would require adjustments to the book balance.

Interest earned Collection of note by bank NSF check Bank charges

Identify which of the items below are goals of good cash management.

Keep a minimum level of cash necessary to operate. Plan cash receipts to meet cash payments when due.

Which statement below explains why liquid assets are needed in a business?

Liquid assets must be readily available to settle near-term debt or obligations.

Identify the principles of internal control by selecting the correct answers below.

Maintain adequate records. Establish responsibilities. Separate recordkeeping from custody of assets. Perform regular and independent reviews. Insure assets. Apply technological controls.

Choose the items below that would be subtracted from the book balance on a bank reconciliation

Monthly bank service charge NSF customer check Monthly check charges assessed by the bank

the goals and principles of cash management

Plan cash receipts to meet cash payments when due. Money should be spent only when it is available. Encourage quick collection of receivables. Keep a minimum level of cash necessary to operate.

How has the Sarbanes-Oxley Act (SOX) impacted the internal control of companies?

SOX requires that the company have effective internal controls. SOX requires that auditors evaluate internal controls.

Which of the statements below describes the internal control principle of applying technological controls?

Technological controls, such as time clocks and cash registers, improve the effectiveness of controls.

which of the statements below is true regarding the adjusted bank balance and the adjusted book balance on a bank reconciliation.

The adjusted bank balance must equal the adjusted cash balance per books.

Sarbanes-Oxley allows for the following penalties for violators

Up to 25 years in prison with fines

Which of the following are correct regarding why management uses internal controls?

Uphold company policies. Protect assets. Promote efficient operations. Ensure reliable accounting.

An electronic funds transfer involves

an electronic (not paper) transfer of cash.

Regular and independent reviews should be done by

auditors not directly involved in the activities

Committee of Sponsoring Organizations (COSO)

control environment risk assessment control activities information and communication monitoring

What is the purpose of internal controls?

To help managers know if the business is receiving the assets and services it has paid for.

accurately describe services provided by a bank.

To withdraw money from an account, the depositor can use a check. Each bank deposit is supported by a deposit ticket. A bank account is a record set up by a bank for a customer.

A receiving report is used for each of the following

Notify accounting that the goods have been received. Notify purchasing that the goods have been received.

A good internal control to protect cash is to make cash payments using

checks

Bonding employees who handle cash is important because it:

discourages employee theft

The electronic transfer of cash from one party to another is called electronic ________ transfer

funds

A person who has access to an asset must ___ access to that asset's accounting records.

not have

Proper internal control means that responsibility for a ________ is clearly __________ and assigned to one person.

task established

Describe the purpose of a purchase order

A purchase order authorizes a vendor to ship ordered merchandise at a stated price and terms. A purchase order is a document the purchasing department uses to place an order with a vendor. Multiple copies of the purchase order are distributed to other departments to increase internal control of company purchases.

Human error Human fraud Cost-benefit principle Internal control environment

Can occur from carelessness, misjudgment or confusion Involves intent by people to defeat internal controls for personal gain Dictates that the costs of internal controls must not exceed their benefits Management must convey commitment to internal control policies and procedures

the basic internal control guidelines which should be in place to protect a business's cash

Cash payments are made by check. Cash receipts are promptly deposited in a bank. Handling cash is separate from recordkeeping of cash.

which of the items below would show up on a monthly bank statement

Checks and other debits decreasing the account during the period End-of-period balance in the account Deposits and other credits increasing the account during the period Beginning-of-period balance in the account

Choose the list below that contains only cash or cash equivalents

Customer checks, Money orders, Certified checks

Which of the following are principles of internal control?

Divide responsibility for related transactions. Establish responsibilities. Maintain adequate records. Perform regular and independent reviews.

the internal control principle of dividing responsibility for related transactions

Examples of transactions with divided responsibility are placing inventory orders and paying vendors. This principle is often called separation of duties. This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction.

Which statement below describes the internal control procedure of insuring assets and bonding key employees?

Insuring assets against casualty and bonding employees who handle cash, reduces risk of loss.

Choose the items below that would be added to the book balance on a bank reconciliation

Interest earned on the depositor's account Note collected by the bank for the depositor

Deposit ticket Check Bank account Remittance advice Electronic funds transfer

Lists currency, coins and checks deposited into an account A document signed by the depositor instructing the bank to pay a specified amount of money Used to deposit money for safekeeping and help control withdrawals. Explains the reason for payment Electronic transfer of cash from one party to another

Choose the items below that would be subtracted from the book balance on a bank reconciliation.

Monthly check charges assessed by the bank Monthly bank service charge NSF customer check

Identify the item below that would be subtracted from the book balance on a bank reconciliation.

NSF check

Choose the statement below which is correct regarding which bank reconciliation items require adjusting journal entries.

Only the items reconciling the book balance require adjustment.

Describe the purpose of a purchase requisition by selecting the correct answer below

Purchase requisitions are used for control purposes. Purchase requisitions are used to inform the purchasing department of its needs. Managers are not allowed to place orders directly with vendors; instead, they fill out a purchase requisition.

Which of the statements below explains the internal control principle of performing regular and independent reviews?

Regular reviews of internal control systems are needed to ensure that procedures are followed

Summarize the internal control procedure of maintaining adequate records

Reliable records are a source of information that managers use to monitor activities. Keeping detailed records makes it unlikely that assets are lost or stolen without detection.

Determine the statements below that are true regarding why a bank reconciliation is used

The bank reconciliation is useful in proving the accuracy of the Cash account in the general ledger. Timing differences between the bank statement and the depositor's records are reflected in the bank reconciliation. We must reconcile the balance of the bank's records and the Cash account in the general ledger and explain or account for any differences in the two.

Identify the examples of good internal control designed to protect over-the-counter cash receipts

The clerk and the cashier have access to cash, but not to the accounting records. Clerks should be required to give the customer a receipt for each sale.

which of the statements below is correct regarding information reflected on a monthly bank statement.

The information on the bank statement reflects the bank's records of the depositor's account.

Identify the examples of good internal controls designed to protect cash received in the mail.

The recordkeeper and the person who reconciles the bank balance do not have access to cash. Two people are assigned the task of, and are present for, opening the mail.

Describe the internal control principle of dividing responsibility for related transactions

This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction. This principle is often called separation of duties. Examples of transactions with divided responsibility are placing inventory orders and paying vendors.

A person who __________ or has access to an asset must ___________ keep that asset's accounting records.

controls not

Identify the item below that would be added to the book balance.

interest earned

the document which includes an itemized statement of goods prepared by the vendor is called a(n)

invoice

Good recordkeeping helps protect assets and helps managers

monitor company activities

The triple threat of fraud involves

opportunity pressure rationalization

A bank reconciliation is a(n) ______ explaining any differences between the ________ account balance according to the depositor's records and the balance reported on the ________ statement

report checking bank

An owner of a small business usually knows if the business is receiving the assets and services the company paid for.

true

An invoice can be described as an itemized statement of goods prepared by the ____ listing the customer's name, items sold, sales prices and terms of sale.

vendor