AC chapter 5
One of the components of an internal control system is the control environment which refers to the
attitude employees hold regarding internal control
the benefits of internal control procedures are that they
enhance the reliability of accounting information, improve the efficiency and effectiveness of operations, and protect against theft of assets
Do not make one employee responsible for all parts of a process
segregate duties
Fraudulent reporting by management includes
mismatching revenues and expenses improper asset valuation recording fictitious revenues from a phantom customer
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
Ensures the order is placed with an approved supplier at approved prices
purchase order
Is used to verify amounts ordered agree with the suppliers actual shipment.
receiving report
Is used to ensure that the appropriate amount is paid for goods received
supplier invoice
Deposits in transit have already been ______.
added to your cash balance per your books and not to the bank balance
Deposits in transit occur when you make a deposit
after the bank's normal business hours
Which of the following are limitations 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
refers to the work responsibilities and duties completed to reduce risks to an acceptable level
control activities
3 categories of employee fraud
corruption, asset misappropriation, financial statement fraud
assign each task to only one employee in order to allow one to determine who is at fault for an error or theft
establish responsibility
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, electronic funds transfers, service charges
The risk assessment component in a system of internal controls refers to the assessment of the
potential for fraud
A bank reconciliation is an
internal report prepared to compare the company's cash records with the bank statement
Why might a bank statement and the company's records differ?
Deposits were made at the end of the bank statement date in an ATM; Customer checks that bounced (NSF); Not all checks written cleared the bank
The ______ component of an internal control system refers to the evaluation of internal controls to identify deficiencies. Multiple choice question.
monitoring activities
refers to the evaluation of internal controls to determine if they are working as intended
monitoring activities
objectives of the SOX act
reduce opportunities for fraud, counteract incentives for fraud, and encourage good character
refers to the continuous evaluation of the potential for fraud
risk assessment
Internal control for cash is important because..
the risk of cash-handling errors is significant; of the high risk of theft; of the large volume of cash transactions; cash is portable and is "owned" by whomever possesses it
Ensures the request is made by someone who is approved to order goods or services of the type and amount requested
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
While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true
An adjusting entry must be made to debit Accounts payable and credit Cash for $45.
One of the components of an internal control system is "control activities" which refers to the activities
completed by employees to reduce risks to an acceptable level
Bank reconciliations are needed to reconcile for ______
outstanding checks and deposits in transit
Which of the following control components are part of the framework used when analyzing an internal control system?
risk assessment control activities information and communication monitoring activities control environment
refers to helping people in the organization to understand the importance of internal control
control environment
refers to the documentation of activities that promote effective internal controls
information and communication
