AC 210 LearnSmart 5

Which principles of internal control are incorrectly described?

Restrict access - prepare documents that show activities that have occurred Document procedures - do not provide access to assets or information unless it is needed to fulfill the assigned task

Which is used to avoid the time and cost of writing checks for business expenses that are small in amount and is controlled by limiting the amount in it and subjecting it to surprise audits?

petty cash

____ is one of the 3 fraud triangle components where the fraudsters perceive the misdeed is unavoidable or justified.

rationalization

In preparing your bank reconciliation, you notice that you notice that you recorded a deposit as $100 instead $10. You should ____.

subtract $90 from your cash and make an entry

Which principle of internal control enhances assurance that all transactions, checks and other business activities have been accounted for?

document procedures

Which principle of internal control enhances assurance that all transactions, checks, and other business activities have been accounted for?

document procedures

Some managers commit fraud because they are under great pressure to report a high net income to meet ____.

financial analysts' earnings forecasts shareholders' expectations loan covenant requirements

The 3 components of the ____ are incentive, opportunity and rationalization.

fraud triangle

A(n) ____ system controls the amount paid to others by limiting the total amount of money available for making payments.

imprest

Mandatory ____ is a policy that is established to make it difficult for fraudsters to cover up their theft while they are away.

vacation

A(n) ___ system is a process for approving and documenting all purchases and payments made on account.

voucher

A(n) ____ system is a process for approving and documenting all purchases and payments made on account.

voucher

Electronic funds transfers (EFT) discovered on the bank statement ____.

will need to be adjusted on your records because your cash balance is affected

Electronic funds transfers (EFT) discovered on the bank statement _____.

will need to be adjusted on your records because your cash balance is affected

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

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

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

This document indicates the date, quantity, and condition of the goods. It is then sent to the accounting department to notify so the purchase can be recorded.

receiving report

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.

receiving report

Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act?

Conceal Fund

Additional mechanisms of internal control include

-anonymous hotlines -bonding -mandatory vacations

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 of the bottom.

1. Request goods or service 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

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

A goal of the Sarbanes-Oxley Act is improving corporations' internal controls. Which of these may accomplish this goal?

An adult committee of independent directors oversees financial matters of the company Marketing managers must determine whether the marketing team is submitting accurate sales and expense reports External auditors must test the effective of the company's internal controls

____ is an insurance policy that partially reimburses a company for losses caused by employee fraud.

Bonding

If the cash collected is less than the amount per the cash register, then ____.

Cash Shortage is debited

If the cash collected is less than the amount per the cash register, then ___.

Cash shortage is debited

Which of the following reconciling items does not require a journal entry?

Deposit in transit

On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of the time lags?

Deposits in transit Outstanding checks

Bank reconciliations are needed to reconcile for ____.

Deposits in transit outstanding checks

Segregate duties Establish responsibilities Restrict access Document procedures Independent verify

Do not make one employee responsible for all parts of a process Assign each task to only one employee in order to allow one to determine who is at fault for an error or theft Do not provide access to assets or information unless it is needed to fulfill the assigned task Prepare documents to show activities that have occurred Check others' work

Which of the following reconciling items bank reconciliation need to be recorded in the company's record to adjust its cash balance so that it up to date?

EFT received from customers discovered on the bank statement Customer's check rejected by the bank as NSF Interest Revenue

Purchase requisition Purchase order Receiving report Supplier invoice

Ensures the request is made by someone who is approved to order goods or services of the type and amount requested Ensures the order is placed with an approved supplier at approved prices Is used to verify amounts ordered agree with the suppliers actual shipment Is used to ensure that the appropriate amount is paid for goods received

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

Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act?

Increase rationalization

Match the principle of internal control with the supervisor's internal control responsibility described.

Independent verification - The supervisor reconciles the cashier's count sheet to the cash collected Restrict access - The supervisor is responsible for keeping the cash safe and getting the cash to the bank Document procedures - The supervisor prepares a deposit slip Segregation of duties - The supervisor forwards the verified deposit slip to the accounting record to record the cash receipts

Which of the following would be added to your cash balance based on the information on your bank statement?

Interest deposited

Which of the following 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?

Interest income Services charges Electronic funds transfer

Which of these are cash equivalents?

Investments within 3 months to maturity Money market funds

Which of the following are true regarding a bank statement?

It includes interest earned It may include service charges It lists all checks that have cleared the bank It may include NSF checks

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

Establish responsibility Document procedures Segregate duties Independently verifies

Just one employee receives cash Cash receipts are summarized and their total is calculated A person different from whom receives the cash makes the deposit in the bank. A company manager compares the cash count sheets with the bank deposit slip

Operations Reporting Compliance Risk abatement

Objective is to ensure the efficient and effective completion of work and the protection of assets Objective is to produce reliable and timely accounting information Objective is to focus on adhering to laws and regulations This is not a objective

____ is one of the 3 components of the fraud triangle that relates to taking advantage of weak internal controls.

Opportunity

Which of the following is subtracted from the bank balance on a bank reconciliation?

Outstanding checks

_____ is one of the 3 fraud triangle components where the fraudsters perceive the misdeed is unavoidable of justified.

Rationalization

Control environment Risk assessment Control activities Information and communication Monitoring activities

Refers to helping people in the organization to understand the importance of internal control Refers to the continuous evaluation of the potential for fraud Refers to the work responsibilities and duties completed to reduce risks to an acceptable level Refers to the documentation of activities that promote effective internal controls Refers to the evaluation of internal controls to determine if they are working as intented

Control environment Risk Assessment Control Activities Monitoring Activities

Refers to the attitude of the people in the organization and their commitment to integrity evaluate the potential for fraud work responsibilities and duties completed to reduce risks to an acceptable level evaluating the internal control system to see if 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 purpose.

Restricted

The Sarbanes-Oxley Act contains measures aimed at reducing both opportunities and incentives to commit fraud. Which of the following are designed to reduce the opportunity for fraud?

Stronger oversight by directors Internal control report from management Internal control audit by external auditors

Independent Verification Document procedures Segregation of duties

The accounting department compares the cashier's count sheet to the cash register and to the bank deposit slip. The accounting department records a journal entry for the cash receipts. The accounting department does not have access to the cash.

What would cause a bank statement not to agree with the cash balance in the accounting records?

The bank made an error in recording a deposit made by the company. 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

Independent verification Restrict access Document Procedures Segregation of duties

The supervisor reconciles the cashier's count sheet to the cash collected The supervisor is responsible for keeping the cash safe and getting the cash to the bank. The supervisor prepares a deposit slip The supervisor forwards the verified deposit slip to the accounting record to record the cash receipts.

In a bank reconciliation, interest revenue earned on the bank account balance is ____.

added to the book 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

An EFT cash receipt from a customer is ____.

added to the cash balance

Fraud is best defined as:

an attempt to deceive others for personal gain

The 3 categories of employee fraud is ____.

asset misappropriation financial statement fraud corruption

A common principle of internal control is to ___.

assign each task to only one employee

Violating loan covenants could lead to ___.

being forced to put up extra collateral repaying the loan balance right away paying higher interest rates

In a bank reconciliation, interest revenue on the bank account balance is added to the ___ balance.

book

Fraudsters may rationalize their actions _________.

by convincing themselves their actions are justified as legitimate since they are underpaid through a feeling of personal entitlement

Which of the following poses a high risk of theft because of its high volume and ease of portability?

cash

Paying by check helps a business to control cash when the

checks are prenumbered and written sequentially Manager studies the documents supporting the payment before signing the check

When a check is presented to a bank for payment & the amount is deducted from the payer's account the check is said to have ________ the bank.

cleared

Which parts of the Sarbanes-Oxley (SOX) Act may encourage employees to be honest?

code of ethics Whistle-blower protection Anonymous tip lines

which of the following are limitation in internal control systems?

collusion can exist making it impossible to completely prevent fraud A control may not be implemented because the cost of the control may exceed the benefit of reducing the fraud or potential errors.

A weak system of internal ____ provides the ____ to commit fraud.

controls; oppportunity

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.

convenants

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.

convenants

When the cash count sheets for the day equal $10,100 and the cash register reports $10,200, the journal entry to record the sales will include a ____.

debit to Cash shortage

At the end of the day, the cashiers rung up sales of $5,000 and counted on the cash count sheets and deposited $5,100, the accounting department would make a journal entry for the day's sales that includes ____.

debit to cash for $5,100 credit to Cash overage of $100 credit to Sales Revenue of $5,000

The bank will show a customer's withdrawal as a ____.

debit, because a withdrawal decreases its liability from the bank's point of view

In a bank reconciliation, an outstanding check is ____.

deducted 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

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

A bank service charge should be a(n) ____ on a bank reconciliation.

deduction from the book balance

A ____ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts

direct

Assigning 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

Each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of:

establishing responsibility

Among the new requirements of SOX is those who willfully misrepresent financial results

face stiff fines and possible jail sentence

A check that you have written has cleared the bank when:

funds have been withdrawn from your bank account to cover the check

Incentives for committing fraud in order to satisfy personal greed include ____.

getting a bigger paycheck increasing personal wealth

outstanding checks are checks that ____.

have not cleared the bank as paid

A(n) _____ system controls the amount paid to others by limiting the total amount of money available for making payments.

imprest

A(n) ____ controls the amount paid to others by limiting the total amount of money available for making payments.

imprest system

If a company hires an auditor to check that the work done by others within the company is supported by documentation, this is part of the internal control procedure of ____.

independent verification

Fraudulent reporting by management could include:

mismatching revenues and expenses recording fictitious revenues from a phantom customer improper asset valuation

An incentive to commit fraud may be caused by managers who receive bonus payments based on the strength of the company's reported ____.

net income

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

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

To avoid duplicate payment, the voucher should be marked "____" as the final step in the voucher system.

paid

To avoid duplicate payment, the voucher should be marked "_____" as the final step in the voucher system.

paid

instead of a petty cash system, many companies use ____ which allow employees to purchase business-related items.

pcards

A bank ____ is an important control because it provides independent verification of all cash transactions the bank has processed for the company. This internal report should be prepared by an employee whose duties are separate from recording and handling of cash.

reconciliation

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 _____ principle of internal control requires the use of firewalls and passwords.

restrict access

____ 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

physically locking up assets and electronically securing access to other assets and information is required by the internal control principle of ____.

restricting access

How do banks help businesses control cash?

restricting access to cash independently verifying documenting procedures

Increasingly, the basic steps of the voucher system are performed using ___ process automation, which combines automation and artificial intelligence.

robotic

Increasingly, the basic steps of the voucher system are performed using ____ process automation, which combines automation and artificial intelligence.

robotic

Increasingly, the basic steps of the voucher system are performed using _____ process automation, which combines automation and artificial intelligence.

robotic

increasingly, the basic steps of the voucher system are performed using ___ process automation, which combines automation and artificial intelligence.

robotic

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

The principles underlying the internal control system include ____.

segregating duties restricting access independently verify documenting procedures establishing responsibility

In preparing your bank reconciliation, you notice that you recorded a deposit as $100 instead of $10. You should ____.

subtract $90 from your cash and make an entry

Service charges are ____ of a bank reconciliation.

subtracted from the book's balance

Services charges are ____ of a bank reconciliation

subtracted from the book's balance

NSF checks from customers should be a _____ on a bank reconciliation

subtraction from the book balance

NSF checks from customers should be a(n) ____ on a bank reconciliation.

subtraction from the book balance

"NSF" checks stands for "not _____ funds"

sufficient

Deposits in _____ are added to the _____ (bank/book) side of the bank reconciliation

transit and bank