Chapter 7

Question 1

____ is the organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records

Answer 1

internal control

Question 2

The ____ provides thought leadership related to enterprise risk management, internal control, and fraud deterrence.

Answer 2

Committee of Sponsoring Organizations (C O S O

Question 3

companies that sell stock to the general public - are required by the U.S. Congress to maintain a system of internal controls.

Answer 3

public companies

Question 4

____requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

Answer 4

sarbanes oxley act (SOX)

Question 5

a report by management describing its responsibility for and the adequacy of internal controls over financial reporting.

Answer 5

internal control report

Question 6

oversees the work of auditors of public companies.

Answer 6

public company accounting oversight board (PCAOB)

Question 7

components of internal control:

Answer 7

Control procedures
Risk assessment
Information system
Monitoring of controls
Environment

CRIME

Question 8

divides responsibilities between two or more people to limit fraud and promote accuracy of accounting records.

Answer 8

Separation of duties

Question 9

____ is when two or more people work together to circumvent internal controls and defraud a company.

Answer 9

Collusion

Question 10

A ____ is an optional attachment to a check that tells the business the reason for the payment.

Answer 10

remittance advice

Question 11

A ___ is a system in which customers send their checks to a post office box that belongs to a bank.

Answer 11

lock box system

Question 12

____ is a procedure that compresses the payment approval process into a single step by comparing the receiving report to the purchase order.

Answer 12

Evaluated Receipts Settlement (E R S)

Question 13

____ is a streamlined process that bypasses paper documents altogether. Computers of customers communicate directly with the computers of suppliers to automate routine business transactions.

Answer 13

Electronic Data Interchange (E D I)

Question 14

is a fund containing a small amount of cash that is used to pay for minor expenditures.

Answer 14

Petty cash

Question 15

_____ is a way to account for petty cash by maintaining a constant balance in the petty cash account. At any time, cash plus petty cash tickets must total the amount allocated to the petty cash fund.

Answer 15

imprest system

Question 16

a card that shows each authorized person’s signature for a bank account.

Answer 16

signature card

bank account control

Question 17

is a bank form that is completed by the customer and shows the amount of each deposit.

Answer 17

deposit ticket

bank account control

Question 18

is a system that transfers cash by electronic communication rather than by paper documents.

Answer 18

electronic funds transfer (EFT)

Question 19

compares and explains the differences between cash on the company’s books and the bank’s records.

Answer 19

bank reconciliation

Question 20

Differences arise because of a time lag in recording transactions, called ____

Answer 20

timing differences

Question 21

___ are cash receipts the bank has received and recorded but the company has not recorded on its books.

Answer 21

Credit memorandums

Question 22

service charge

Answer 22

debit memorandum

Question 23

are received from customers for payment of services rendered or merchandise sold that have turned out to be worthless.

Answer 23

Nonsufficient funds (N S F) checks

Question 24

cash ratio

Answer 24

(cash + cash equicalents) / total current liabitlies