ACCY131-Chpt 10

Cash normally includes ______.

petty cash general cash savings accounts payroll

A check that is written incorrectly and therefore defaced to eliminate the possibility of further use is called a ______ check.

voided

Monthly balancing of detailed records of accounts payable (or vouchers) to the general ledger control account.

Control auditors may expect to find in well managed accounts payable department. Saved as evidence of performance of this procedure and as an aid in locating subsequent errors or fraud.

True or false: Data analytics may be used to examine 100% of cash receipts and disbursements that auditors may consider unusual.

True

The petty cash funds and change funds may be counted at any time before or after the _______________ date.

balance sheet

The clients' financial institution can handle incoming cash receipts including ______.

credit cards and debit cards electronic transfer of funds by customers lockbox systems

A primary advantage of requiring disbursement by check is obtaining evidence of receipt from the payee in the form of ______.

endorsement on the check

Examples of fraud related to cash include ______.

fictitious checks duplicate payments interception of cash receipts before record is made

Which accounts typically increase the general account (similar in nature to individuals)?

Cash sales, collections of receivables, obtaining loans, and investment of additional capital by owners typicall increase the account; business expenditures decrease it.

In an IT system, management reviews may be performed with __________________ software.

data analytics

True or false: To determine that the client's accounting procedures are operating efficiently, the auditors perform tests of the accuracy of the client's journals and ledgers.

False Determines effectiveness NOT efficiency

Auditors focus on auditing cash because ______ risk is high for liquid assets.

inherent

The act of tracing a transaction through each step of the system to determine that transactions are being processed in the manner indicated by the flowchart is called a ______.

walk-through determines that internal control as described in working papers has actually been implemented.

An example of a test of controls would be to compare the details of a sample of recorded disbursements in the ______ journal to accounts payable postings, purchase orders, receiving reports, invoices, and paid checks.

cash disbursements

A large payment to an officer of the business should be verified to ensure it was ______.

charged to the proper account supported by adequate vouchers

A client may conceal an ______ of cash by omitting an outstanding check from the year-end bank reconciliation.

overstatement

Electronic funds transfer systems ______.

transmit and processes funds related cash disbursement and receipt transactions

Internal control over cash sales is strongest when ______ participate(s) in each transaction with a customer.

two or more employees

Cash disbursements should be made by:

check, electronic fund transfer, or, for minor items, petty cash funds.

If checks remain outstanding for long periods ______.

employees may have an opportunity to steal cash on hand internal control over cash disbursements is weakened entry: dr.Cash cr.Unclaimed wages

Compensating balance

A minimum average balance that a bank may require a borrower to leave on deposit in a non-interest-bearing account.

True or false: In order to verify cutoff of cash receipts and disbursements at year-end, auditors must be present at the client's office to count undeposited cash receipts at the close of the business on the last day of the fiscal year.

False

Describe the typical internal control over cash received through the mail:

1. mail opened in mailroom 2. employee endorses checks "for deposit only" to company's acount and prepares a CONTROL LISTING (shows amount received by each customer and identifies by name or account #) of incoming cash receipts. 3. Copy of Control listing and cash receipts are forwarded to the cashier. 4. Remittance advices and copy of control listing forwarded to employee responsible for customers accts. *Reasons theft doesn't happen often in mailroom controls: 1.) incoming cash receipts consist of checks made payable to company

What are some of the general guidelines to good cash handling practices in all types of business?

Guidelines for achieveing internal control: 1. Do not permit one employee to handle transactions from beg. to end. 2. Separate cash handling (custody) from record keeping. 3. Centralize receiving cash to extent practical. 4. Record cash receipts on timely basis. 5. Encourage customers to take receipts and observe cash register totals. 6. Deposit cash receipts daily. 7. Make disbursements by check or electronic fund transer (except small expenditures from petty cash). 8. Have monthly reconciliations prepared by employees not responsible for making cash payments or custody of cash. Completed reconciliation should be reviewed by appropriate official. 9. Monitor cash receipts and disbursements by using software to identify unusual transactions and comparing recorded amounts to budgeted amounts.

What are some protective features of cash registers when one employee must make overcounter sales, deliver merch, receive cash, and record the transaction.

1. visual display of amount of sale in full view of customer 2. printed receipt, which customer is urged to take. 3. accumulation of the total of the day's sales. More control for credit card transactions because there is not employee contact with cash.

cash equivalents

Short-term, highly liquid investments that can be readily converted to a specific amount of cash and which are relatively insensitive to interest rate changes. Money market funds, certificates of deposit, savings certificates, and other similar types of deposits. Any item that CANNOT be converted to cash on short notice classified as investment, receivable, prepaid expense, rather than as a cash equivalent. Normal internal control activities (reconciliation of bank accounts) detect most errors that occur in these accts.

The act of kiting, or manipulating cash to appear in the balance of two or more bank accounts prior to the balance sheet date, can ______.

conceal a cash shortage meet short-term cash needs

Electronic point-of-sale systems decrease the risk of ______.

the salesperson recording sales at erroneous prices

What should an auditor do if encounters evidence of small scale employee fraud?

AFTER determining fraud is NOT material, auditors should review situation w/ management and the audit committee of B.O.D before investigating further. This protects auditors from negligence charges and alerts client, and avoids wasting time on immaterial matters.

Most of the processes relating to cash handling are the responsibility of the _______________ department, which is under the direction of the ____________________.

finance treasurer

A company can strengthen internal control of cash receipts by using a(n) _____________ which is a post office box controlled by a company's bank at which cash remittances from customers are received.

lockbox

When considering the risk that year-end cash is correct, but should be higher, the auditors should focus on confirming that ______.

the client's records reflect all cash transactions that took place during the year cash payments were properly authorized and for a legitimate business purpose

What is the responsibility of the treasurer in handling cash in the finance department?

Handling and depositing cash receipts, signing checks, investing idle cash, and maintaining custody of cash, marketable securities, and other negotiable assets. Finance dept. must also forecast cash req. and make short and long term fin. arrangements.

Auditors verify deposits in transit as shown on the year-end bank reconciliation appear as credits on the bank statement on the first business day of the new year to verify proper ______ of cash receipts.

cutoff

If effectively designed and implemented, management ___________ controls can be instrumental in identifying misstatements or other issues related to cash receipts and disbursements.

review

Lockbox system

A post office box controlled by a company's bank at which cash remittances from customers are received. The bank picks up the remittances, immediately credits the cash to the company's bank account, and forwards the remittance advices to the company.

Inherent risk is ______________ for liquid assets and auditors tend to respond with ___________.

High and more intensive investigation *However, detection of fraud is relevent to overall fairness of f/s ONLY if such fraud is MATERIAL in amount.

The auditors' objectives in the audit of cash and cash transactions are to ______.

consider inherent risks, including fraud risks, related to cash obtain an understanding of internal control over cash

Incoming customer checks are opened by mailroom employees who ______.

endorse the checks "for deposit only" send the remittance advices and a copy of the control listing to the employee responsible for the customers' accounts

Payroll and petty cash are normally maintained at a _____ balance.

low These accounts are "imprest" at a low balance. When payroll is paid, transfer is made from general account to the payroll account. Petty cash, used for very small expenditures, is replenished as necessary.

If effectively designed and implemented, management _____________ controls can be instrumental in identifying misstatements or other issues related to cash receipts and disbursements.

review

It is important for management to monitor cash. A key to identifying cash receipts and disbursements that potentially may be misstated are management ________________

review controls Ex: management performs periodic reviews of cash journal and ledgers for unusual transactions or entries.

Account balances are often verified with financial institutions using a(n) __________________ form that addresses only the client's deposits and loan balances.

standard confirmation Addresses only the client's deposit and loan balances. Info identifying accounts and loans and their balances is normally included on the form to assist the fin. institution in completing it. Form is primarily used to CORROBORATE existence of recorded info.

Computerized purchasing system

vendor invoice info is entered by a/p dept. and may be matched by computer w/ p.o and receiving info that was entered by other depts. If into matches, computer approves pmt and automatically records v/p. Inconsistencies will not be processed, but listed on exception report for review and follow up by operations control group. To prevent duplicates, should use vendors w/ approp. invoice numb. system, and a/p dept implements procedures to assure vendors names, numbers, and invoice # are accurately inputted. Just prior to invoice due date, computer generates check or elect. funds transfer. If signed by computer, need NOT be sent to v/p dept. for mailing.

Finance and accounting department should be integrated to provide assurance that:

1. All cash that should have been received WAS in fact received, recorded accurately, and deposited promptly. 2. Cash disbursements have been made for authorized purposes only and have been properly recorded. 3. Cash balances are maintained at adequate, but not excessive, levels of forecasting expected cash receipts and payments related to normal operations. Need for loans or investing excess cash is made on timely basis.

Most of the processes related to cash handling are the responsibility of the ______ department.

Finance department. Under the direction of the treasurer. Ex: handling and depositing cash receipts, signing checks, investing idle cash, maintaining custody of cash, marketable securities, and other negotiable assets. Fin. dept. must also forecast cash requirements and make both short-term and long-term fin. arrangements.

The detection of fraud in relation to the audit of cash is ______.

only relevant to the overall fairness of the client's financial statements if material in amounts.

Once auditors gain an understanding of the client's internal control over cash receipts and disbursements, they will ______.

perform further audit procedures for tests of controls and substantive procedures determine their planned assessed level of the risk of material misstatement for assertions about cash

True or false: General guidelines to good cash handling practices include separating cash handling from record keeping.

True

The auditors may ask the financial institutions for cutoff bank statements in order to ______.

test the accuracy of the year-end reconciliation It allows auditors to examine firsthand the checks listed as outstanding and the details of deposits in transit on the company's reconciliation.

Which of the following are good cash handling practices?

Use software to identify unusual cash transactions. Encourage customers to obtain receipts and observe cash register totals Centralize receiving of cash to the extent practical.

Proper disclosure of related party transactions should include ______.

nature of the relationship description of the transaction dollar amount of the transaction Auditors should be alert for undisclosed related party transactions throughout the audit. Auditors should determine each transaction has been charged to proper account, supported by adequate vouchers or other documents, and was spec. approved in advance by officer other than one receiving funds.

electronic funds transfer system

A computer system that transmits and processes funds-related cash disbursement and receipt transactions. Increasingly, companies are electronically transferring funds between bank accounts rather than issuing checks. See also electronic data interchange.

After performing test of controls, auditors should reassess the level of ______ risk for each financial statement assertion regarding cash.

control Auditors then decide what modifications, if any, are necessary to the planned substantive procedures for cash transactions and balances.

One type of kiting occurs when a business that lacks short-term funds to meet payroll writes a check from one bank and deposits it in their payroll account in another bank which is an example of using the ______________ period to meet short-term cash needs.

float

When internal control over the recording of cash receipts and disbursements is considered weak, the auditors may prepare a ______, which reconciles cash transactions occurring during a specific period.

proof of cash Specifically used to identify: 1. cash receipts and disb. recored in acct records but not on bank statement. 2. Cash deposits and disb. recorded on bank statement, but not in acct records. 3. Cash receipts and disb. recorded at different amounts by the bank than in the acct records. Fraud detection procedure that may be used for any months during the year.

A __________ system is one method of achieving strong internal control over cash disbursements.

Voucher provides assurance all disbursements properly authorized and reviewed before a check is issued. In voucher system, acct. dept responsible for assembling appropriate documentation to support every cash disbursment. Ex: before author. pmt for merch purchased, acct dept. assembles copies of purchase order, receiving report, and vendor's invoice and determines these docs are in agreement. Then acct. employee prepares voucher, which is filed by due date.

Auditors focus on cash because ______.

cash is the most liquid of assets, and therefore inherent risk is high auditors may substantiate other items that flow through cash a company with poor internal controls over cash may be concealing fraud

A document authorizing a cash disbursement, which usually provides space for employees to initial after they have performed approval functions, is called a(n) ______________.

voucher functions include: extending and footing vendor's invoice; determine agreement of invoice, purchase order, and receiving report; and recording the transaction in the accounts.

A bank deposit that is restricted in use should be included ______.

as a separate line item Balance sheet figure for cash should include only amounts that are available for use in current operations. A bank deposit that's restricted for use (cash deposited with a trustee for payments on long-term debt) should not be included in cash. Agreements to maintain compensating balances should be disclosed. Auditors must also make sure "cash" or "cash equivalents" on b/s corresponds to that used in statement of cash flows.

What are the advantages of requiring disbursement by check (checking acct. disbursements)?

1. obtaining evidence of receipt from payee in form of endorsement on check. 2. centralization of disbursement authority in hands of only those authorized to sign checks. 3. Permanent record of disbursements; and 4. Reduction in amount of cash on hand. Checks should be prenumbered and all numbers in the series be accounted for. Unissued prenumbered checks should be safeguarded against theft and misuse. Voided check should be defaced to eliminate further use and filed in regular sequence of paid checks. Dollar amounts should be printed on checks by computer or check protecting machine. This makes is hard to alter check by raising amount.

What are the ways businesses establish effective controls over employee reimbursement?

Companies require employees to submit expense reports w/ receipts and explanations of expenditures. Reports typically approved by employee's supervisor and submitted to acct. dept. for processing. Employees reimbursed through direct deposit. employees usually required to document explanations for their credit card expenditures, often credit card receipts.

Voucher system

Vendor's statements, received monthly, should be reconciled promptly with the a/p ledger or list of open vouchers, and discrep. should be investigated. Some industries, business makes advance to vendor, and recovers with percentage deductions from invoice. Auditors should check that deductions from invoice made with terms of agreement.

True or false: Satisfactory internal control over cash disbursements require assurance that all disbursements are approved by the treasurer.

False

Violet Co. uses a lockbox at 1st Bank, which means that when customer checks are received ______.

Violet Co. employees record the payments to customer accounts 1st Bank employees sends the remittance advices to Violet Co.

Which threat do checks pose for manufacturing and wholesale companies?

cash receipts can include checks received by mail. Little threat unless one employee is permitted to receive and deposit these checks and also to record the credits to the customer accounts.

In order to be classified as a cash equivalent, an item must be ______.

convertible to cash on short notice

A bank statement covering a specified number of business days (usually 7 to 10) after the client's balance sheet date is called a(n) _____________ bank statement.

cutoff The client will request bank to prepare statement and mail it directly to the auditors.

Universal Product Code (UPC)

electronic scanner reads UPC on product. bar code printed on a label that has information about the item to which it is attached. Point of sale systems may be programmed to verify credit status of customers; update a/r and perpetual inventory, provide special printouts accumulating sales data by product line, salesperson, dept. and type of sale.

Checks received through the mail should be opened by the ______.

mailroom employees employee endorses checks "for deposit only" to the company's account and prepares a CONTROL LISTING of the incoming cash receipts. This listing shows amount received from each customer and ident. by name or acct. number. A copy forwarded to controller. Another copy of listing and receipts forwarded to cashier. Remittance advices and copy of listing forwarded to employee responsible for customers' accounts.

Reconciliation of monthly bank statements is important to adequate internal control over receipts and disbursements. The best person to perform the reconciliation is the employee who has ______.

no authorization, accounting, or cash handling functions

The cash account should be debited and a liability account should be credited for ______.

significant checks outstanding for long periods of time Auditors investigate significant checks outstanding for long periods of time (e.g. six months). Long outstanding checks weakens internal controls over cash disbursements. dr. cash cr. unclaimed wages (or another special liability acct)

Voucher

A document authorizing a cash disbursement. A voucher usually provides space for the initials of employees performing various approval functions. The term voucher also may be applied to the group of supporting documents used as a basis for recording liabilities or for making cash disbursements. auth. functions include procedures as: extending and footing vendor's invoice; determing the agreement of invoice, purchase order, and receiving report, and recording transaction in the accounts.

Which of the following statements is correct? Auditors may only use a client prepared year-end bank reconciliation if internal controls over cash are strong. Auditors may use a client prepared year-end bank reconciliation but must examine it in detail. Auditors must always prepare their own year in bank reconciliation.

Auditors may use a client prepared year-end bank reconciliation but must examine it in detail. auditors prepare bank reconc. as of b/s date or test the one prepared by the client. If client made year-end reconc., there is no need to duplicate the work. They should examine in detail that its been properly prepared. Ex: verifying math accuracy, comparing balances to bank statement and ledger acct, and investigating reconciling items. Important because cash shortage may be concealed by omitting check from outstanding check list, by purposely making error in addition on recon, or hiding cells in spreadsheet schedule.

An act that allows financial institutions to create and process electronic "substitute checks" in place of customer written hard-copy checks is called The Check Clearing for the ____________________ Act.

Check Clearing for the 21st Century Act ("Check 21 Act") Historically, checks take days to clear because flown across country in the clearing process. Sub. check equivalent of orig. check for all purposes.

Systems that process funds-related transactions for customers as an alternative to paying by check are called ______ systems.

Electronic funds transfer (EFT) systems. Electronic data interchange (EDI) systems allow interchange of data from one company's computer to another's, are electronically transferring funds btw. company accts. Reduces paper flow and may reduce processing costs and delays.

Which accounts flow through the cash account?

Liabilities, revenue, expenses, and most other assets. These items arise from or result in cash transactions. Thus, examination of cash transactions assists the auditors in the substantiation of many other items on f/s. Also, cash is most liquid of assets and creates greatest temptation of theft, embezzlement and missappropriation. Overstating cash can significantly improve fin. position of organization. Effective control environment is important.

To document auditors understanding of internal controls over cash, auditors often use a flowchart or internal control _________.

Questionnaire

After the auditors identify and assess risks of material misstatement for the assertions about cash, they can plan appropriate ____________________ procedures that address them.

Substantive

Which of the following affect precision of management review controls?

The consistency of performance The level of aggregation of the data -aggregation of data -consistency of performance -reliability (predictability) of management expectations -criteria used to determine when items are investigated. If considered effective, may use test of controls by inspecting sample of docs of performance of the controls. The manner they identify, investigate and resolve unusual items or relationships. Auditors can also decide to reperform management's review on a test basis.

compensating balance

Under the terms of bank loan agreement, cash in company's general account sometimes must be maintained at a specified minimum balance.

The Check 21 Act ______. Multiple select question. virtually eliminates outstanding checks from bank reconciliations eliminates the availability of original checks makes it almost impossible for a client to kite checks

eliminates the availability of original checks makes it almost impossible for a client to kite checks

Agreements to maintain compensating balances should be Blank______ in the financial statements.

disclosed

Cash receipts cycle

1. employee responsible for customer acct. ledger enters details of cash receipts into the computer in batches. 2. Cash receipts program creates file of cash receipt transaction that is used to update gen. ledger and master file of a/r. Creates control totals and exception reports that detail any invalid customer acct. #'s or unusual payment amounts. 3. Manual follow-up procedures on exceptions reports and reconciliation of control totals are performed by operations control group.

What are the auditors OBJECTIVES in the audit of cash and cash transactions?

1. understand client and inherent risks 2. understanding of internal control of cash 3. Assess material misstatemens and design test of controls and substantive procedures that: a. substantiate existence or recorded cash and occurrence of cash transactions. b. determine accuracy c. establish completeness d. verify cutoff e. determine client rights f. determine presentation and disclosure are appropriate. *might also add a valuation objective that related to procedures for reconciling underlying records to the general ledger results. Not on list because cash not often have to have valuation issues.

Voucher register

A special journal used to record the liabilities for payment originating in a voucher system. The debit entries are the cost distribution of the transaction, and the credits are Vouchers Payable. Every transaction recorded in a voucher register corresponds to a voucher authorizing future payment of cash.

In the context of testing the accuracy of clients' journals and ledgers, which of the following is true of using a manual system?

Information on source documents is entered first in a journal.

Which accounts are "imprest" at a low balance?

Payroll and petty cash accounts. When payroll is paid, transfer is made from general acct. to the payroll acct. Petty cash is used for very small expenditures and replenished as necessary.

Management review controls

Reviews conducted by management of estimates and other kinds of financial information for reasonableness. They often involve the use of significant judgment, knowledge, and experience in comparing recorded amounts with expectations of the reviewers. They often are considered monitoring controls but may relate to any of the other COSO components that have the common characteristic of management review of information to identify misstatements or breakdowns in other controls. Mang. review controls also useful at identifying which controls have failed. EX: periodic reviews of cash journal and ledgers for unusual transactions or entries. IT may use data analytics.

Direct receipt of funds by financial institutions

Sale proceeds often directly received, which then notifies business of receipt throught lockbox systems, credit cards, debit cards, and electronic transfer of funds by customers. Business that receive large sums of money through mail may use lockbox system to strengthen internal control and hasten depositing of cash receipts. Fin. insitution accesses box and processes the checks providing the company with a listing of receipts. Internal control stronger because fin. institution has no access to company's acct. records.

Auditors will prepare a schedule that lists all of the client's cash accounts, including ______.

account number bank name year-end balance per books account type auditors trace and reconcile all acounts to the general ledger.

Internal control aspects of petty cash funds

achieved when custodian of fund reviews support from employees seeking reinburesment for their small expenditures on behalf of company. Further control when custodian requests replenishment of fund and another individual reviews support for completeness and authenticity and subsequently defaces that support to prevent reuse. Finally, check issues to custodian in amount to replenish fund. *never material to f/s, so auditor focuses on transactions rather than year-end balance. Can review amount of reimbursements over period or test one or more of the replenishment transactions by examining the supporting documentation. Less common now, with Purchasing Cards (P-Cards) or ProCards. Spending limits and requires to substantiate expenditures with receipts.

Electronic Data Interchange (EDI) systems, allow the _________________, are electronically transferring funds between companies' bank accounts.

allows the interchange of data from one company's computer to another's. *reduces paper flow and may reduce processing costs and delays. *requires extensive computer network controls relating to system access and data entry, as well as backup controls when system breakdowns occur.

Auditors working papers for cash typically include ______.

cash count sheets bank confirmations a lead schedule Typically includes: flowchart or written description of controls. Internal questionnaire (esp. in larger companies). Related working paper will summarize test of controls for cash transactions and assessments of risk for the f/s assertions about cash. Additional working papers include: documentation of risk assessments, audit plan, lead schedule, cash count sheets, bank confirmations, bank recon., interbank transfer schedules, lists of outstanding checks, lists of checks being investigated, recom. to client for improving controls, notes concerning proper presentation and disclosure of cash in the client's b/s.

General guidelines to good cash handling include depositing cash receipts ______.

daily general guidelines: 1. Do not permit one employee to handle transaction from beg. to end. 2. Separate cash handling (custody) from record keeping. 3. Centralize receiving cash to extent practical. 4. Record cash receipts on timely basis. 5. Encourage customers to obtain receipts and observe cash regis. totals. 6. Deposit cash receipts daily. 7. Disbursements by check or electronic funds transfer (except small expenditures from petty cash). 8. Monthly bank reconciliations prepared by employee not responsible for cash pmts or custody of cash. Completed recon. should be promptly reviewed by approp. official. 9. Monitor cash receipts and dist. using software to identify unusual transactions, and comparing recorded amounts to budgeted amounts.

In a restaurant setting, control over cash sales is best handled when the sales ticket is prepared by a(n) ______.

different employee than the centrally located cashier who receives cash Control over cash sales strongest when two or more employees (saleclerk and cashier), participate in each transaction with customer.

The auditor's objectives in the audit of cash and cash transactions include ______.

establishing the completeness of recorded cash determining the accuracy of cash transactions verifying the cutoff of cash transactions Objectives: 1. understand client and environment to consider inherent risks, related to cash. 2. obtain understanding of internal control over cash. 3. Assess risk of material misstatement of cash and design test of controls and subst. procedures that: a. substantiate EXISTENCE of recorded cash and the OCCURRENCE of cash transactions. b. Determine accuracy of cash transactions. c. Establish completeness of recorded cash. d. verify cutoff of cash transac. e. Determine client has rights to recorded cash. f. Determine presentation and disclosure of cash, including restricted funds (compens. balances and bond sinking funds) are appropriate.

Auditors confirm cash balances directly with financial institutions in order to substantiate the ______ of the amount of cash shown on the balance sheet.

existence A direct approach is to confirm amounts on deposit and obtain or prepare reconciliations between bank statements and accounting records.

The auditors prepare a list of all the client's cash accounts and related information. This information is traced and reconciled to the ______________.

general ledger

A cash shortage may be concealed by ______.

hiding cells in a spreadsheet schedule omitting a check from the outstanding check list a deliberate error in reconciliation addition

When an amount of cash is included in the balance of two or more bank accounts at the same time to conceal a cash shortage or meet short-term cash needs, a fraudulent act called ________________ has occurred.

kiting

When dates of recording a cash transfer per the books (from the cash disbursements and cash receipts journal, respectively) are from different financial statement periods, that suggests that ___________ has occurred.

kiting

Manipulations causing an amount of cash to be included simultaneously in the balance of two or more bank accounts is called ______.

kiting Manipulations that utilize temp. overstated bank balances to conceal a cash shortage or meet short term cash needs. More difficult with electronic transfers between accounts (rather than using paper checks) due to the virtual disappearance of the float period.

Cash collected from Customer A is withheld by the cashier, and a subsequent collection from Customer B is entered as a credit to Customer A's account. Customer B's account will not be shown as paid until a collection from Customer C is recorded as a credit to Customer B. This pattern of fraud is known as ______.

lapping Comparison of details of the daily entries in cash receipts journal and accounts receivable subsidiary ledger with bank deposits may disclose fraud known as lapping. The concealment of cash shortage by delaying the recording of cash receipts.

Before verifying the client's cash on hand, auditors must establish control over ______.

notes receivable cash funds securities and other investments

Advantage of requiring disbursement by check include ______.

obtaining evidence of receipt from the payee in the form of an endorsement centralization of disbursement authority a permanent record of disbursements

An employee having no part in authorizing or accounting for cash transactions or in handling cash should ______________ bank statements.

reconcile. Statements from bank should come unopened to employee. Completed reconciliation should be reviewed by responsible comp. official and approved in writing.

Checks payable to officers should be carefully reviewed by the auditors to determine whether the transactions were properly ______.

recorded disclosed authorized

Officials authorized to sign checks should _______________ the documents supporting the payment and ______________ these documents at teh time of signing check to prevent them from being submitted a second time.

review and perforate or deface The official signing the checks should maintain control until placed in mail. Typically, check comes to official complete except for signature. To make fraud involving falsified doc. less likely, signed checks should not be returned to acct. dept., which prepared them for signature.

When auditors encounter evidence of small-scale employee fraud that could not have a material effect upon the financial statements the auditors should ______.

review the situation with management and the audit committee before preceding After determining fraud could NOT have a material effect on f/s, they should review situation with management and audit committee of B.O.D before investigating matters further. This protects auditors from charges of negligence, and avoids wasting time on matters not material to f/s.

Cash equivalents include ______. Multiple select question. savings certificates long-term bond investments money market funds certificates of deposit

savings certificates money market funds certificates of deposit Cash normally includes: general (accts similar to normal checking acct), payroll, petty cash, and less frequently, savings accounts. Typically increase account: cash sales, collections of receivables, obtaining loans, and investment of additional capital by owners typically increase account; business expenditures decrease it. Cash equiv. often combined with cash items to create current asset classification called, "cash and cash equivalents" Ex: money market funds, cerif. of deposits, savings certif., and similar types of deposits. Any item that can't be converted to cash on short notice should be classified as investment, receivable, or prepaid expense rather than cash equiv.

In a computerized purchasing system, vendor invoice information is entered by the accounting department and matched by the computer with purchase order and receiving information entered by other departments. If the information matches, ______.

the computer will approve the payment and record the voucher as a payable

Control over cash sales is strongest when _______________.

two or more employees (usually salesclerk and cashier) participate in each transaction with customer. Ex: restaurants and cafeterias often use centrally located cashier who receives cash from customer along with sales ticket prepared by another employee.

Important internal controls over cash disbursements include ______.

using prenumbered checks and accounting for all the numbers in the series using computers to print checks and maintain item counts and control totals

Electronic point-of-sale systems often may be programmed to perform numerous other control functions, including ______.

verification of the credit status of charge account customers updating accounts receivable and perpetual inventory records providing special printouts accumulating sales data by product line, salesperson, etc.

A check that is not negotiable (null), usually resulting from an error in preparing the check, is called a(n) ______________ check.

voided All checks must be prenumbered and all numbers in the series be accounted for. Unissued prenumbered checks should be adequately safeguarded against theft or misuse. Voided checks should be defaces to eliminate further use and filed in reg. sequence of paid checks. Dollar amounts should be printed on checks by computer or check protecting machine (makes difficult to alter amount on check).