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Acct 206 > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

Regulatory authority for internal control requirements is provided by The ______.

Sarbanes-Oxley Act

Treadway Commission

American Accounting Association

Institute of Certified Public Accountants

A

Sarbanes-Oxley Act

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2
Q

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

A

using one person to approve a sales return and a different person to issue a credit to the customer

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3
Q

True or false: Ongoing training programs are essential to the maintenance of high-quality personnel.

A

true

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4
Q

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

A

seek recommendations from prior employers or educators

perform background checks on job applicants

screen job applicants using feedback from job interviews

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5
Q

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

A

is more difficult to hide irregularities if an employee is absent from work for a period of time

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6
Q

Features of a strong internal control system include ______.

compliance with applicable laws and regulations

safeguarding assets

federal government loan guarantees

reliable financial reporting

A

compliance with applicable laws and regulations

safeguarding assets

reliable financial reporting

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7
Q

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.

A

The procedures manual should be updated regularly.

Periodic reviews should be conducted to ensure that employees are following the procedures outlined in the manual.

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8
Q

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

A

the work of one employee acts as a check on the work of another employee

corruption is always deterred

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9
Q

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

A

are able to perform tasks as expected

are able to rotate jobs

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10
Q

A policy that “employees at all levels are required to fly coach” is an example of ____ authority

A

general

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11
Q

Insurance that protects a company from losses caused by employee dishonesty is provided by a(n) _____ bond.

A

fidelity

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12
Q

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.

A

true

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13
Q

Prenumbered forms are used for ______.

invoices

checks

purchase orders

income statements

A

invoices

checks

purchase orders

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14
Q

Appropriate accounting operations should be documented in a(n) ____ _____that is routinely updated.

A

procedures or procedure manual

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15
Q

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

A

keeping accounting records in a fireproof vault

unannounced physical equipment counts

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16
Q

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

A

using one person to approve a sales return and a different person to issue a credit to the customer

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17
Q

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

A

few people can evaluate their own performance objectively

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18
Q

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.

A

specific

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19
Q

Two or more employees working together to thwart internal controls by covering for each other is called ______

A

collusion

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20
Q

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

A

only included in cash if there are no substantial penalties for early withdrawal

21
Q

True or false: The only documents that are prenumbered for internal control purposes are checks.

A

false

22
Q

True or false: In most cases, possession of cash constitutes ownership.

A

true

23
Q

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

A

physical

24
Q

Transactions that reduce the customer’s checking account balance are described on bank statements ____ memos

A

debit

25
Q

Employing a public accounting firm to conduct an audit is an example of ______.

safeguarding assets

physical control

assigning authority and responsibility

performance evaluation

A

performance evaluation

26
Q

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

A

reconciliation

27
Q

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

A

can always be circumvented

are subject to collusion

28
Q

Which of the following items is included in the definition of cash?

Short-term receivables

Checking accounts

Post-dated checks

IOUs

A

Checking accounts

29
Q

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

A

small quantities can represent significant value

it has universal appeal

rightful ownership is difficult to prove

30
Q

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.

A

At any specific point in time, there is only one true cash balance.

31
Q

Transactions that increase the customer’s checking account balance are described on the bank statement
___ memos

A

credit

32
Q

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

A

deposits in transit are added to

outstanding checks are subtracted from

33
Q

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

A

deposits in transit

34
Q

A bank reconciliation normally begins with the ____ bank balance

A

unadjusted

35
Q

To calculate the true cash balance, begin with the unadjusted bank and ____ deposits in transit and _____ outstanding checks.

A

add, subtract

36
Q

Which of the following items is not included in the definition of cash?

Savings accounts without withdrawal penalties

Accounts receivable

Currency

Money orders

A

Accounts receivable

37
Q

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

A

Bank service charges

NSF checks

38
Q

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

A

outstanding checks

39
Q

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

A

add $350 to the unadjusted bank

40
Q

A(n) _____ check is guaranteed for payment by a bank.

A

certified

41
Q

Currency and other items that are payable on demand, such as checks, money orders, and certain saving accounting are included in the definition of ____

A

cash

42
Q

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

A

$1,050

43
Q

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

A

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.

44
Q

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

A

add; subtract

45
Q

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

A

subtract $900 from the unadjusted bank

46
Q

Certified checks ______ cause differences between the depositor and bank balances.

do

do not

A

do not

47
Q

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

A

$619.25 credit to Sales and a $2.00 debit to

48
Q

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 ______.

A

$1,110

Acct 206 (9 decks)

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