ACCT 2010 Chapter 5 LC
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 (ABC should also call the bank and report the error)
this month's bank statement includes a check from a customer that was marked NSF. how would this item be treated on the bank reconciliation?
it would be deducted from the BOOK balance
this month's bank statement shows interest earned of $45. how would this item be treated on the bank reconciliation?
it would be added to the BOOK balance
which of the 3 components of the fraud triangle is best exemplified by fraudsters convincing themselves that they are justified in committing the fraud?
rationalization
"NSF" checks stands for "non-_____ funds"
sufficient
fraudulent reporting by management includes _____
- improper asset valuation - mismatching revenues and expenses - recording fictitious revenues from a phantom customer
match the principle of internal control with the accounting department's internal control responsibility described
- independent verification: the accounting department compares the cashier's count sheet to the cash register and to the bank deposit slip - document procedures: the accounting department records a journal entry for the cash receipts - segregation of duties: the accounting department does not have access to the cash
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 - restricted 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
how do banks help businesses control cash?
- independently verifying - documenting procedures - restricting access to cash
Why might a bank statement and the company's records differ?
- not all checks cleared the bank - deposits were made at the end of the bank statement date in an ATM - customer checks that bounced (NSF)
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
which of the following is not a significant objective of the Sarbanes-Oxley (SOX) Act?
conceal fraud
if the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown on the bank reconciliation as a(n) _____
$27 deduction from the book balance
Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. given the bank reconciliation shows outstanding checks of $3,000; deposits in transits of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals _____
$9,910
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 each cashier's shift 3. members of the accounting department are responsible for ensuring that cash sales are properly recorded
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 $250 bank deposit made on the last day of the month did NOT appear on this month's bank statement. How would this item be treated on the bank reconciliation?
It would be 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
deposits in transit have already been _____
added to your cash balance per your books and not to the bank balance
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 at $649. which of the following is true?
an adjusting entry must be made to debit accounts payable and credit cash for $45
in a bank reconciliation, interest revenue on the bank account balance is added to the _____ balance
book (the bank has already added the interest revenue into its balance; the book balance needs to be adjusted by adding the interest earned per the bank statement)
the _____ is used to document the amount of cash collected and available for deposit at the bank
cash count sheet
if the cash collected is less than the amount per the cash register, then _____
cash shortage is debited (the debit to cash (a) will be less than the credit to sales revenue (se) so the difference is debited to cash shortage (+e, -se))
when a check is presented to a bank for payment and the amount is deducted from the payer's account, the check is said to have _____ the bank
cleared
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
your customer's NSF check found on the bank statement is a reconciling item on a bank reconciliation and will need to be ____
deducted from the cash balance in your accounting records
outstanding checks written by the company should be a(n) _____ on the company's bank reconciliation
deduction from the bank balance
a _____ deposit is initiated by an EFT instructing a bank to transfer pay due to 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
among the new requirements of SOX is those who willfully misrepresent financial results _____
face stiff fines and possible jail sentence
outstanding checks are checks that _____
have been written but have not yet cleared the bank
anonymous _____ allow anyone to tip off independent auditors about suspected fraud
hotlines
a(n) _____ system controls the amount paid to others by limiting the total amount of money available for making payments
imprest
an incentive to commit fraud may be caused by managers who receive bonus payments based one the strength of the company's reported _____
net income
_____ 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
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
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
_____ of duties is essential for safeguarding assets. the person who has custody of an asset should not also account for the asset. a person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records
segregation
a cash _____ occurs when the total of the cash receipts for the petty cash expenditures plus the remaining cash is less than the original amount in the petty cash box
shortage
EFT stands for "electronic fund _____"
transfer
a(n) _____ system is a process for approving and documenting all purchases and payments made on account
voucher
which parts of the Sarbanes-Oxley (SOX) Act may encourage employees to be honest?
- code of ethics - anonymous tip lines - whistle-blower protection
match the component of an internal control system with the appropriate description
- control environment: refers to helping people in the organization to understand the importance of internal control - risk assessment: refers to the continuous evaluation of the potential for fraud - control activities: refers to the work responsibilities and duties completed to reduce risks to an acceptable level - information and communication: refers to the documentation of activities that promote effective internal controls - monitoring activities: refers to the evaluation of internal controls to determine if they are working as intended
the Sarbanes-Oxley (SOX) Act aims to reduce fraud by _____
- counteract incentives - reducing opportunities - encouraging honesty in employees
the entry to record putting money into a petty cash fund includes which of the following?
- credit cash - debit petty cash
the principles underlying the internal control system include _____
- documenting procedures - segregating duties - restricting access - independently verify - establishing responsibility
match the steps in a voucher system with the appropriate control principle
- establish responsibility: ensure that purchase requisition are made by employees approved to make purchases - document procedures: prepare a receiving report as proof of receipt of purchases - segregate duties: accounting department prepares the journal entry, not the purchasing department
match the internal control principle associated with each activity
- establish responsibility: just one employee receives cash - document procedures: cash receipts are summarized and their total is calculated - segregate duties: a person different from whom receives the cash makes the deposit in the bank - independently verifies: a company manager compares the cash count sheets with the bank deposit slip
what are reasons internal controls can never completely prevent and detect errors and fraud?
- human error - collusion - costs exceed benefits
an internal control system consists of actions taken to achieve objects. match the appropriate description with each objective of an internal control system
- operations: objective is to ensure the efficient and effective completion of work and the protection of assets - reporting: objective is to produce reliable and timely accounting information - compliance: objective is to focus on adhering to laws and regulations - risk abatement: this is not an objective
which of the following are the steps involved in a petty cash system?
- paying money out to reimburse others - putting money into petty cash to establish a fund - replenishing the petty cash fund
which of the following duties should NOT be the responsibility of an employee who has access to cash?
- perform bank reconciliations - record cash collected in the journal
match the document with the proper description
- purchase requisition: ensures the request is made by someone who is approved to order goods or services of the type and amount requested - purchase order: ensures the order is placed with an approved supplier at approved prices - receiving report: is used to verify amounts ordered agree with the suppliers actual shipment - supplier invoice: is used to ensure that the appropriate amount is paid for goods received
which of the following are components of the fraud triangle?
- rationalization - opportunity - incentive
violating loan covenants could lead to _____
- repaying the loan balance right away - being forced to put up extra collateral - paying higher interest rates
