ACC Quiz 4

Bank's cash balance at Nov 30 (before adjustments) $6,500 Company's cash balance at Nov 30 (before adjustments) $7,025 Interest earned on bank account $25 Bank service charges $50 Deposits-in-transit $1,800 NSF check $250 Outstanding checks $1,550 After preparing its bank reconciliation, what is the adjusted cash balance the company should report in its accounting records at Nov 30?

7025 + 25 (Interest) - 50 (service charge) - 250 (NSF) = 6750

Which company asset is most often involved with fraudulent activities?

Cash

Which items are included in Cash and Cash Equivalents total on the balance sheet?

Currency and coins Savings account balances Checking account balances Checks received from customers but not yet deposited as of the balance sheet date Short-term investments with a maturity date less than three months from the date of purchase

A customers credit card information is encrypted so that only authorized personnel can access it

E-Commerce Control

When an employee is first hired, they are given clear instructions regarding the company's internal control procedures as well as how to report any irregular activities the employee discovers

Employee management

The ethical tone set by a company's top management rarely has any effect on a company's internal control environment. T/F?

False

A company issues common stock for cash

Financing activity Inflow of cash

A company pays back the principal on a bank loan evidenced by a promissory note

Financing activity Outflow of Cash

Companies should have more internal control procedures in place to:

Improve the accuracy and reliability of accounting information safeguard the company's assets

A company sells land previously used in its business for cash

Investing activity Inflow of cash

A company makes a cash purchase of land to be used in its business

Investing activity Outflow of cash

A company collects cash from a sale of inventory

Operating activity Inflow of cash

A company pays for supplies it previously purchased on account

Operating activity Outflow of cash

Which element of the fraud triangle does a company have the greatest influence and ability to eliminate?

Opportunity

Warehouse employees are required to have their personal items scanned by a machine before they can leave the warehouse

Physical controls

Which type of control activity is designed to keep errors or fraud from occurring?

Preventive Controls

The company physically counts its inventory at the end of each year and compares the physical count to its accounting records.

Reconciliations

The company's inventory buyer places orders but a different person pays for the orders

Separation of duties

Which of these activities would be an example of preventive control activity rather than detective control activity?

Separation of duties Physical controls Proper authorization Employee management E-commerce controls

Which financial statement summarizes a company's cash receipts and cash disbursements for a period of time?

Statement of Cash Flows

On its bank reconciliation for the month of December, Pack Corp. noted its bank collected on a note receivable due from one of Pack's customers. A total of $550 was collected out of which $500 represented principal and $50 represented interest.

The "Note Receivable" account should be credited for $500. (Decreasing the notes receivable account because the money was already collected at the end of the month) The "Interest Revenue" account should be credited for $50.

On its bank reconciliation for the month of December, Pack Corp. noted that it had made an accounting error. It recorded the cash receipt from a sale to a customer as $95 instead of the actual amount of $59.

The "Sales Revenue" account should be debited for $36. In its original entry, the company debited Cash and credited Sales Revenue for $95. This is $36 too much. Both the Cash and Sales Revenue account balances are overstated by $36. To correct this error, the company should debit Sales Revenue and credit Cash for $36.

Which control has the greatest chance of leading to errors or fraud?

The company picks up mail daily from the post office but requires it to be opened only weekly

Which procedure has the greatest chance of leading to errors or fraud?

The company requires employees who are allowed to make cash disbursements to also be in charge of cash receipts.

Which statements are true about internal controls?

The components of internal control are built on the foundation of the ethical tone set by top management. Fraud is committed by top level employees is more difficult to detect because those employees more often have the ability to override internal control procedures

One of the major provisions of the Sarbanes-Oxley Act (SOX) requires a company's outside auditors to express an opinion on whether management's assessment of the effectiveness of their internal controls is fairly stated. T/F?

True

The Sarbanes-Oxley Act applies to all companies required to file their financial statements with the SEC. T/F?

True