AC 210 CH.5 LS
comparing two sets of records is called
reconciling
Control Environment
refers to helping people in the organization to understand the importance of internal control
monitoring activities
refers to te evaluation of internal controls to determine if they are working as intended
__ cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific reason
restricted
increasingly, the basic steps of the voucher system are performed using __ process automation, which combines automation and artificial intelligence
robotic
Each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of:
segregating duties
EFT discovered on the bank statement
will need to be adjusted on your records because your cash balance is affected
T/F: internal controls prevent and detect all errors and fraud
false
the bank will show a customer's deposit on bank statement as a
credit, because a despot is a liability from the bank's point of view
On a bank reconciliation, which of the following are typical reconciling items the bank would not know about time lags?
deposit in transit and outstanding checks
bank reconciliations are needed to reconcile for
deposits in transit and outstanding checks
Among the new requirements of SOX is those who willfully misrepresent financial results
faces stiff fines and possible jail time
the 3 components of the ____ ___ are incentive, opportunity and rationalization
fraud triangle
which of the following is not a significant objective of the Sarbanes-Oxley (SOX) act
increase rationalization
an advantage of direct deposits is they
are convenient and efficient
the Sarbanes-Oxley (SOX) act provides increased regulations for
auditors internal controls corporate executives
employee __ is often grouped into 3 categories: corruption, asset misappropriation, financial statement fraud
fraud
the procedure of bank reconciliation is an example of which principle of internal control
independent verification
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
a difference between an imprest payroll account and petty cash is petty cash is
not held at the bank
operations
objective is to ensure the efficient and effective completion of work and the production of assets
Reporting
objective is to produce reliable and timely accounting information
which component of the fraud triangle is exemplified best by an employee being able to steal because no documentation is required for amounts taken from the petty cash
opportunity
to avoid duplicate payment, the voucher should be marked "___" as the final step in the voucher system
paid
document procedures
preparing a receiving report as proof or receipt of purchases
in a strong system of internal control, which employees should be the one to verify cash count sheets and prepare deposit slips and take the cash to the bank
supervisor
which of the following is not an internal control for checks received through the mail
the accounting department counts the cash, prepares the deposit slip and deposits the cash in the bank
risk abatement
this is not an objective
Deposits in _____ are added to the _____ (bank/book) side of the bank reconciliation
transit;bank
assigned sequential numbers to cash sales, so that the accounting staff can ensure that every sale has been recorded is required by the internal control principle of
documenting procedures
an __ system controls the amount paid to others by limiting the total amount of money available for making payments
imprest
compliance
objective is to focus on adhering to laws and regulations
___ is one of the 3 components of the fraud triangle that relates to taking advantage of weak internal controls
opportunity
the purchasing system begins with an authorized employee completing a manual or electronic ___ which is then reviews and approved by a supervisor before an order is placed with a supplier.
purchase requisition
a ___ system is a process for approving and documenting all purchases and payments made on account
voucher
the quality of financial reporting for publicly traded companies is improved through
*evaluating and reporting on the effectiveness of internal controls *obtaining an external audit
to segregate duties involving cash receipts, specific responsibilities are assigned to various employees. (put steps in order)
1. cashiers are responsible for collecting cash and issuing a receipt at the point of sale. 2. a supervisor is responsible for collecting the 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
instead of petty cash system, many companies use __ which allows employees to put purchase business-related items
Pcards
Which of the following poses a high risk of theft because of its high volume and ease of portability
cash
which of the following would be added to your cash balance based on the information on your bank statement
interest deposited
this months 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
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
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
A company has $8000 cash balance per its books. The bank statement has a balance of $8450. The bank reconciliation included $800 of deposits-in transits, $500 of checks outstanding, EFTs of $1000 were received from customers, a $200 NSF check from a customer, and a $50 bank service charge. what is the up-to-date cash balance?
$8,750
segregate duties
accounting department prepares the journal entry, not the purchasing department
is an insurance policy that partially reimburses a company for losses caused by employee fraud
bonding
after approval of a purchase has been obtained, the purchasing agent completes a renumbered __ that identifies the supplier, the delivery location, and the approved quantity and cost
purchase order
in preparing your bank reconciliation, you notice that you recorded a deposit as $100 instead of $10.
subtract $90 from your cash and make an entry
service charges are __ of a bank reconciliation
subtracted from the book's balance
NSF check from customers should be a __ on a bank reconciliation
subtraction from the book balance
deposits in transit have already been __
added to your cash balance per your books and not to the bank balance
in a bank reconciliation, interest revenue on the bank account balance is added to the ___ balance
book
a goal of the Sarbanes-Oxley Act is improving corporations' internal controls.
* an audit committee of independent directors oversees financial matters of the company *marketing managers must determine whether the marketing team is submitting accurate sales and expense report *external auditors must test the effectiveness of the company's internal control
Additional mechanisms of internal control include
*anonymous hotlines *bonding *mandatory vacations
which of the following provisions of the Sarbanes-Oxley (SOX) act aim to encourage honesty and the reporting of dishonest acts
*anonymous tip lines *whistle-blower protection *code of ethics
Fraudsters may rationalize their actions _________.
*as legitimate since they are underpaid *through a feeling of personal entitlement *by convincing themselves their actions are justified
Banks provide important controls surrounding a company's cash
*banks restrict access *banks provide documentation *banks provide statements that are used for independent verification
which of the following are elements of good internal control over cash receipts
*cash receipts are summarized and their total is calculated *two employees cannot share the same cash drawer *different employee deposits the cash at the bank
which of the following control components are part of the framework used when analyzing an internal control system
*control activities *risk assessment *control environment *monitoring activities *info and comm.
which of the following are limitations in internal control systems?
*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
what are reasons internal controls can never completely prevent and detect errors and fraud
*costs exceed benefits *collusion *human error
at the end of the day, the cashiers rung up sales of $5000 and counted on the cash count sheets and deposited $5100, the accounting department would make a journal entry for the day's sales that included
*credit to cash overage of $100 *debit to cash for $5100 *credit to sales revenue for $5000
SOX reduces the opportunities for fraud by requiring publicly-traded companies to
*evaluate and report on its internal controls *establish an audit committee of independent directors *have external auditors evaluate the companies' internal controls
the quality of financial reporting for publicly traded companies is improved through __
*evaluating and reporting on the effectiveness of internal controls *obtaining an external audit
good internal control for checks received through the mail would include the mail clerk ___
*giving checks and money orders to the supervisor who makes the bank deposit *sending the cash receipts lists and the customers' remittance advices to the accounting department
which of the following is true regarding a bank statement
*includes interest earned *may include NSF checks *may include service charges *lists all checks that have cleared the bank
incentives for committing fraud in order to satisfy personal greed include
*increasing personal wealth * getting a bigger paycheck
the sarbanes -oxley act contains measures aimed at reducing both opportunities and incentives to commit fraud. which are designed to reduce the opportunity fraud
*internal control audit by external auditors *internal control report from management *stronger oversight by directors
which of these are cash equivalent
*investments within 3 months to maturity *money market funds
why might a bank statement and the company's records differ?
*not all checks written cleared the bank *customer checks that bounced (NSF) *deposits were made at the end of the bank statement date in an ATM
violating loan covenants lead to
*paying higher interest rates *repaying the loan balance right away *being forced to put up extra collateral
good internal controls for cash receipts that should be performed by a supervisor include __
*restricting access to cash by locking it up *comparing cash in registers with cash count sheets *completing bank deposits
deposits in transit are __ on a bank reconciliation
added to the bank balance
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 has been entered incorrectly in the journal as $649
an adjusting entry must be made to debit accounts payable and credit cash for $45
NSF checks from customers should be subtracted from the __ balance on a bank reconciliation
book
NSF checks are the same as
bounced checks non-suffiencent funds checks
the ___ is used to document the amount of cash collected and available for deposit at the bank
cash count sheet
if a cashier rang up sales totaling $4000, but had only $3997 to deposit, what journal entry would be recorded
cash of $3997 and cash shortage of $3 and a credit to sales revenue for $4000
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
a weak system of internal ___ provides the ___ to commit fraud
controls;opportunity
A loan ______ specifies terms of a loan agreement that, if broken, can allow the lender to renegotiate the terms of the loan or force repayment.
covenants
when the cash count sheets for the day equal $10100 and the cash register reports $10200, the journal entry to record the sales will include
debt to cash shortage
anonymous information about questionable accounting maters sent to the audit committee through tip lines
decrease the risk of fraud
in a bank reconciliation, an outstanding check is
deducted from the bank balance
outstanding checks have already been
deducted from your cash balance per your books but not the bank balance
a __ deposit is initiated by an EFT instructing a bank to transfer pay due employee into the employees' bank accounts
direct
establish responsibility
ensure that purchase requisition are made by employees approved to make purchases
cash __ are short term, highly ___ investments purchased within __ of maturity
equivalents;liquid;3 months
information and communication
refers to the documentation of activities that promote effectiveness internal controls
control activities
refers to the work responsibilities and duties completed to reduce risks to an acceptable level
good internal control over cash requires cashiers to
restrict access to the cash register give a cash register receipt to every customer
