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Fundamental Accounting Principles Volume 1 > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q

what is internal control system

A

All the policies and procedures managers use to
- protect assets,
-ensure reliable accounting
- urge adherence to company policies
- adhere to sustainability targets sat by management
- collect accurate data relating to sustainability targets

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2
Q

Corporate governance

A

the mechanism by which individuals in a company in particular the board of directors are motivated to align their behaviours with the overall corporate good

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2
Q

what is the principles of internal control

A

fundamental principles of internal control that apply to all companies requiring management to ensure
-transactions and activities are authorized
-maintain recors
- insure assets
- separate record keeping and custody of assets
- establish a separation of duties
- apply technological controls
- and perform internal and external audits

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3
Q

What is establish a separation of Duties

A

an internal control principle requiring the division of responsibility for related transactions between two or more individuals or departments

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4
Q

what is separation of duties also called

A

segregation of duties

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5
Q

what needs to be separate when it comes to custody of assets

A

authorization and record keeping

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6
Q

what is the act in which two or more people agree to commit a fraud

A

collusion

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7
Q

what is ensure transaction and activities are authorized

A

establish responsibilities for each task clearly for each position in the company
approvals must be make by authorized individuals

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8
Q

what does maintaining records entail

A

maintain adequate records to help protect assets by ensuring that employees use prescribed procedures

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9
Q

what does insuring assets and bond key employees entail

A

used to reduce risk of loss from casualty and theft

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10
Q

what does it mean to bond an employee

A

and insurance policy purchased by a company to protect against losses from theft by that employee

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11
Q

applying technological controls

A

need to develop controls to protect both their business and the valuable data they maintain regarding confidential information of their customers and suppliers

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12
Q

examples of applying technological controls

A

passwords to limit access to sensitive information
registers with a locked-in tape or electronic file make a record of each cash sale
time clock registers the exact time an employee arrives at and departs

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13
Q

perform internal reviews

A

to ensure the internal control procedures are followed

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14
Q

are internal control systems effective

A

not entirely for many reasons
- employee turnover
- human error
- intentional circumvention of controls

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15
Q

external audits

A

normally independent external auditors who are professional accountants

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16
Q

why are external audits required

A

to document the controls for every financial statement line item and test existing controls

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17
Q

what to external auditors perform

A

detailed analysis of the companies financial records and give opinions as the whether the companies financial statements are presented fairly

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18
Q

tip - solving problems related to controls

A

to provide a full analysis of a control issue remember W (weakness) I (implication) R (recommendation)

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19
Q

what are the 4 top types of fraud

A
  1. Customer fraud
  2. Cybercrime
  3. Asset misappropriation
  4. Bribery and corruption
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20
Q

what are the three drivers of fraud

A
  1. opportunity
  2. motivation
  3. rationale
21
Q

what are the main three risks involved with online transactions

A
  1. credit card number theft
  2. computer viruses
  3. impersonation
22
Q

what the two categories of the limitations of internal control

A
  1. human error
  2. human fraud
23
Q

cash

A

consiste of cash on hand and demand deposits: including
- currency
- coins
- amounts on deposit in bank chequing or savings accounts

24
what is liquidity
a characeteristic of an asset that refers to how easily the asset can be converted into cash or another type of asset or used in paying for services or obilgations
25
liquid assets
assets such as cash that are easily converted into other types of assets or used to buy services or to pay liabilities
26
what is the most liquid of all assets
cash
27
3 basic guidelines when making cash procedures
1. separate handing of cash from record keeping cash 2. deposit cash receipts promptly (daily) in a bank 3. make cash disbursements by cheque
28
cash receipt controls
cash register -> cashier -> computer
29
cash over and short accounts
an income statement account used to record cash shortages and cash overages arising from omitted patty cash receipts and from errors in making change
30
who touches cash receipts by mail
normally two people 1. opens the mail and makes a list of money received ( record senders name the amount invoice number and explanation copies are sent with the money to the cashier to prepare the bank deposit and the the accounting department to adjust the customer accounts and record the cash receipt 2. cashier deposits money in the bank 3. record keeper records amounts in int accounting records
31
three-way match
a special control over cash disbursements to prevent payment of invoices for which the goods have not yet been received or were not approved internally three documents 1. purchase order 2. receiving report 3. invoice must be present and the information must agree or be matched before any payment is made to the supplier
32
what is the petty cash fund for
to prevent companies from having to write cheques for small amounts used for postage, courier fees, repairs, supplies
33
petty cashier
employee responsible for safe keeping of the cash, making payments from this fund, and keeping accurate records
34
what are the steps to reimburse the petty cash
1. add up receipts 2. add up remaining cash in the petty cash fund 3. calculate cash over/short: =total of petty cash receipts - cash required to replenish fund to original amount 4. record the journal entry to record all receipts in the patty cash to the appropriate expense accounts, record the cash over/short and account for the reduction in cash
35
what are signature cards
bank document that includes the signature of each person authorized to sign cheques from the account
36
bank document that lists the items such as currency, coins, and cheques deposited along with each of their dollar amount
deposit slip
37
a document signed by the depositor instructing the bank to pay a specified amount of money to a designated recipient
cheque
38
what is a EFT
electronic funds transfer - the use of electronic communication to transfer cash from one party to another
39
debit cards
cards used at point of sale to transfer payment for a purchase immediately from the customers to the vendors bank account
40
what is included in a bank statement
1. summarizes changes in the account 2. lists paid cheques in date order along with other debits (or decreases) 3. lists deposits and credits (increases) to the account 4. shows the daily account balances
41
bank statements are reported from the banks view means
deposits are called credits and cheques are called debits
42
cancelled cheques
cheques that the bank has paid and deducted from the customers account during the month
43
what are other deductions that often appear on the bank statement
1. service charges and fees 2. customers cheques deposited that are uncollectible 3. corrections of precious errors 4. withdrawals through ATMS 5. periodic payments arranged in advance by a depositor such as insurance and lease payments
44
what is bank reconciliation
an analysis that explains the difference between the balance of a chequing account shown in the depositors records and the balance reported on the bank statement
45
bank balance adjustments - unrecorded deposits
add unrecorded deposits also known as deposits in transit or outstanding deposits
46
bank balance adjustments - outstanding cheques
deduct outstanding cheques
47
bank balance adjustments - errors
adjust for +/- errors
48
important tips for bank balance adjustments
only adjust the bank balance for items that haven been recorded correctly in the accounting records but by the date of the bank statement had not yet been received by the bank or paid out of the bank includes outstanding cheques, cash deposits in transit
49

Fundamental Accounting Principles Volume 1 (16 decks)

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