Chapter 4 Accounting

false

T/F: If a company hires honest employees and its top management acts with integrity, no internal control procedures will be necessary.

true

T/F: Internal control over financial reporting is concerned with ensuring the reliability of the financial statements.

false

T/F: On a bank reconciliation, outstanding checks are added to the cash balance per the bank statement.

false

T/F: The best response to an employee caught stealing from the company is to say, "Don't ever let me catch you doing that again!"

true

T/F: The stronger the system of internal control, the higher the accuracy of the company's accounting records and financial reports.

strategic risks

possible threats to the organization's success in accomplishing its objectives that are external to the organization.

cash equivalents

short-term, highly liquid investments that are readily convertible to cash and have original maturities of three months or less.

A

Cash collected and recorded by a company but not yet reflected in a bank statement are known as a. deposits in transit. b. outstanding checks. c. debit memos. d. credit memos.

C

Effective cash management and control includes all of the following except a. the use of a petty cash fund b. bank reconciliations c. purchase of stocks and bonds d. short-term investments of excess cash

Delaying payments to suppliers

High level cash management strategies include

true

T/F: A debit memo may be issued in the monthly bank statement in order for the bank to notify a company that a service charge has been assessed on the company's account.

false

T/F: An accounting system must be computerized in order to ensure the company has proper internal control.

true

T/F: As part of a sound system of internal controls, all disbursements (with the exception of petty cash) should be made by check.

C

What is the primary role of internal controls in managing a business? a .To make it impossible for inventory to be stolen. b. To encourage fraud and collusion among employees. c. To constrain subordinates' activities in order to prevent employees from deviating from the scope of their responsibilities and encouraging them to act in the best interest of the business. d. To ensure that only authorize users are allowed to access the company's computer systems.

D

Which of the following is not one of the five categories of control activities? a. Checks on amounts recorded in the accounting records b. Clearly defined authority and responsibility c. Segregation of duties d. Defalcation and financial reporting

D

Which of the following is not one of the five components of internal control? a. Identify external risks b. Gather information in a timely fashion c. Define responsibility authority d. Prepare financial statements

A

Which of the following is not one of the three areas for which internal control systems are intended to provide reasonable assurance? a. Certification that the financial statements are without error b. Reliability of financial reporting c. Financial reporting has been done in compliance with all applicable laws and regulations d. Company's operational activities are effective and efficient

A

Which of the following procedures is not part of the preparation of a bank reconciliation for a checking account? a. Reversing all the transactions recorded on the company's records that do not yet appear on the bank statement. b. Looking for bank services charges and other items on the bank statement that have not yet been included in the cash account. c. Comparing canceled checks returned with the bank statement to the cash account to identify outstanding checks d. Comparing deposits listed on the bank statement to the cash account to identify deposits in transit

outstanding check

a check that has been issued and recorded by the business but that has not been "cashed" by the recipient of the check.

NSF check (non-sufficient funds check)

a check that has been returned to the depositor because funds in the issuer's account are not sufficient to pay the check (also called a "bounced" check).

service charge

a foreign transaction fees is an example of a

petty cash

a fund used to pay for small dollar amounts.

service charge

a minimum balance fee is an example of a

B

allowing only certain employees to order certain goods and services for the company is an example of what internal control procedure? a. adequate documents and records b. clearly defined authority and responsibility c. safeguarding of assets and records d. checks on recorded amount

cash over and short

an account that records the discrepancies between deposited amounts of actual cash received and the total of the cash register tape.

deposit in transit

an amount received and recorded by a company, but which has not been recorded by the bank in time to appear on the current bank statement.

service charge

annual maintenance fee is an example of a

service charges

fees charged by the bank for services provided. Examples include annual maintenance, minimum balance, and foreign transaction fees.

control environment

the collection of factors that influence the effectiveness of control procedures such as the philosophy and operating style of management, the personnel policies and practices of the business, and the overall integrity, attitude, awareness, and actions of everyone in the business concerning the importance of control.

segregation of duties

the idea that accounting and administrative duties should be performed by different individuals, so that no one person has access to the asset and prepares all the documents and records for an activity.

B

the internal audit function is part of what element of the internal control system? a. control environment b. monitoring c. risk assessment d. control activities

accounting system

the methods and records used to identify, measure, record, and communicate financial information about a business.

D

the operating cycle is best described as the time between a. production and sale of inventory b. the sale of inventory and collection of receivables c. the formation of a company and the start of operations d. purchase of goods for resale and the collection of cash from customers

safeguarding

the physical protection of assets through, for example, fireproof vaults, locked storage facilities, keycard access, and anti-theft tags on merchandise.

internal control system

the policies and procedures established by top management and the board of directors to provide reasonable assurance that the company's objectives are being met in three areas: (1) effectiveness and efficiency of operations, (2) reliability of financial reporting, and (3) compliance with applicable laws and regulations.

control activities

the policies and procedures that top management establishes to help insure that its objectives are met.

bank reconciliation

the process of reconciling any differences between a company's accounting records and the bank's accounting records.

business process risks

threats to the internal processes of a company.

monitoring

what is the process of tracking potential/actual problems in the internal control system?

A

which of the following is not a cash equivalent? a. 180-day note issued by a local or state gov't b. 90-day U.S. treasury bill c. 60-day corporate commercial paper d. 30-day certificate of deposit

D

which of the following would not appear on a bank statement for a checking account? a. deposits b. interest earned c. service charges d. outstanding checks