Accounting exam 2 questions

Which of the following provisions of the SOX act aim to encourage honesty and the reporting of dishonest acts?

-Code of ethics -anonymous tip lines -whistle-blower protection

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

a weak system of internal ______ can lead to fraudulent financial reports. These procedures and policies help ensure that information entered into the accounting system and reported in the financial statements is accurate and complete.

controls

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.

covenant

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 responsibilities

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

imprest

The entry to record the replenishment of the petty cash fund involves debiting _______ and crediting ______.

expense accounts; cash

The Sarbanes-Oxley (SOX) Act provides increased regulations for

1. Internal Controls 2. Auditors 3. Corporate executives

Firing employees if they are not meeting a certain performance target _____ the risk that others will commit fraud in the future

increases

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 known as

independent verification

which of the following are components of the fraud triangle?

rationalization, incentive and opportunity

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.

Which of the following are limitations in internal control systems?

-A 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.

Which of the following are elements of good internal control over cash receipts?

-A different employee deposits the cash at the bank -two employees cannot share the same drawer -cash receipts are summarized and their total is calculated

If a cashier rang up sales totaling $5,096, but had $5,100 to deposit. Which journal entry would be recorded?

A debit to cash of $5,100; a credit to cash overage of $4; and a credit to sales revenue of $5,096.

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

the definition of EFT is

Electronic funds transfer

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

NSF checks are the same as

Non-sufficient funds checks and bounced checks

A difference between an imprest payroll and petty cash is petty cash is _____

Not held at the bank. -The main difference between the two is that rather than transfer funds from a general bank account to another special account at the bank, the company removes cash from its general bank account to hold at its premises in a locked cash box.

The entry to record the establishment of a petty cash fund is a debit to ______ and a credit to _______

Petty cash; Cash

Bank reconciliations are needed to reconcile for

outstanding checks and deposits in transit

Restricted cash is reported _____

separately as an asset on the balance sheet

Physically locking up assets and electronically securing access to other assets and information is required by the internal control principle of _____

restricting access

Petty cash payments are recorded in the accounting system's ledger when

the petty cash fund needs to be replenished

the Sabanes-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?

-Internal control audit by external auditors -internal control report from management -stronger oversight by directors

Which of the following are the steps involved in a petty cash system?

-Putting money into petty cash to establish a fund -paying money out to reimburse others -replenishing the petty cash fund

How do banks help businesses control cash?

-Restricting access to cash -documenting procedures -independently verifying

Additional mechanisms of internal control include

-anonymous hotlines -bonding -mandatory vacations

The three categories of employee fraud are

-corruption -asset misappropriation -financial statement fraud

SOX reduces the opportunities for fraud by requiring publicly-traded companies to

-establish an audit committee of independent directors -have external auditors evaluate the companies' internal controls -evaluate and report on its internal controls

Incentives for committing fraud in order to satisfy personal greed include

-increasing personal wealth -getting a bigger paycheck

Which of these are cash equivalents

-money market funds -investments within 3 months of maturity

The quality of financial reporting for publicly traded companies is improved through

-obtaining an external audit -evaluating and reporting on the effectiveness of internal controls

Good internal controls for cash receipts that should be performed by the accounting department should include

-recording the cash receipts in the journal -comparing cash register sales with the cash count sheets and bank deposit slip

To segregate duties involving cash receipts, specific responsibilities are assigned to various employees. Put the following steps in the correct chronological order listing the first step at the top.

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 the cashier's shift 3. Members of the accounting department are responsible for ensuring that cash sales are properly recorded.

The Sarbanes-Oxley (SOX) Act aims to reduce fraud by

1. Counteract incentives 2. reducing opportunities 3. encouraging honesty in employees

A _______ system is a process for approving and documenting all purchases and payments made on account.

Voucher

Deposits in transit are _____ on a bank reconciliation.

added to the bank 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

If a cashier rang up sales totaling $4,000, but only had $3,997 to deposit, which journal entry would be recorded?

cash of $3,997, cash shortage of $3, and a credit to sales revenue of $4,000.

The bank will show a customer's deposit on bank statements as a ____.

credit, because a deposit is a liability from the bank's point of view.

Anonymous information about questionable accounting matters sent to the audit committee through tip lines

decreases the risk of fraud

In a bank statement, an outstanding check is

deducted from the bank balance

a bank service charge should be a ______ on the bank reconciliation

deduction from the book balance

A _______ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employee's bank accounts.

direct

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

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

-shareholders' expectations -loan covenant requirements -financial analysts' earning forecastsf

Fraudsters may rationalize their actions _________.

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

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

face stiff fines and possible jail sentence

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

-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 reports. -external auditors must test the effectiveness of the company's internal controls.