Ch 6

Question 0

2 fundamental principles of internal control applicable to cash?

Answer 0

All cash receipts deposited intact daily

All cash payments made by check

Question 1

Cash Equivalent

Answer 1

Investment readily convertible to a known amount of cash

Has original maturity to investor of 3 months or less

Question 2

Bank statement

Answer 2

Used for internal control of company

Detailed list, provided by bank of all activity for
A particular account during the month

Question 3

Outstanding check

Answer 3

Check written by company but not yet presented

To bank for payment

Question 4

Deposit in transit

Answer 4

Deposit recorded on books, but not yet reflected

In bank statement

Question 5

Bank reconciliation

Answer 5

Form used by the accountant to reconcile or resolve
Differences btw the balance shown on bank statement
For particular account with balance shown in accounting records

Question 6

5 steps in preparing a bank reconciliation?

Answer 6

1 list deposits in transit
2 prepare list of outstanding checks
3 prepare list of credit memoranda
4 prepare list of debit memoranda
5 identify errors

Question 7

Credit memoranda

Answer 7

Additions on bank statement for such items as
Interest paid on account and
Notes collected by bank for customer

Question 8

Debit memoranda

Answer 8

Deductions on bank statement for items such as NSF checks

And various service charges

Question 9

NSF check

Answer 9

Stands for not sufficient funds

Question 10

Petty cash fund

Answer 10

Money kept on hand for making minor disbursements

In coin and currency rather than writing checks

Question 11

Internal control system

Answer 11

Policies and procedures necessary to safeguard entity’s assets,
Reliability of accounting records and accomplishment
Of overall company objectives

Question 12

Sarbanes-Oxley Act, of 2002

Answer 12

Intended to reform corporate accountability and

Stewardship in wake of major corporate scandals

Question 13

Internal control report

Answer 13

Report required by section 404 of Sarbanes Oxely
That needs to be included in company’s annual report
Where management assesses effectiveness of internal
Control structure

Question 14

Public Company Accounting Oversight Board (PCAOB)

Answer 14

5-member body created by SOX Act that was given

Authority to set auditing standards in the US

Question 15

Board of Directors

Answer 15

Group composed of key officers of corporation and
Outside members responsible for general oversight
Of affairs of the entity

Question 16

Audit committee

Answer 16

Board of directors subset that acts as direct contact

Btw the stockholders and independent accounting firm

Question 17

Accounting system

Answer 17

Methods and records used to accurately report an entity’s
Transactions and to maintain accountability of assets and
Liabilities

Question 18

Administrative controls

Answer 18

Procedures concerned with efficient operation of business

And adherence to managerial policies

Question 19

Accounting controls

Answer 19

Procedures concerned with safeguarding the assets

And reliability of financial statements

Question 20

Segregation of duties

Answer 20

Have employees perform various tasks to avoid cheating

And errors

Question 21

Independent verification

Answer 21

Work on one department should act as check on another

Question 22

Proper authorization

Answer 22

Management grants specific departments authority to

Perform various tasks

Question 23

6 most important internal control procedures?

Answer 23

Proper authorizations
Segregation of duties
Independent verification 
Safeguarding assets and records
Independent review and appraisal
Design and use of business documents

Question 24

Internal audit staff

Answer 24

Department responsible for monitoring and evaluating

The internal control system

Question 25

Design and use of business documents?

Answer 25

Business documents or source documents
Need to be designed to capture relevant economic information
So it is properly classified and organized