AC 210 chapter 5: fraud, internal control, and cash
this document indicates the date, quantity, and condition of the goods. It is then sent to the accounting department to notify the purchase can be recorded.
receiving report
which of the following are true regarding a bank statement?
- It may include NSF checks - It may include interest earned - It lists all checks that have cleared the bank - It may include service charges
the 3 categories of employee fraud are:
- asset misappropriation - financial statement fraud - corruption
why might a bank statement and the company's records differ?
- customer checks that bounced (NSF) - not all checks written cleared the bank - deposits were made at the end of the bank statement date in an ATM
which of the following reconciling items on a bank reconciliation need to be recorded in the company's record to adjust its cash balance so that its up to date?
- customer's check rejected by the bank as NSF - interest revenue - EFT received from customers discovered on the bank statement - deposits in transit
in a bank reconciliation, interest revenue earned on the bank account balance is _______
added to the book balance
deposits in transit occur when you make a deposit _______
after the bank's normal business hours
while preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. what is true about this?
an adjusting entry must be made to debit accounts payable and credit cash for $45.
a common principle of internal control is to __________.
assign each task to one employee
when a check is presented to a bank for a payment and the amount is deducted from the payer's account, the check is said to have ______ the bank.
cleared
a ________ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts
direct
which principle of internal control enhances assurance that all transactions, checks and other business activities have been accounted for?
document procedures
EFT
electronic funds transfer
purchase order
ensures the order is placed with an approved supplier at approved prices.
purchase requisition
ensures the request is made by someone who is approved to order goods or services of the type and amount requested.
cash _______ are short-term, highly ________ investments purchased within ________ of maturity.
equivalents; liquid; 3 months
t/f: accountants are spending more of their time on executing the basic steps of a voucher system that has been spent in the past.
false
anonymous _______ allow anyone to tip off independent auditors about suspected fraud.
hotlines
a(n) _________ system controls the amount paid to others by limiting the total amount of money available for making payments.
imprest
firing employees if they are not meeting a certain performance target _______ the risk that others will commit fraud in the future.
increases
which of the following would be added to your cash balance based on the information on your bank statement?
interest deposited
bank reconciliation
is an internal report used to compare the bank statement with the company's cash records and should be prepared by an employee whose duties are separate from recording and handling of cash.
direct deposit
is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts
supplier invoice
is used to ensure that the appropriate amount is paid for goods received.
receiving report
is used to verify amounts ordered agree with the suppliers actual shipment.
this month's bank statement shows that the bank incorrectly credited ABC Corp.'s account for a $600 deposit that should have been credited to XYZ Corp.s account. how would this item be treated on ABC's bank reconciliation?
it would be deducted from the bank balance
_________ is one of the 3 fraud triangle components where the fraudsters perceive the misdeed is unavoidable or justified
rationalization
which is used to avoid the time and cost of writing checks for business expenses that are small in amount and is controlled by limiting the amount in it and subjecting it to surprise audits
petty cash
the bank will show a customer's deposit on bank statements as a _________.
credit, because a deposit is a liability from the bank's point of view.
in preparing your bank reconciliation, you notice that you recorded a deposit as $100 instead of $10. you should ________
subtract $90 from your cash and make an entry.
service charges are _______ of a bank reconciliation
subtracted from the book's balance
NSF checks from customers should be a _____ on a bank reconciliation
subtraction from the book balance
to avoid duplicate payment, the voucher should be marked "______" as the final step in the voucher system.
paid
If the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown on the bank reconciliation as
$27 deduction from the book balance
Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $3,000, deposits in transit of $2,000, NSF check of $100, and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals:
$9,910
bank reconciliations are needed to reconcile for ________
- outstanding checks - deposits in transit
on a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of time lags?
- outstanding checks - deposits in transit
violating loan covenants could lead to:
- repaying the loan balance right away - paying higher interest rates - being forced to put up extra collateral
which parts of the Sarbanes-Oxley (SOX) Act may encourage employees to be honest?
- requiring a code of ethics - requiring anonymous tip lines - providing legal protection to whistle-blowers
what are typical reconciling items on the book side of a reconciliation because the company did not know about these items until it got the bank statement?
- service charges - interest income - electronic funds transfer
some managers commit fraud because they are under great pressure to report a high net income to meet ___________.
- shareholders' expectations - loan covenant requirements - financial analysts' earnings forecasts
deposits in _____ are added to the _____ (bank/book) side of the bank reconciliation.
- transit - bank
additional mechanisms of internal control include
-anonymous hotlines -bonding -mandatory vacations
steps in documenting and controlling purchases in a voucher system:
1. request goods or services by submitting a purchase requisition 2. prepare a purchase order after suppliers and prices have been approved 3. prepare a receiving report 4. prepare a supplier invoice and prepare the journal entry
this month's bank statement shows interest earned of $45. how would this item be treated on the bank reconciliation?
It would be added to the book balance
If a cashier rang up sales totaling $5,096, but had $5,100 to deposit, which journal entry would be recorded?
a debit to cash of $5,100, a credit to cash overage of $4, and a credit to sales revenue of $5,096.
which of the following poses a high risk of theft because of its high volume and ease of profitability?
cash
If the cash collected is greater than the amount per the cash register, then ________.
cash overage is credited
If the cash collected is less than the amount per the casher register, then
cash shortage is debited
the bank will show a customer's withdrawal as a:
debit, because a withdrawal decreases its liability from the bank's point of view.
in a bank reconciliation, an outstanding check is ________
deducted from the bank balance
outstanding checks written by the company should be a __________ on the company's bank reconciliation.
deduction from the bank balance
which of the following reconciling items does not require a journal entry?
deposit in transit
an incentive to commit fraud may be caused by managers who receive bonus payments based on the strength of the company's reported ________.
net income
NSF
non-sufficient funds
If the bank makes an error by depositing your check into another depositor's account, then you should ______ and contact the bank.
not change your records
control environment
refers to helping people in the organization to understand the importance of internal control
risk assessment
refers to the continuous evaluation of the potential for fraud
information and communication
refers to the documentation of activities that promote effective internal controls
monitoring activities
refers to the evaluation of internal controls to determine if they are working as intended
control activities
refers to the work responsibilities and duties completed to reduce risks to an acceptable level
the ________ principle of internal control requires the use of firewalls and passwords.
restrict access
_______ cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific purpose.
restricted
increasingly, the basic steps of the voucher system are performed using _______ process automation, which combines automation and artificial intelligence.
robotic
this document is compared to the internally generated documents of the voucher system to ensure the quantity and costs agree with what has been ordered and received. If all reconciles, the accounting department will record the purchase in the accounting periods.
supplier invoice
independent verification
the accounting department compares the cashier's count sheet to the cash register and to the bank deposit slip.
segregation of duties
the accounting department does not have access to the cash.
document procedures
the accounting department records a journal entry for the cash receipts.
mandatory _________ is a policy that is established to make it difficult for fraudsters to cover up their theft while they are away
vacation
electronic funds transfer (EFT) discovered on the bank statement __________.
will need to be adjusted on your records because your cash balance is affected.
what are limitations in internal control systems?
- a control may not be implemented because the cost of the control may exceed the benefit of reducing the fraud or potential errors - collusion can exist making it impossible to completely prevent fraud
Pcards:
- are used by employees to purchase business-related items - are often used in place of a petty cash fund
at the end of the day, the cashiers rung up sales of $5,000 and counted on the cash count sheets and deposited $5,100, the accounting department would make a journal entry for the day's sales that includes _________.
- debit to cash for $5,100 - credit to sales revenue of $5,000 - credit to cash overage of $100
good internal controls over cash requires cashiers to __________
- give a cash register receipt to every customer - restrict access to the cash register
SOX reduces the opportunities for fraud by requiring publicly-traded companies to________.
- have external auditors evaluate the companies' internal controls - establish an audit committee of independent directions - evaluate and report on its internal controls
3 component of the fraud triangle:
- incentive - opportunity - rationalization
incentives for committing fraud in order to satisfy personal greed include:
- increasing personal wealth - getting a bigger paycheck
how do banks help businesses control cash?
- independently verifying - documenting procedures - restricting access to cash
which of these are cash equivalents?
- investments within 3 months to maturity - money market funds
each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of:
establishing responsibility
is one of the 3 components of the fraud triangle that relates to taking advantage of weak internal controls.
opportunity
what is subtracted from the bank balance on a bank reconciliation?
outstanding checks
after approval of a purchase had been obtained, the purchasing agent completes a prenumbered ________ that identifies the supplier, the delivery location, and the approved quantity and cost.
purchase order
the purchasing system begins with an authorized employee completing a manual or electronic _______ which is then reviewed and approved by a supplier before an order is placed with a supplier.
purchase requisition