Chapter 5 - SmartBook
Bank reconciliation are needed to reconcile for _____.
- bank errors - time lags - interest deposited - electronic funds transfer (EFT) - service charges - NSF checks - your errors - outstanding checks - deposits in transit
The Sarbanes-Oxley (SOX) Act aims to reduce fraud by _____.
- counteract incentives - reduce opportunities - encourage honesty
What poses a high risk of theft because of its high volume and ease of portability?
Cash
What are cash equivalents?
Cash Equivalents - short-term, highly liquid investments purchased within 3 months of maturity. CDs, money market funds, Treasury bills
An internal control system consists of actions taken to achieve objectives. Operations, Reporting, Compliance, and Risk Abatement
Compliance - Objective is to focus on adhering to laws and regulations. Reporting - Objective is to produce reliable and timely accounting information Risk Abatement - This is not an objective Operations - Objective is to ensure the efficient and effective completion of work and the protection of assets.
Fraud is defined as _______.
An attempt to deceive others for personal gain.
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?
services charges EFT Interest Income
A(n) ____ system involves the processing of purchases and payments made on account.
voucher
Why might a bank statement and the company's records differ?
- customer checks that bounced - deposits were made at the end of the bank statement date in an ATM - Not all check written cleared the bank
The Sarbanes-Oxley (SOX) Act provides increased regulations for _____.
- internal controls - corporate executives - auditors
Internal control for cash is important because ______.
- of the high risk of theft - the risk of cash-handling errors is significant - of the large volume of cash transactions - cash is portable and is "owned" by whomever possesses it
What should not be the responsibility of an employee who has access to cash?
- perform bank reconciliations - record cash collected in the journal
The benefit of internal control procedures are that they _____.
- protect against theft and assets - enhance the reliability of accounting information - improve the efficiency and effectiveness of operations
Deposits in transit are _____ on a bank recondilliation.
added to the bank balance
Deposits in transit have already been _____.
added to your cash balance per your books and not to the bank balance
Among the requirements of SOX is those who willfully misrepresent financial results _______.
face stiff fines and possible jail sentence
Outstanding checks are checks that ____.
have been written but have not yet cleared the bank
A bank ____ 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.
reconciliation
The services provided by a bank help business control cash by _____.
restricting access and providing documentation and independent verification
What would cause a bank statement not to agree with the cash balance in the accounting records?
- the bank paid interest that the company has not recorded - the company made an error in recording a deposit - deposits outstanding that have been recorded on the company's records, but not on the bank's - the bank made an error in recording a deposit made by the company
A check that you have written has cleared the bank when ____.
funds have been withdrawn from your bank account to cover the check
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 equals _____.
$9,880
The 3 categories of employee fraud are _____
- Corruption - Asset misappropriation - Financial Statement Fraud
Fraudulent reporting by management includes ______
- Improper asset valuation - Recording fictitious revenues from a phantom customer - Mismatching revenues and expenses
Which of the following is shown as an addition to the bank balance on a bank reconciliation?
Deposits in transit
Match each of the five principles of internal control with its description. Segregate Duties, Establish Responsibilities, Restrict Access, Document Procedures, and Independent Verify.
Establish Responsibility - Assign each task to only one employee in order to allow one to determine who is at fault for an error or theft. Independently Verify - Check others' work Restrict Access - Do not provide access to assets or information unless it is needed to fulfill the assigned task. Document Procedures - Prepare documents to show activities that have occurred. Segregate Duties - Do not make one employee responsible for all parts of a process.
True or False: Strong internal surrounding cash receipts requires the cashier to perform the following procedures: count he 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
The principles underlying the internal control system include ____.
Internal Control - Actions taken to promote efficient and effective operations, protect assets, enhance accounting information, and adhere to laws and regulations.
What is not a proper segregation of duties for cash received in person?
Members of the accounting department are responsible for the collection of cash and depositing the cash in the bank.
___ 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
What is not a significant objective of the Sarbanes-Oxley (SOX) Act?
SOX - a set of laws established to strengthen corporate reporting in the US Conceal Fraud
_______ 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
True or False: An internal control goal for cash receipts is to ensure that the business documents the correct amount of cash received and safely deposits the cash into its bank account.
True
True or False: Committing financial fraud can result in stiff penalties, including fines and jail sentences.
True
A(n) _____ is a collection of documents prepared in the process of approving, processing and documenting all purchases and payment made on account.
voucher
How do banks help businesses control cash?
- restrict access - documenting procedures - independently verifying
