Accounting Chapter 4-SB
In bank reconciliation, which of the following will require a journal entry by the company
- Adjustments to the balance per books discovered on the bank reconciliation that were not yet recorded on the books
Internal control procedures for the cash disbursements (other than small disbursements from petty cash) should include that
- All expenditures are authorized - All disbursements are made by check, debit or credit card - Checks are signed by authorized Individuals
Paying by check helps a business to control cash when the
- Checks are prenumbered and written sequentially - Check is signed by an authorized manager
Internal Control Checks
- Checks should be sequentially prenumbered - Checks for large amounts should require two signatures
Which of the following Items are classified as cash Inflows from operating activities on the statement of cash flows
- Collections of an accounts receivable - Interest received on notes received
The bank will show a customer deposit on bank statements as a
- Credit because a deposit is a liability from the banks point of view
Entries effect a company's cash flows
- Debit supplies; Credit cash - Debit rend expense; credit cash
Detective Control examples
- Performance reviews - Reconciliations - Audits
Following are examples of preventive controls
- Physical controls - Separation of duties
Two types of control activities
- Preventative and detective controls
Provisions of Sarbanes-Oxley act
- Require that audit firms are hired by the audit committee of the board of directors - Require auditors to return work papers for 7 years
Key provisions of the Sarbanes-Oxley act:
- Requiring that the company executives certify financial statements - Restricting activities of auditors to prevent conflicts of interest - Requiring documentation and assessing effectiveness of internal controls
When adjusting the companies cash account balance in a banks reconciliation, which items reduce the company's cash account balance
- Service Charges - Charges for NSF checks
Causes 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 company made an error in recording a deposit - The bank paid interest that a company has not recorded - Deposits outstanding that have been recorded on the company's records, but not on the banks
The components if internal control are
- based on the ethical tone set by management
Steps necessary to reconcile
1. Adjust banks cash balance 2. Adjust the company's cash balance 3. Record Items that reconcile the companies cash balance
Effective internal control over cash requires segregation of duties, what should be segregated
1. Opening the mail and deposit of checks in the bank 2. Depositing checks into the bank and recording receipts of accounting records
Internal Control Consists of
1. Safeguard to companies assets 2. provide accurate and reliable accounting information
Not included in cash
Accounts receivable from customers
_________________ ________________ that have been recorded in the company's accounting records but are not yet recorded by the bank are called
Checks outstanding
When adjusting companies cash account balance in a bank reconciliation, which item must be added to the cash account balance
Collections of funds by the bank
Components of Internal Control
Control Environment Monitoring Risk Assessment Control Activities
Cash receipts that have been recorded in a company's accounting records but are not yet recorded by the bank
Deposits outstanding
When adjusting a bank balance in a bank reconciliation, which item must be added to the bank balance
Deposits outstanding
The entry for a sale to customers is different depending on whether the customer pays with cash or a check
False
Control Environment
Formal Policies related to managements philosophy's, assignment of responsibilities and organization structure
Risk Assessment
Identifies and analyzes factors that could prevent objectives from being achieved
A key factor in helping safeguard cash is a well functioning
Internal control system
Final Responsibility for internal controls
Management
The most common source of occupational fraud is:
Misuse of the companies resources
When adjusting the bank balance in bank balance in bank reconciliation, which item must be subtracted from the bank balance
Outstanding checks
One of the most important internal controls for cash is
Reconcilation
Preparation of a bank ________ helps maintain control of cash accounts
Reconciliation
Deposits outstanding
added to the bank balance
A bank reconciliation reconciles the bank statement with companies
cash account in the balance sheet
When two or more persons work together to circumvent internal control procedures and commit a fraud, this is called
collusion
Framework for designing of internal control
committee of sponsoring Organizations (COSO) of the Treadway commissions
The Sarbanes-Oxley Act applies to:
companies that are required to file with SEC
Internal control components are built on the foundation of the ___________ tone established by the management in its control
ethics
monitoring
includes formal procedures for reporting control deficiencies
control activities
policies and procedures that help ensure managements directives are being carried out
Outstanding Checks
subtracted from the bank balance
Charges for NSF checks
subtracted from the book balance
Service Charges
subtracted from the book balance
Who is responsible for providing an opinion on managements assessment of internal controls
the companies auditors
The components of internal control are based off
the ethical tone set by management