Chapter 5 learnsmart Test 2 AC 210
If the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown on the bank reconciliation as a(n) ______.
$27 deduction from the book balance
When a check is presented to a bank for payment and the amount is deducted from the payer's account, the check is said to have _________ the bank
cleared
The ______ component of an internal control system refers to the activities completed by employees to reduce risks to an acceptable level.
control activities
Which is the control component of an internal control system that refers to the attitude of employees in the organization?
control environment
Why might a bank statement and the company's records differ?
1. Not all checks written cleared the bank. 2. Deposits were made at the end of the bank statement date in an ATM. 3. Customer checks that bounced (NSF).
Comparing two sets of records is called ______.
reconciling
Banks provide important controls surrounding a company's cash. These include which of the following?
- banks provide statements that are used for independent verification. - Banks restrict access. - Banks provide document
segregate duties
do not make one employee responsible for all parts of a process
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 records.
supplier invoice
A _______ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts.
direct
Paying by check helps a business to control cash when the ______.
- manager studies the documents supporting the payment before signing the check - checks are prenumbered and written sequentially
A goal of the Sarbanes-Oxley Act is improving corporations' internal controls. Which of these may accomplish this goal?
- marketing managers must determine whether the marketing team is submitting accurate sales and expense reports - an audit committee of independent directors oversees financial matters of the company - external auditors must test the effectiveness of the company's internal controls
Internal control procedures surrounding payment of bills includes ______
- marking the voucher "paid" to avoid duplication of payments - using pre-numbered checks - making payments only when a purchase is supported by complete voucher documentation
Place the order of the steps in documenting and controlling purchases in a voucher system with the first step listed on the top and final step at the bottom
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
The document that indicates the date, quantity, and condition of the goods is called a __________ report. It is then sent to the accounting department to notify that the purchase can be recorded.
receiving
restrict access
do not provide access to assets or information unless it is needed to fulfill assigned responsibilities
A company has a $10,000 cash balance per its books. The bank statement has a balance of $9,580. The bank reconciliation included $800 of deposits-in transits, $500 of checks outstanding, a $100 NSF check from a customer, and a $20 bank service charge. Given the above reconciling items, the up-to-date cash balance equal
$9,880
Which of the following 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.
the 3 categories of employee fraud are
- corruption - asset misappropriation - financial statement fraud
To segregate duties involving cash receipts, specific responsibilities are assigned to various employees. Put the following steps in the correct chronological order listing the first step at the top.
1. cashiers are responsible for collecting cash and issuing a receipt at the point of sale 2. a supervisor is responsible for collecting cash at the end of each cashier's shift 3. members of the accounting department are responsible for ensuring that cash sales are properly recorded
Employee ________ is often grouped into 3 categories: corruption, asset misappropriation, financial statement fraud
Fraud
A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?
It would be added to the bank balance.
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.
voucher system
a process for approving and documenting all purchases and payments made on account
Deposits in transit are ______ on a bank reconciliation.
added to the bank balance
In a bank reconciliation, the electronic funds transfer (EFT) received by the bank from a customer's note receivable owed to the company is ______.
added to the book balance
Deposits in transit have already been ______.
added to your cash balance per your books and not to the bank balance
Deposits in transit occur when you make a deposit ______.
after the bank's normal business hours
An advantage of direct deposits is they ______.
are convenient and efficient
establish responsibilities
assign each task to only one employee in order to allow one to determine who is at fault for an error or theft
One of the components of an internal control system is the control environment which refers to the ______.
attitude employees hold regarding internal control
In a bank reconciliation, an outstanding check is
deducted from the bank balance
your customer's NSF check found on the bank statement is a reconciling item on a bank reconciliation and will need to be
deducted from the cash balance in your accounting records
The bank credited your account for a deposit that should have been deposited into another customer's bank account, not yours. This bank error should be a(n) ______ on a bank reconciliation.
deduction from the bank balance
outstanding checks written by the company should be a(n) ______ on the company's bank reconciliation
deduction from the bank balance
A bank service charge should be a(n) ______ on a bank reconciliation
deduction from the book balance
Which of the following reconciling items does not require a journal entry?
deposit in transit
Which of the following is shown as an addition to the bank balance on a bank reconciliation?
deposits in transit
bank reconciliations are needed to reconcile for:
deposits in transit and outstanding checks
risk assessment
evaluate the potential for fraud
Monitoring Activities
evaluating the internal control system to see if working as intended
True or false: Internal controls prevent and detect all errors and fraud.
false
True or false: Strong internal control surrounding cash receipts requires the cashier to perform the following procedures: count the cash receipts, take the cash to the bank, and record the amount collected in the accounting records.
false
True or false: The person who has custody of an asset should also account for the asset. A person who performs both duties will best know what the balance should be in the accounting records.
false
outstanding checks are checks that
have been written but have not yet cleared the bank
What are reasons internal controls can never completely prevent and detect errors and fraud?
human error, collusion, costs exceed benefits
The _____ ______ system consists of actions taken to promote efficient and effective operations, protect assets, enhance accounting information and adhere to laws and regulations. (Enter only one word per blank.)
internal control
Which of the following is not an accurate statement about internal control?
it guarantees the management will behave ethically
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
The ______ component of an internal control system refers to the evaluation of internal controls to identify deficiencies.
monitoring activities
NSF checks stands for
non-sufficient funds
Bank reconciliations are needed to reconcile for ______
outstanding checks and deposits in transit
The risk assessment component in a system of internal controls refers to the assessment of the ______.
potential for fraud
document procedures
prepare documents to show activities that have occurred
After approval of a purchase has been obtained, the purchasing agent completes a prenumbered _____ that identifies the supplier, the delivery location, and the approved quantity and cost.
purchase order
After approval of a purchase has been obtained, the purchasing agent completes a prenumbered ________ _________ that identifies the supplier, the delivery location, and the approved quantity and cost.
purchase order
Control Environment
refers to the attitude that people in the organization and their commitment to integrity
Information and Communication
refers to the documentation of activities that promote effective internal controls
The purchasing system begins with an authorized employee completing a manual or electronic purchase ___________ form which is then reviewed and approved by a supervisor before an order is placed with a supplier
requisition
The services provided by a bank help business control cash by ______.
restricting access and providing documentation and independent verification
The ______ component in a system of internal controls refers to evaluation the potential for fraud.
risk assessment
Cashiers at a supermarket have to talk to a manager before approving price changes at the register. Which internal control principle is being followed?
segregate duties
Deposits in _____ are added to the _____ (bank/book) side of the bank reconciliation
transit; bank
independent verify
check others work
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 it up to date? (Select all that apply.)
- EFT received from customers discovered on the bank statement - Customer's check rejected by the bank as NSF - Interest Revenue
Which of the following poses a high risk of theft because of its high volume and ease of portability?
cash
One of the components of an internal control system is "control activities" which refers to the activities ______.
completed by employees to reduce risks to an acceptable level
A check that you have written has cleared the bank when ______.
funds have been withdrawn from your bank account to cover the check
The supplier _________ 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 records.
invoice
The purchasing system begins with an authorized employee completing a manual or electronic ______ which is then reviewed and approved by a supervisor before an order is placed with a supplier.
purchase requisition
________ of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. A person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records.
segregation
Control Activities
work responsibilities and duties completed to reduce risks to an acceptable level
Which of the following duties should not be the responsibility of an employee who has access to cash?
- perform bank reconciliations - record cash collected in the journal
Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act?
conceal fraud
a bank reconciliation is a
internal report prepared to compare the company's cash records with the bank statement
If a bank reconciliation included a deposit in transit of $670, the company's journal entry for this reconciling item would include ______.
nothing, because the deposit has already been recorded
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
A cash register does not ______.
reconcile accrual accounting with cash accounting
which of the following are elements of good internal control over cash receipts?
- Cash receipts are summarized and their total is calculated - A different employee deposits the cash at the bank - Two employees cannot share the same cash drawer
The benefits of internal control procedures are that they ______.
- enhance the reliability of accounting information - improve the efficiency and effectiveness of operations - protect against theft of assets
an effective internal control system:
- is monitored to detect and communicate deficiencies to those responsible - is monitored regularly to determine whether controls are working as intended - generate and communicate information to support sound decision making
internal control for cash is important because
- the risk of cash-handling errors is significant - cash is portable and is "owned" by whomever possesses it - of the high risk of theft - of the large volume of cash transactions
This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation?
it would be deducted from the book balance
