ACCT 2010 Ch 4 Study

The three elements present for every fraud - motivation, rationalization, and opportunity.

fraud triangle

-Bank collections - Interest earned These items in the reconciliation will ______ the company's cash balance.

increase

Cash reported in the balance sheet is typically recorded as a current asset and represents cash __________ for spending at the end of the reporting period.

available

Companies report cash in two financial statements - the _____ ________ and the ___________ of _________ _______.

balance sheet and the statement of cash flows

Another important control used by nearly all companies to help maintain control of cash is a _______ _______.

bank reconciliation

Employee purchases made with debit cards and checks will be captured in the accounting records at the time the _______ _____ is prepared.

bank reconciliation

Matching the balance of cash in the bank account with the balance of cash in the company's own records.

bank reconciliation

What matches the balance of cash in the bank account with the balance of cash in the company's own records?

bank reconciliation

In step three, we record the adjustments once the bank reconciliation is complete. These are amounts the company didn't know until it received the _______ ____________.

bank statement

As a final step in the reconciliation process, a company must update the balance in its Cash account, to adjust for the items used to reconcile the ___________ cash balance.

company's

These include a variety of policies and procedures used to protect a company's assets.

control activities

1. Reconcile the bank's cash balance. 2. Reconcile the company's cash balance. 3. Update the company's Cash account by recording items identified in Step 2. These are the three steps involved in ... ?

reconciling the bank account

The component of internal control that includes the policies and procedures that help ensure that management's directives are being carried out is:

Control activities.

When preparing a bank reconciliation, a deposit outstanding would be:

Added to the bank's cash balance.

Cash flows from investing activities do not include:

Borrowing.

The asset most susceptible to theft is:

Cash.

The following data were obtained from the bank statement and from the process of reconciling it: Bank service charges = $20 Deposit outstanding = $150 Interest earned on the bank account = $10 Checks outstanding = $400 Which items should be deducted from and added to the bank balance in completing the reconciliation?

Deduct checks outstanding; add deposit outstanding.

______________ can be made either by the company or its bank and may be accidental or intentional.

Errors

Separation of duties refers to:

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

These occur when a company receives a customers' check and deposits that check, recording an increase in cash. However, the company later finds out from the bank statement that the customer's check was "bad", and the company needs to decrease its cash balance to undo the initial increase.

NSF checks

Known as the Public Company Accounting Reform and Investor Protection Act of 2002; the act established a variety of guide-lines related to auditor-client relations and internal control procedures.

SOX

What key piece of legislation was passed in response to corporate accounting scandals by Enron, WorldCom, and others?

Sarbanes-Oxley Act.

The effect of a NSF bounced check creates an ___________ ________ for the company until the customer honors the funds it owes.

account receivable

The amount of __________ recorded in a company's balance sheet includes currency, coins, and balances in savings and checking accounts, as well as items acceptable for deposit in these accounts, such as checks received from customers. Also, includes credit card and debit card sales, and cash equivalents.

cash

What asset is most commonly involved with fraudulent activity?

cash

Whether a customer uses cash or a check to make a purchase, the company records the transaction as a __________ sale.

cash

What is defined as short-term investments that have a maturity date no longer than three months from the date of purchase?

cash equivalents

For step one of the bank reconciliation, we consider _____ _____ recorded by the company, but not yet recorded by its bank.

cash transactions

These include deposits outstanding and checks outstanding.

cash transactions

Only transactions involving _______ affect a company's ______ flow.

cash, cash

These are checks the company has written that have not been subtracted from the bank's record of the company's balance.

checks outstanding

Internal control systems are especially susceptible to ________.

collusion

What occurs when two or more people act in coordination to circumvent internal controls?

collusion

The bank views a company's deposit as an increase in the amount owed to the company, or a liability, which is recorded as a __________.

credit

Fraudulent reporting by management could include: a) Fictitious revenues from fake customers. b) Improper asset valuation. c) Mismatching revenues and expenses. d) All of the above.

d

- NSF checks - Debit cards - Electronic funds transfers - Service Fees These items in the reconciliation will ______ the company's cash balance.

decrease

The bank views a withdrawal as a decrease to the amount owed to the company, so it __________ its liability.

decreases

When a company makes a ________, it views this as an increase to cash, so it records a debit to the Cash account.

deposit

These are cash receipts of the company that have not been added to the bank's record of the company's balance.

deposits outstanding

Employee purchases should be included in the accounting records by the ______ of the reporting period.

end

Companies issue incorrect financial statements for two reasons ________ and _____________.

error and fraud.

What occurs when a person intentionally deceives another person for personal gain or to damage that person?

fraud

Strong ________ control systems allow greater reliance by investors on reported financial statements.

internal

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

internal controls

What is the use of one's occupation for personal enrichment through deliberate misuse or misapplication of the company's resources?

occupational fraud

From the statement of cash flows, investors know a company's inflows and outflows related to what three activities?

operating, financing, and investing

Small amounts of cash kept on hand to pay for minor purchases.

petty cash fund

These are company-issued debit cards or credit cards that allow authorized employees to make purchases on behalf of the company.

purchase cards

Authorizing transactions, recording transactions, and controlling related assets should be separated among employees.

separation of duties

What differences occurs in cash when the company records transactions wither before or after the bank records the same transaction?

timing

A _____________ of cash from the bank is viewed by the company as a decrease to its Cash accounts, so it is recorded as a credit.

withdrawal