Chapter 6 Questions Flashcards
An internal control system is used to do all of the following
protect assets
ensure reliable accounting
promote efficient operations
uphold company policies
Sarbanes-Oxley Act requires each of the following:
effective internal control
auditors must evaluate internal controls
violators receive harsh penalties
auditor’s work is overseen by the PCAOB
The work of one person acts as a check on another person to prevent fraud and errors.
Divide responsibilities
Responsibility for a task should be clearly established and assigned to one person
Establish responsibilities
Use of cash registers, time clocks and personal identification scanners to improve internal control.
Apply technological controls
Use of detailed records to help prevent loss of assets.
Maintain adequate records
Technology helps managers to monitor and control business activities and includes each of the following except less extensive testing of records. True or False?
True
Employee has a low risk of getting caught committing fraud.
Opportunity
Employees justifying fraudulent behavior.
Rationalization
A person feels pressure to commit fraud.
Pressure
A person feels pressure to commit fraud.
Pressure
All of the following are examples of controls of cash except a person handling the cash is the same person who records receipt of that cash. True or False?
True
Cash management strategies include maximizing other assets. True or False?
False
The supervisor should compare the register transactions with the cash receipts report to make sure that both are correct. True or false?
True
The listing of cash received via mail should be sent to each of the following individuals:
cashier
record-keeper
mail clerk
Used by bank employees to verify signatures on checks.
Signature card
Lists items such as currency and checks along with their dollar amounts.
Deposit ticket
A transfer of cash from one party to another that does not involve a paper document.
Electronic funds transfer
Signed by the depositor instructing the bank to pay a specified amount of money to a designated recipient.
Check
Interest earned on a checking account is a deduction on a bank statement. True or False?
False
Select the items below which must be adjusted to the book balance:
book error
interest earned on checking account
collections of accounts receivable by the bank
Days’ sales uncollected is computed by:
dividing accounts receivable by net sales and multiplying by 365
There is $500 in cash missing from a cash register drawer. Three salesclerks shared the cash register drawer, so the owner cannot determine who is at fault.
Establish responsibilities
An employee stole thousands of dollars worth of equipment over many years. It took years for the company to discover the fraud because accounting records for equipment were rarely updated.
Maintain adequate records
An employee requested merchandise be purchased, then approved the purchase request, and finally made payment to a fake supplier. The employee stole a considerable amount of money under this scheme.
Divide responsibility for related transactions
Cash registers contain locked electronic files that keep records of each sale.
Apply technological controls
The company divides responsibility for a transaction between multiple departments.
Divide responsibility for related transactions
Each cashier is designated a specific cash drawer and is solely responsible for cash in that drawer.
Establish responsibilities
The most important assets of the business are insured.
Insure assets and bond key employees
Preprinted forms are used to reduce the chance of missing transaction details.
Maintain adequate records
The company’s internal auditors frequently assess the performance of internal controls.
Perform regular and independent reviews
The owner does not use ID scanners to limit access to expensive merchandise. Instead, the owner argues they hire honest employees.
Weakness; Apply technological controls
An employee cannot approve their own request for purchases of inventory.
Strength; Divide responsibility for related transactions
Several salesclerks share the same cash drawer.
Weakness; Establish responsibilities
Several salesclerks share the same cash drawer.
Weakness; Establish responsibilities
Employees that handle easily transferable assets such as cash are bonded.
Strength; Insure assets and bond key employees
The company devotes resources towards keeping accurate accounting records for machinery.
Strength; Maintain adequate records
Cash receipts and cash payments are regularly planned and reviewed.
Good; Plan expenditures
Bills are paid as soon as they are received.
Bad; Delay payment of liabilities
Customers are offered discounts to pay early.
Good; Encourage collection of receivables
Customers are offered discounts to pay early.
Good; Encourage collection of receivables
Excess cash is put into short-term investments to earn extra income.
Good; Invest excess cash
All equipment is purchased, even if it is infrequently used.
Bad; Keep only necessary assets
One employee with many years of experience is solely in charge of opening cash receipts received by mail.
Weakness
All sales transactions, even those for less than $1, are recorded on a cash register.
Strength
Two employees are tasked with opening mail that contains cash receipts.
Strength
Cash registers have a permanent, locked-in electronic record of each transaction.
Strength
The clerk who has access to cash in the register cannot access the accounting records to change transaction details.
Strength
A list of cash receipts by mail includes the sender’s name, the dollar amount, and an explanation of why the money was sent.
Strength
Payments over $100 are made by check.
Strength
Requesting and receiving merchandise is handled by the same department.
Weakness
Payments of less $100 are made through petty cash.
Strength
Large amounts of cash are kept in a drawer to pay liabilities over $1,000.
Weakness
Only authorized departments and individuals can incur liabilities.
Strength
When the company runs out of checks, it pays liabilities with cash.
Weakness
Are accounts receivable cash equivalents?
No
Are checks cash equivalents?
Yes
Are checks cash equivalents?
Yes
What counts as a short-term investment?
With-in 3 months
