Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

accounting > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q

Three fraud characteristics

A

Opportunity

Financial pressure

Rationalization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

fraud

A

a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Internal control

A

All the related methods and measures to safeguard assets, enhance reliability of its accounting records, increase efficiency of operationjs, and ensure compliance with laws and regulations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

5 primary components of internal controls

A

A control environment

risk assesment

control activities

information and communication

monitoring

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Control environment

A

It is the responsibility of top management to make it clear that the organization values integrity and unethical activity will not be tolerated

“tone at the top”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

risk assesment

A

Companies must identify and analyze the various factors that create risk for the business and must determine how to manage these risks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

control activities

A

to reduce fraud, management must design policies and procedures to address the specific risks faced by the company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Information and communication

A

The internal control system must capture and communicate all perttienent info both down and up the organization, as well as communicate info to appropriate external parties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

monitoring

A

internal control systems must be monitored periodically for their adequacy

defiencies reported to top management or board of directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Six principles of control activities

A

Establishment of responsibility

Segregation of duties

Documentation procedures

Physical controls

Independent internal verification

Human resource controls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Control is most effective when ___________________________________

A

Only one person is responsible for a given task

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

The work of one employee should _____________________________

A

provide a reliable basis for evaluating the work of another employee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Making one individual responsible for related activities increases ___________________________

A

the potential for errors and irregularities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

The custodian of the asset is not likely to convert the asset to personal use when ________________________________________

A

one employee maintains the record of the asset, and a different employee has physical custody of the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Segregation of duties (accountability for assets)

A

Accounting employee A - maintains cash balances per books

Assistant cashier B - maintains custody of cash on hand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Prenumbered documents

A

Companies should use prenumbered documents, and all documents should be accounted for

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Forwarding source documents

A

Employees should promptly forwards source documents for accounting entries to the accounting department

*Helps ensure timely recording of the transaction*

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Physical controls

A

Relate to the safeguarding of assets and enhance the accuracy and reliability of the accounting records

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

independent internal verification

A

Involves the review of data prepared by employees

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

internal auditors

A

Company employees who continuously evaluate the effectiveness of the company’s internal control systems

recommend improvements when needed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Human resource control activities

A

Bond employees who handle cash

rotate employees’ duties and require employees to take vacations

conduct thorough background checks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

bonding

A

involves obtaining insurance protection against theft by employees

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Controls may _______________________

A

vary with the risk level of the activity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

reasonable assurance

A

Companies generally design their systems of internal control to provide reasonable assurance of proper safeguarding of assets and reliabliyt of the accounting records

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

human element

A

factor in every system of internal controls

*employee fatigue, carelessness, or indifference

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Collusion

A

When two or more individuals work together to get around prescribed controls

can reduce the effectiveness of a system, eliminating the protection offered by segregation of duties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Cash (internal controls)

A

Cash is the asset most susceptible to fraudulent activities

28
Q

Internal control over cash disbusrsments

A

is more effective when companies pay by check, rather than by cash

29
Q

Voucher system

A

a network of approvals by authorized individuals, acting independently, to ensure that all disbursements by check are proper

30
Q

Voucher

A

An authorization form prepared for each expenditure in a voucher system

31
Q

voucher register

A

where vouchers are recorded

32
Q

check register

A

the paid voucher is sent to the accounting department for recording in the check register

33
Q

Ethics note: petty cash fund strengthend by:

A
  1. having a supervisor make surprise counts of the fund to confirm whether the paid petty cash receipts and fund cash equal the fund amount
  2. canceling or mutilating the paid petty cash receipts so they cannot be resubmitted for reimbursement
34
Q

__________________ contributes significantly to good internal control over cash

A

The use of a bank

35
Q

Bank reconciliation

A

The process of comparing the bank’s balance with the company’s balance, and explaining the differences to make them agree

36
Q

canceled check

A

a paid check (alternative word)

37
Q

Bank statement essentialy

A

is a copy of the bank’s records sent to the customer for periodic view

38
Q

NSF (not sufficient funds) check

A

A check that is not paid by a bank because of insufficient funds in a bank account

39
Q

bank statement

A

a statement received monthly from the bank that shows the depositor’s bank transactions and balances

40
Q

Reconciling the bank account

A

Making the balance per books and the balance per bank agree with the true amount

41
Q

Two causes of reconciling the bank account

A

Time lags

Errors

42
Q

Time lags

A

Prevent one of the parties from recording the transaction in the same period

43
Q

Errors

A

Occur by either party in recording transactions

44
Q

Who prepares the reconciliation

A

To obtain maximum benefit from a bank reconciliation, an employee who has no other responsibilities related to cash should prepare the reconciliation

45
Q

Depoisits in transit and outstanding checks

A

are reconciling items because of time lags

46
Q

Deposits in transit

A

Deposits recorded by the depositor that have not been recorded by the bank

47
Q

Outstanding checks

A

Issued checks recorded by the company that have not been paid by the bank

48
Q

Alternative terminology for adjusted cash balance

A

correct cash balance

true cash balance

49
Q

Electronic fund transfers (EFTs)

A

Disbursement systems that use wire, telephone, or computer to transfer cash from one locatioin to another

50
Q

Cash

A

coins

currency (paper money)

checks

money orders

money on hand or on deposit in a bank

*NOT INCLUDED post-date checks

51
Q

Cash equivalents

A

Short-term, highly liquid investments that are both:

  1. readily convertible to known amounts of cash
  2. So near their maturity that their market value is relatively insensitive to changes in interest rates
52
Q

Examples of cash equivalents

A

Treasury bills

commercial paper (short-term corporate notes)

money market funds

53
Q

Ethics note: cash equivalents

A

Companies can make themselves look more liquid by reporting many items as cash equivalent

54
Q

restricted cash

A

cash that is not available for general use but rather is restricted for a special purpose

55
Q

Treasurer

A

Management of cash is the responsibiliyt of the company treasurer

56
Q

liquid investment

A

One with a market in which someone is always willing to buy or sell the investment

57
Q

risk-free investment

A

There is no concern that the party will default on its promise to pay its principal and interest

58
Q

five basic principles of cash management

A

Increase the speed of receivables collection

Keep inventory levels low

Monitor payment of liabilities

Plan the timing of major expenditures

Invest idel cash

59
Q

International note: cash management

A

Corporate treasurers make investments known as hedges to lock in an exchange rate to reduce the company’s exposure to exchange-rate fluctuation

60
Q

Cash budget

A

Shows anticipated cash flows, usually over a one- to two-year period

61
Q

____________ contributes to more effective cash management

A

A cash budget

62
Q

Cash receipts section

A

includes: expected receipts from the company’s principal sources of cash

anticipated receipts of interest and dividends

63
Q

Operation of a petty cash fund

A
  1. establishing the fund
  2. making mapyments from the fund
  3. replenishing the fund
64
Q

2 steps in establishing a petty cash fund

A
  1. appointng a petty cash custodian who will be responsible for the fund
  2. determing the size of the fund
65
Q

“Slush” funds

A

are unauthorized and hidden (under the table)

66
Q

Receipt satisfies two principles:

A
  1. establishing responsibility (signature of custodian)
  2. documentation procedures
67
Q
A

accounting (31 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions