MBUS 300 Chapter 6

Which of the following is not an example of a common control activity? a) Required Absences b) Collusion c) Procedures manuel d) Use of prenumbered documents

B

Which of the following statements accurately describes a fidelity bond? a) Guidelines or policies that limit the actions of different levels of management. b) Insurance that the company buys to protect itself from loss due to employee dishonesty. c) Proper procedures for processing transactions. d) Procedures to provide reasonable assurance that the objectives of a company are accomplished.

B

If the financial statements cannot be relied upon because they contain one or more material departures from GAAP, what type of opinion will the auditor issue? a) Unqualified opinion b) Qualified opinion c) Adverse opinion d) Disclaimer of opinion

C

Which of the following is not a common feature of an internal control system? a) Implementing the most effective marketing plan b) Segregating duties c) Performance evaluation d) Bonding employees

D

The owner of Barnes Company established a petty cash fund amounting to $400. What is the effect on the financial statements of the entry to record this transaction?

Nothing happens. Establishing a petty cash fund increases the cash on one account and decreases the cash on another account. So no overall effect on assets. Because both are considered cash accounts, there is no cash outflow recorded.

A well-designed system of internal controls will eliminate all fraud.

false

The primary focus of financial statement audits is the discovery of fraud.

False

Peterson Company's petty cash fund was established on January 1 with $500. On January 31, a count of the fund revealed: $105 in cash remaining and vouchers for miscellaneous expenses totaling $400. If the entries to record the disbursements and to replenish the fund are combined, what effect will the resulting entry have on the elements of the' financial statements?

- 395 Assets - 395 Stock Eq. + 396 Expenses - 395 Net Income - 395 cash flow OA

Which of the following internal control procedures should be implemented to control cash? a) Disbursements by prenumbered checks b) Depositing cash receipts in the bank on a timely basis c) Providing copies of written receipts to customers d) All of these answer choices are correct

D

Which of the following statements is true with regards to financial statement audits? a) Financial audits are directed toward the discovery of fraud. b) The auditors guarantee that the financial statements are accurate and correct. c) Auditors will not disclose information that they have acquired as a result of their accountant-client relationship. d) Auditors provide reasonable assurance that statements are free from material misstatements, whether caused by errors or fraud.

D

Which of the following is not a common internal control procedure that would be implemented with regards to cash receipts? a) Preparing a record of all cash collections immediately upon receipt b) Providing copies of written receipts to customers c) Depositing cash receipts in a bank on a timely basis d) Marking supporting documents Paid when checks are signed

D - Internal controls are the rules, mechanisms and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability and prevent fraud. Besides complying with laws and regulations, and preventing employees from stealing assets or committing fraud, internal controls can help improve operational efficiency by improving the accuracy and timeliness of financial reporting.

A bank reconciliation normally begins with the ending cash balance shown on the bank statement and reconciles it to the unadjusted cash account balance on the company's books.

False

All journal entries made related to bank reconciliations include an expense or revenue account.

False

Requiring segregation of duties in a business eliminates the need for the work of one employee to serve as a check on the work of other employees.

False

A business learns about customers' NSF checks through debit memos that are included with the bank statement.

True

For financial reporting purposes, cash generally includes currency and other items that are payable on demand, such as checks, money orders, bank drafts, and certain savings accounts.

True

Preparing a bank reconciliation is a control activity.

True

Segregation of duties in an organization should be required to reduce the likelihood of theft.

True

Gross Company established a $250 petty cash fund on January 1. On March 1, the fund contained $160 in receipts for miscellaneous expenses and $85 in cash. If the entries to record the disbursements and to replenish the fund are combined, what effect will the resulting entry have on the elements of the financial statements? a) Decrease total assets by $165 b) Increase stockholder's equity by $165 c) Decrease stockholder's equity by $160 d) No effect on total assets

A (250-85 = 165)