Chapter 6 & 7 HW
Gross Profit = Sales Revenue - Cost of Goods Sold
Gross Profit = Sales Revenue - Cost of Goods Sold
Encryption
Rearranging plain-text messages by a mathematical process - the primary method of achieving security in e-commerce.
The ________ deposits the customer checks in the bank.
treasurer (or cashier)
The same trusted employee has served as cashier for 12 years.
Internal Control Failure: Other; no job rotation
After approving all documents, the purchaser sends a(n) __________ to the vendor.
check
365 / Inventory Turnover = Days' Sales in Inventory
365 / Inventory Turnover = Days' Sales in Inventory
Outstanding checks
A subtraction from the bank balance
NSF check from customer
A subtraction from the book balance
Service charge
A subtraction from the book balance
The business credited Cash for $200. The correct amount was $2,000.
A subtraction from the book balance
Deposits in transit
An addition to the bank balance
The bank incorrectly decreased the business's by $350 for a check written by another business.
An addition to the bank balance
Bank collection of note receivable and interest
An addition to the book balance
Interest earned on bank balance
An addition to the book balance
Cost of Goods Sold / Average Merchandise Inventory = Inventory Turnover
Cost of Goods Sold / Average Merchandise Inventory = Inventory Turnover
Separation of Duties
Dividing responsibilities between two or more people.
Internal Auditors
Employees of the business who ensure that the company's employees are following company policies and meeting legal requirements and that operations are running efficiently.
Grocery stores such as Convenience Market and Natural Foods purchase most merchandise from a few suppliers. At another grocery store, the manager decides to reduce paperwork. He eliminates the requirement that the receiving department prepare a receiving report listing the goods actually received from the supplier.
Internal Control Failure: Other; Documents and records - no receiving report
When business is brisk, Fast Mart deposits cash in the bank several times during the day. The manager at one store wants to reduce the time employees spend delivering cash to the bank, so he starts a new policy. Cash will build up over weekends, and the total will be deposited on Monday.
Internal Control Failure: Other; Not depositing cash soon enough for adequate security
Business is slow at Amazing Amusement Park on Tuesday, Wednesday, and Thursday nights. To reduce expenses, the business decides not to use a ticket taker on those nights. The ticket seller (cashier) is told to keep the tickets as a record of the number sold.
Internal Control Failure: Separation of Duties
While reviewing the records of Quality Pharmacy, you find that the same employee orders merchandise and approves invoices for payment.
Internal Control Failure: Separation of Duties
Define Internal Control
Internal control is the organizational plan and all the related measures designed to do the following: Safeguard assets Encourage employees to follow company policy Promote operational efficiency Ensure accurate and reliable accounting records
The _________ opens the mail and sends customer checks to the treasurer.
Mailroom Employee
Internal Control
Organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records.
Sarbanes-Oxley Act
Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.
The system of internal control must be tested by external auditors. What law or rule requires this testing?
Sarbanes-Oxley Act
The FIFO method results in the largest gross profit because during times of increasing inventory prices, this method will produce the lowest cost of goods sold
The FIFO method results in the largest gross profit because during times of increasing inventory prices, this method will produce the lowest cost of goods sold
Sandra Kristof sells furniture for McKinney Furniture Company. Kristof is having financial problems and takes $650 that she received from a customer. She rang up the sale through the cash register. What will alert Megan McKinney, the controller, that something is wrong?
The cash in the cash drawer will be $650 lower than the amount recorded in the cash register
A purchasing agent for Franklin Office Supplies receives the goods that he purchases and also approves payment for the goods. a. How could this purchasing agent cheat his company? b. How could Franklin avoid this internal control weakness?
a. A dishonest purchasing agent could: Approve payment for an excessive amount and split the excess with the supplier; Purchase goods and have them delivered to his home. b. Companies avoid this internal control weakness by: separating the duties of purchasing goods, receiving goods, approving payments for goods.
Review the internal controls over cash receipts by mail. Exactly what is accomplished by the final step in the process, performed by the controller? a. What would the controller look at to see the amount of cash that went into the bank, and who would provide him with the backup? b. What would the controller look at to see what was recorded by the Company, and who would provide him with the data? c. This comparison ensures that _____________
a. Bank deposit amount from the treasurer b. Debit to Cash from the accounting department c. That the debit to Cash is equal to the amount deposited in the bank
Internal controls are designed to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate accounting records. a. Which objective do you think is most important? b. Which objective do you think must the internal controls accomplish for the business to survive? Give your reason.
a. Safeguarding Assets b. Businesses need to safeguard assets to survive. If this is not done assets may slip away which is ultimately throwing away resources.
Dogtopia sells pet supplies and food and handles all sales with a cash register. The cash register displays the amount of the sale. It also shows the cash received and any change returned to the customer. The register also produces a customer receipt but keeps no internal record of the transactions. At the end of the day, the clerk counts the cash in the register and gives it to the cashier for deposit in the company bank account. a. Identify the internal control weakness over cash receipts. b. What could you do to correct the weakness?
a. The cash register does not keep an internal record of the sale; The clerk counts the cash in the cash draw at the end of the day. b. A manager counts the cash in the cash drawer at the end of the day and compares it to the register tape; The cash register will keep an internal record of the sale; The register tape will go to the accounting department to record the cash and sale in the journals.
Gary's Great Cars purchases high-performance auto parts from a Nebraska vendor. Dave Simon, the accountant for Gary's, verifies receipt of merchandise and then, prepares, signs, and mails the check to the vendor. a. Identify the internal control weakness over cash payments. b. What could you do to correct the weakness?
a. The same person is responsible for verifying receipt of merchandise, authorizing payment, and preparing the payment. b. The receipt of goods should be verified by someone other than the accountant or the person authorizing the purchase order; Purchase orders, utilizing authority from operations, should be used to authorize inventory purchases; The accountant should receive the receipt of goods and purchase order forms from other departments before issuing payment; The accountant should not place the purchase order.
Identify each item as either a strength or a weakness in internal control and give your reason for each answer. a. Top managers delegate all internal control procedures to the accounting department. b. Accounting department staff (or the bookkeeper) orders merchandise and approves invoices for payment. c. Cash received over the counter is controlled by the sales clerk, who rings up the sale and places the cash in the register. The sales clerk matches the total recorded by the register to each day's cash sales. d. The employee who signs checks need not examine the payment packet because he is confident the amounts are correct.
a.Weakness; The control environment would be more effective if top management led in establishing controls. b. Weakness; Accounting should not order goods. They could have goods sent to their homes and approve payment. c. Weakness; The sales clerk should not have access to the cash register total, as the clerk could change the record. d. Weakness; The officer should examine the payment packet to ensure that the payment is for the correct amount.
The ___________ uses the remittance advices to record the journal entries for cash receipts.
accounting department
The _________ compares the bank deposit to the journal entry for cash receipts.
controller
EFT Collection
db Cash cr Rent Revenue To record rent collection by EFT.
The vendor ships the inventory and sends a(n) _________ back to the purchaser.
invoice
When ordering merchandise inventory, the purchaser sends a(n) __________ to the vendor.
purchase order
The purchaser receives the inventory and prepares a(n) __________.
receiving report.