Chapter 6 Flashcards
What is the primary purpose of internal control?
The primary purpose of internal control is to safeguard assets, ensure accurate financial reporting, and promote compliance with laws and regulations.
What are the key components of internal control?
The key components include control environment, risk assessment, control activities, information and communication, and monitoring activities.
How can segregation of duties enhance internal control?
Segregation of duties reduces the risk of errors and fraud by dividing responsibilities among different individuals.
What is a bank reconciliation?
A bank reconciliation is the process of comparing the company’s cash records with the bank’s records to identify discrepancies.
What is the purpose of a petty cash fund?
A petty cash fund is used for small, everyday expenses that are impractical to pay by check.
What is the impact of cash management on a business?
Effective cash management ensures sufficient liquidity to meet obligations, minimizes idle cash, and optimizes cash flows.
What is a cash flow forecast?
A cash flow forecast estimates future cash inflows and outflows over a specific period, aiding in planning and decision-making.
Why are bank statements important for internal control?
Bank statements provide an independent verification of cash transactions and balances, helping detect errors and fraud.
What is the significance of an authorized signature in cash disbursements?
An authorized signature ensures that cash disbursements are approved and legitimate, reducing the risk of unauthorized transactions.
How can technology enhance internal controls?
Technology can enhance internal controls through automated systems, real-time monitoring, and secure data management.
