Chapter 5 Flashcards
The Serbanes-Oxley Act provides increased regulations for ___.
internal controls
auditors
corporate executives
The mail-rem clerk recording cash receipts in a journal is an example of a
weak internal control
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 ___.
$9,880
Control: Objective is to ensure the efficient and effective completion of work and the protection of assets
Operations
Control: Objective is to produce reliable and timely accounting info
Reporting
Control: Objective is to focus on adhering to laws and regulations
Compliance
Typical reconciling items the bank would not know about due to time lags. ___ ___
Outstanding checks
Deposits in transit
T or F: Committing financial fraud can result in stiff penalties, including fines and jail time.
True
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.
Internal Control: Do not make one employee responsible for all parts of a process.
Segregate duties
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.
Establish responsibilities
Internal Control: Do not provide access to assets or info unless it is needed to fulfill the assigned task.
Restrict access
Internal Control: Prepare documents to show activities that have occurred.
Document procedures
Internal Control: Check other’s work
Independent verify
Fraudulent reporting by management includes ___ ___ ___.
mismatching revenues and expenses
improper asset valuation
recording fictitious revenues from a phantom customer
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
Components of the fraud triangle
rationalization
incentive
opportunity
A ___ system id a process for approving and documenting all purchases and payments made on account.
voucher
How do banks help businesses control cash? ___ ___ ___
restricting access to cash
independently verifying
documenting procedures
Good internal controls for cash receipts that should be performed by a supervisor include ___ ___ ___
comparing cash in registers w/ cash count sheets
restricting access to cash by locking it up
completing bank deposits
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 ___
debit Accounts payable and credit Cash for $45.
Good internal control for cash receipts to be performed b the accounting department should include ___ ___
comparing cash register sales w/ the cash count sheets and bank deposit slip
recording the cash receipts in the journal
Control Components: refers to the attitude of the people in the organization and their commitment to integrity
control environment
Control Components: evaluate the potential for fraud
risk assessment
Control Components: work responsibilities and duties completed to reduce risks to an acceptable level
control activities
Control Components: evaluating the internal control system to see if working as intended
monitoring activities
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 ___
$8,750
The quality of financial reporting for publicity traded companies is improved through ___ ___
obtaining an external audit
evaluating and reporting on the effectiveness of internal controls
In a bank reconciliation, interest revenue earned on the bank account balance is ___.
added to the book balance
