Chapter 5

Question 1

The Serbanes-Oxley Act provides increased regulations for ___.

Answer 1

internal controls
auditors
corporate executives

Question 2

The mail-rem clerk recording cash receipts in a journal is an example of a

Answer 2

weak internal control

Question 3

A compay has a $10,000 cash balance per its books. The bank statement has a balance of $9,580. The bank reconciliation included $800 of deposits-in transits, $500 of checks outstanding, a $100 NSF check from a customer, and a $20 bank service charge. Given the following reconciling items, the up-to-date cash balance equals ___.

Answer 3

$9,880

Question 4

Control: Objective is to ensure the efficient and effective completion of work and the protection of assets

Answer 4

Operations

Question 5

Control: Objective is to produce reliable and timely accounting info

Answer 5

Reporting

Question 6

Control: Objective is to focus on adhering to laws and regulations

Answer 6

Compliance

Question 7

Typical reconciling items the bank would not know about due to time lags. ___ ___

Answer 7

Outstanding checks

Deposits in transit

Question 8

T or F: Committing financial fraud can result in stiff penalties, including fines and jail time.

Answer 8

True

Question 9

This month’s bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation?

Answer 9

It would be added to the BOOK balance.

Question 10

Internal Control: Do not make one employee responsible for all parts of a process.

Answer 10

Segregate duties

Question 11

Internal Control: Assign each task to only one employee in order to allow one to determine who is at fault for an error or theft.

Answer 11

Establish responsibilities

Question 12

Internal Control: Do not provide access to assets or info unless it is needed to fulfill the assigned task.

Answer 12

Restrict access

Question 13

Internal Control: Prepare documents to show activities that have occurred.

Answer 13

Document procedures

Question 14

Internal Control: Check other’s work

Answer 14

Independent verify

Question 15

Fraudulent reporting by management includes ___ ___ ___.

Answer 15

mismatching revenues and expenses
improper asset valuation
recording fictitious revenues from a phantom customer

Question 16

An incentive to commit fraud may be caused by managers who receive bonus payments based on the strength of the company’s reported ___

Answer 16

net income

Question 17

Components of the fraud triangle

Answer 17

rationalization
incentive
opportunity

Question 18

A ___ system id a process for approving and documenting all purchases and payments made on account.

Answer 18

voucher

Question 19

How do banks help businesses control cash? ___ ___ ___

Answer 19

restricting access to cash
independently verifying
documenting procedures

Question 20

Good internal controls for cash receipts that should be performed by a supervisor include ___ ___ ___

Answer 20

comparing cash in registers w/ cash count sheets
restricting access to cash by locking it up
completing bank deposits

Question 21

While preparing the bank reconciliation for March the accountant discovered that a $694 check in payment on account payable had been entered incorrectly in the journal as $649. An adjusting entry must be made to ___

Answer 21

debit Accounts payable and credit Cash for $45.

Question 22

Good internal control for cash receipts to be performed b the accounting department should include ___ ___

Answer 22

comparing cash register sales w/ the cash count sheets and bank deposit slip
recording the cash receipts in the journal

Question 23

Control Components: refers to the attitude of the people in the organization and their commitment to integrity

Answer 23

control environment

Question 24

Control Components: evaluate the potential for fraud

Answer 24

risk assessment

Question 25

Control Components: work responsibilities and duties completed to reduce risks to an acceptable level

Answer 25

control activities

Question 26

Control Components: evaluating the internal control system to see if working as intended

Answer 26

monitoring activities

Question 27

A company has $8,000 cash balance per it’s books. The bank statement has a balance of $8,450. The bank reconciliation included $800 of deposits-in-transits, $500 of checks outstanding, EFTs of $1,000 were received from customers, a $200 NSF check from a customer, and a $50 bank service charge. The up-to-date cash balance equals ___

Answer 27

$8,750

Question 28

The quality of financial reporting for publicity traded companies is improved through ___ ___

Answer 28

obtaining an external audit

evaluating and reporting on the effectiveness of internal controls

Question 29

In a bank reconciliation, interest revenue earned on the bank account balance is ___.

Answer 29

added to the book balance