Chapter 7 Flashcards
What consists of Fraud and Internal Control?
1) Fraud
2) Sarbanes-Oxley
3) Internal control
4) Limitations
What consists of cash controls?
1) Cash receipts controls
2) Cash disbursements controls
What consists of Use of a Bank?
1) Bank statements
2) Reconciling the bank account
What consists of Reporting Cash?
1) Cash equivalents
2) Reconciling the bank account
What are the 3 factors of fraud?
Opportunity, Financial Pressure, Rationalization
What methods and measures were adopted for Internal Control?
1) Safeguard assets
2) Enhance accuracy of records
3) Increase efficiency of operations
4) Ensure compliance with laws
What are the five components of internal control?
1) Control environment
2) Control activities
3) Risk assessment
4) Information and communication
5) Monitoring
What is establishment of responsibility?
Control is most effective when only one person is responsible for a given task
What is segregation of duties?
Related duties should be assigned to different individuals
What are documentation procedures?
Companies should use pre-numbered documents which should all be accounted for
What are the two principles of independent internal verification?
1) Records periodically verified by an employee who is independent
2) Discrepancies reported to management
What are human resource controls?
1) Bond employees
2) Rotate employees’ duties and require vacations
3) Conduct background checks
What are the limitations of internal control?
1) Costs should not exceed benefit
2) Human element
3) Size of the business
What are cash receipt controls?
Segregation of record-keeping from physical custody
Permitting only designated personnel to handle cash receipts is an application of the principle of?
Establishment of responsibility
What is establishment of responsibility?
Only designated personnel are authorized to sign checks and approve venders
What is segregation of duties?
Different individuals approve and make payments; check signers do not record disbursements
What are documentation procedures?
- Use prenumbered checks and account for them in sequence
- Each check must have an approved invoice
- Require employees to use corporate credit cards for expenses
What are independent internal verification?
- Compare checks to invoice
- Reconcile bank statement monthly
What are physical controls?
Store blank checks in safes with limited access
The use of prenumbered checks in disbursing cash is an application of the principle of?
Documentation procedures
What are the control features for the Use of a Bank?
1) Minimize the amount of currency on hand
2) Creates a double record of bank transactions
3) Bank reconciliation
When do you debit memorandum?
1) Bank service charge
2) NSF (not sufficient funds)
When do you credit memorandum?
1) Collect notes receivable
2) Interest earned
The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is?
Bank service charges
What is involved in the Petty Cash Fund?
1) Establishing the fund
2) Making payments from the fund
3) Replenishing the fund
