Ch 6: cash, fraud, internal controls

Question 1

an internal control system is policies and procedures used to

Answer 1

-protect assets
-ensure reliable accounting
-promote effienct operations
-uphold company policies

Question 2

sarbanes oxly act

Answer 2

requires documentation and verification of internal controls and emphasizes effective
internal controls. Managers must attest to internal controls.

Question 3

what are the 7 principles of internal control

Answer 3

1- establish reponsibilites

2-maintain adequate records

3- insure assets and bond key employees

4-seperate record-keeping from custody of assets

5-divide responsibility for related transactions

6- apply technological controls

7- perform regular and independent reviews

Question 4

1- establish responsibilites

Answer 4

responsibility for a task should be assigned to one person. if responsibility is not established, determining who is at fault is difficult

Question 5

2- maintain adequate records

Answer 5

good recordkeeping helps protect assets and helps managers monitor company activtieis

Question 6

3-insure assets and bond key employees

Answer 6

assets should be insured against losses, and employees handling lots of cash and easily transferable assets should be bonded

Question 7

4-separate record-keeping from custody of assets

Answer 7

a person who controls or has access to an asset, must not have access to that assets accounting records

Question 8

5-divide responsibility for related transactions

Answer 8

responsibility for a transaction should be divided btw 2 or more individuals or departments

(One person’s work is a check on the others to prevent
errors. This is not duplication of work.)

(separation of duties)

Question 9

6-apply technological controls

Answer 9

use technology such as id scanners to protect assets and improve control

Question 10

7-perform regular independent reviews

Answer 10

regular review of internal controls should be performed by outside reviers, preferably auditors

Question 11

blockchain

Answer 11

viewed as a new more secure type of accounting ledger

Question 12

liquidity

Answer 12

companies ability to pay for its current liabilitys

Question 13

liquid assets

Answer 13

assets that can be readily used to pay for liabilities

ex: cash

Question 14

cash

Answer 14

currency, coins, checks, and deposits in bank accounts

also includes idtemas that can be deposited into these accs such as customer checks

Question 15

cash equivilents

Answer 15

short term highly liquid assets meeting 2 criters

1-readiliy convertavle to a known cash amt

2-close enough to their due data so that thier market value will not greatly change (within 3 months)

ex: treasury bills

Question 15

goals of cash management

Answer 15

1- plan cash recepits to meet cash payments when due

2-keep a minimum level of cash necessary to operate

Question 16

Cash account

Answer 16

Basic guidelines for control of cash and cash equivalents include: handling of cash must be separate from
recordkeeping of cash, cash receipts are promptly deposited in bank, and payments of cash are by check.

Includes currency, coins, checks and deposits in bank accounts.

Question 17

what account is used to determine the over or short differences in cash

Answer 17

cash over and short

Question 18

what is cash over and short debited vs creditied

Answer 18

D- when the actual cash is less

C- when actual cash is more

Question 19

voucher system

Answer 19

a set of procedures and approvals designed to control cash payemnts and the acceptance of liabiliies

Question 20

petty cash

Answer 20

small amounts of cash in a fund to pay for minor expenses such as shipping fees or minor repairs

Question 21

Entry to set up a petty cash fund

Answer 21

D-petty cash
C-cash

Question 22

increasing or decreasing petty cash fund

Answer 22

inc
D-petty cash
C-cash

dec
D-cash
C-petty cash

Question 23

what does bank statement include

Answer 23

-beginging period acc balance
-withdrawls/other dec to acc
-deposits/other inc to acc
-end of period balance

Question 24

bank reconciliation

Answer 24

Report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement

Question 25

bank balance adjustments

Answer 25

-deposits in transit (add)
-outstanding check (sub)
-bank errors (add/sub)

Question 26

book balance adjustments

Answer 26

-interest earned and unrecorded cash receipts (add)

-bank fees (sub)

-nsf checks (sub)

-book errors (add/sub)

Question 27

entries of bank recononickation

Answer 27

-collection of note
-interest earned
-bank fees
-nsf checks

Question 28

signiture card

Answer 28

Used by bank employees to verify signatures on checks.

Question 29

Deposit ticket

Answer 29

Lists items such as currency and checks along with their dollar amounts.

Question 30

Check

Answer 30

Signed by the depositor instructing the bank to pay a specified amount of money to a designated recipient.

Question 31

entry for bank rec numbers

Answer 31

D-Cash
C-whatever acc

Question 32

cash budget

Answer 32

summarizes the projected cash payments and cash receipts.

Question 33

transportation in is what account

Answer 33

merchanise inventory

Question 34

Receiving report

Answer 34

Notifies employees that ordered goods have been received, and describes the quantity and condition of the goods.

Question 35

Purchase requisition

Answer 35

Notifies the purchasing department of items that should be purchased.

Question 36

purchase order

Answer 36

Used by the purchasing department to place an order with a supplier.

Question 37

Invoice approval

Answer 37

. A required checklist of steps for approving an invoice for recording and payment.

Question 38

B. A document prepared by the vendor that includes details such as the items sold, sales prices, terms of sale, and customer name.

Answer 38

invoice

Question 39

An internal file used to store documents and information to control cash payments and to ensure that a transaction is properly authorized and recorded.

Answer 39

voucher

Question 40

(cosco) Evaluation of internal control effectiveness by external auditors.

Answer 40

monitoring

Question 41

Implementation of procedures to reduce risk of loss. (cosco)

Answer 41

control activities

Question 42

Executive management promotes ethics and integrity of its internal control

Answer 42

Control environment

Question 43

Reporting of control effectiveness to mid-level managers.

Answer 43

infromation and communication