Chapter 6 Flashcards
Regulatory authority for internal control requirements is provided by The ______.
Sarbanes-Oxley Act
Treadway Commission
American Accounting Association
Institute of Certified Public Accountants
Sarbanes-Oxley Act
Examples of separation of duties include ______.
using one person to approve a sales return and a different person to issue a credit to the customer
having two pilots complete the same checklist
having a personnel manager who is also in charge of payroll
requiring passcode entry of two individuals to authorize the launch of a nuclear weapon
using one person to approve a sales return and a different person to issue a credit to the customer
True or false: Ongoing training programs are essential to the maintenance of high-quality personnel.
true
To promote the hiring of employees with high levels of personal integrity, employers should ______.
seek recommendations from prior employers or educators
perform background checks on job applicants
screen job applicants using feedback from job interviews
minimize technical skill requirements
seek recommendations from prior employers or educators
perform background checks on job applicants
screen job applicants using feedback from job interviews
Requiring employees to take extended vacations enhances internal controls because it ______.
creates fear among employees
forces customers to adapt to a changing environment when an employee is absent from work for a period of time.
is more difficult to hide irregularities if an employee is absent from work for a period of time
is more difficult to hide irregularities if an employee is absent from work for a period of time
Features of a strong internal control system include ______.
compliance with applicable laws and regulations
safeguarding assets
federal government loan guarantees
reliable financial reporting
compliance with applicable laws and regulations
safeguarding assets
reliable financial reporting
Which of the following statements about a procedures manual are true?
The procedures manual should be updated regularly.
Procedures manuals are ineffective in today’s fast-paced environment.
Once established, the procedures manual should not be changed.
Periodic reviews should be conducted to ensure that employees are following the procedures outlined in the manual.
The procedures manual should be updated regularly.
Periodic reviews should be conducted to ensure that employees are following the procedures outlined in the manual.
When duties are separated ______.
the work of one employee acts as a check on the work of another employee
corruption is always deterred
related duties can be performed by a single individual
there is no need for collusion to commit fraud or theft
the work of one employee acts as a check on the work of another employee
corruption is always deterred
Internal controls are enhanced by quality, well-trained employees because they ______.
are able to perform tasks as expected
may not respect the contributions of other employees
are able to rotate jobs
will accept lower wages
are able to perform tasks as expected
are able to rotate jobs
A policy that “employees at all levels are required to fly coach” is an example of ____ authority
general
Insurance that protects a company from losses caused by employee dishonesty is provided by a(n) _____ bond.
fidelity
True or false: Requiring employees to take a two-week vacation is an effective internal control procedure because it is more difficult to hide fraud or deceptive activities if an employee is absent from work for an extended period of time.
true
Prenumbered forms are used for ______.
invoices
checks
purchase orders
income statements
invoices
checks
purchase orders
Appropriate accounting operations should be documented in a(n) ____ _____that is routinely updated.
procedures or procedure manual
Examples of physical controls include ______.
developing a procedures manual
requiring all employees to fly coach
keeping accounting records in a fireproof vault
unannounced physical equipment counts
keeping accounting records in a fireproof vault
unannounced physical equipment counts
Examples of separation of duties include ______.
Multiple choice question.
having a personnel manager who is also in charge of payroll
having two pilots complete the same checklist
using one person to approve a sales return and a different person to issue a credit to the customer
requiring passcode entry of two individuals to authorize the launch of a nuclear weapon
using one person to approve a sales return and a different person to issue a credit to the customer
Performance evaluations are necessary because ______.
Multiple choice question.
few people can evaluate their own performance objectively
they are required by generally accepted accounting principles
employees do not usually understand the value of their work
they are required by a company’s auditors
few people can evaluate their own performance objectively
A policy that states “investment decisions are authorized at the division level while hiring decisions are authorized at the departmental level” is an example of _____ authority.
specific
Two or more employees working together to thwart internal controls by covering for each other is called ______
collusion
Savings accounts are ______.
included in cash whether or not there are substantial penalties for early withdrawal
only included in cash if there are no substantial penalties for early withdrawal
never included in cash
only included in cash if there are no substantial penalties for early withdrawal
True or false: The only documents that are prenumbered for internal control purposes are checks.
false
True or false: In most cases, possession of cash constitutes ownership.
true
Keeping a record of the serial number on a computer and the name of the individual who is responsible for the equipment is an example of a(n) ______ control.
specific
administrative
general
physical
physical
Transactions that reduce the customer’s checking account balance are described on bank statements ____ memos
debit
Employing a public accounting firm to conduct an audit is an example of ______.
safeguarding assets
physical control
assigning authority and responsibility
performance evaluation
performance evaluation
To explain the differences between the cash balance reported on the bank statement and the cash balance recorded in the depositor’s accounting records companies prepare a bank ______.
statement
note
reconciliation
account
reconciliation
Internal control systems ______.
eliminate temptation and ensure the likelihood of early fraud detection
can always be circumvented
are subject to collusion
have become so sophisticated that investors no longer have to worry about fraud
can always be circumvented
are subject to collusion
Which of the following items is included in the definition of cash?
Short-term receivables
Checking accounts
Post-dated checks
IOUs
Checking accounts
Cash must be subject to strict internal controls because ______,
it is the first asset shown on the balance sheet
small quantities can represent significant value
it has universal appeal
rightful ownership is difficult to prove
small quantities can represent significant value
it has universal appeal
rightful ownership is difficult to prove
Which of the following statements is true?
The unadjusted book balance is equal to the true cash balance.
The unadjusted book balance is always greater than the unadjusted bank balance.
The unadjusted bank balance is always greater than the unadjusted book balance.
At any specific point in time, there is only one true cash balance.
At any specific point in time, there is only one true cash balance.
Transactions that increase the customer’s checking account balance are described on the bank statement
___ memos
credit
When determining the true cash balance, ______ the unadjusted bank balance.
deposits in transit are added to
deposits in transit are subtracted from
outstanding checks are added to
outstanding checks are subtracted from
deposits in transit are added to
outstanding checks are subtracted from
The unadjusted balance in the Cash account may be more than the unadjusted balance shown on the bank statement due to ______.
a customer’s NSF check
bank service charges
outstanding checks
deposits in transit
deposits in transit
A bank reconciliation normally begins with the ____ bank balance
unadjusted
To calculate the true cash balance, begin with the unadjusted bank and ____ deposits in transit and _____ outstanding checks.
add, subtract
Which of the following items is not included in the definition of cash?
Savings accounts without withdrawal penalties
Accounts receivable
Currency
Money orders
Accounts receivable
Which of the following items are subtracted from the unadjusted book balance to determine the true cash balance?
Earned interest
Bank service charges
Accounts receivable collections
NSF checks
Bank service charges
NSF checks
The unadjusted balance in the Cash account may be less than the unadjusted balance shown on the bank statement due to ______.
deposits in transit
bank service charges
a customer’s NSF check
outstanding checks
outstanding checks
A bank failed to give a customer credit for a $350 deposit. To calculate the true cash balance, ______ balance.
Multiple choice question.
add $350 to the unadjusted bank
subtract $350 from the unadjusted book
add $350 to the unadjusted book
subtract $350 from the unadjusted bank
add $350 to the unadjusted bank
A(n) _____ check is guaranteed for payment by a bank.
certified
Currency and other items that are payable on demand, such as checks, money orders, and certain saving accounting are included in the definition of ____
cash
Ben Company’s bank statement shows an unadjusted bank balance of $1,200. Ben has $200 of deposits in transit and $350 of outstanding checks. Bank service charges amounted to $100. The company’s true cash balance is ______.
$1,200
$1,050
$1,350
$1,750
$1,050
Company ING wrote a check to pay for utilities in the amount of $240 but recorded it as $420. To correct the error ______ by $180.
increase cash
decrease expenses
decrease net income
increase liabilities
increase cash
decrease expenses
Reason: $420 - $240 = $180. To correct the error, $180 must be added back to cash and retained earnings. Expenses must be reduced by $180 and net income must be increased by $180.
To calculate the true cash balance, ______ accounts receivable collections and earned interest to and ______ bank service charges and NSF checks from the unadjusted book balance.
add; add
add; subtract
subtract; subtract
subtract; add
add; subtract
The bank recorded a $2,300 deposit as a $3,200 deposit. To determine the true cash balance, _______ balance.
add $900 to the unadjusted book
add $900 to the unadjusted bank
subtract $900 from the unadjusted book
subtract $900 from the unadjusted bank
subtract $900 from the unadjusted bank
Certified checks ______ cause differences between the depositor and bank balances.
do
do not
do not
If the cash draw contains $617.25 and the cash register tape shows $619.25, the journal entry to correct the difference will include a ______ Cash Short or Over.
$619.25 debit to Cash and a $2.00 credit to
$617.25 credit to Sales and a $2.00 credit to
$619.25 credit to Sales and a $2.00 debit to
$617.25 debit to Cash and a $2.00 credit to
$619.25 credit to Sales and a $2.00 debit to
Karen Company’s bank statement shows an unadjusted bank balance of $1,200. The company has $200 of deposits in transit and $400 in outstanding checks. The bank erroneously charged Karen a $100 service charge. Karen’s true cash balance is ______.
$1,110
