Chapter 6 Flashcards by Jennifer M

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

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

true

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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.

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

general

How well did you know this?

Not at all

Perfectly

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

fidelity

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

Prenumbered forms are used for ______.

invoices

checks

purchase orders

income statements

invoices

checks

purchase orders

How well did you know this?

Not at all

Perfectly

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

procedures or procedure manual

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

How well did you know this?

Not at all

Perfectly

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

collusion

How well did you know this?

Not at all

Perfectly

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

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