Chapter 7

Question 1

Fraud Triangle

Answer 1

Opportunity, financial pressure, rationalization

Question 2

Sarbanes-Oxley Act (SOx?)

Answer 2

Requires:
Companies keep an eye on management
Corporate execs and Board of directors ensure internal controls are reliable
Principles of control over financial reporting
Continual assessment to ensure that controls are working

Question 3

Internal control

Answer 3

Safe guards assets from theft
enhance accuracy of accoutning records in accounting process
increase effiency of operations
Ensure compliance wiht laws

Question 4

Components of internal control systems

Answer 4

a control environment
risk assessment
control activities
information and communication

Question 5

control activities

Answer 5

establishment of responsibility 
physical controls 
segregation of duties
independent internal verification
documentaiton of procedures 
HR controls

Question 6

Establishment of responsibility

Answer 6

requires limiting access only to authorized personnell and person is the only one given that task

Question 7

Segregation of duties

Answer 7

responsibility of recording is separate form the responsibility of holding the materials (physical custody) so that one separate person outside of the inventory will count and report numbers

Question 8

independent internal verification

Answer 8

verification should be made on SURPRISE basis ;)
done by an employee who is independent of the personnel responsible for info
discrepancies and exceptions would be reported to management

Question 9

human resource controls

Answer 9

BONDING of employees who handle cash
rotating employees duties and REQUIRING employees to take vacations
conduct thorough background checks

Question 10

Segregation of duties

Answer 10

employees who have physical custody of assets but do not have access to the accounting records
the duties of receiving cash, recording cash and having custody of cash are assigned to different individuals

Question 11

Independent internal verification

Answer 11

each month, the assets on hand are compared to the accounting records by an internal auditor
Daily cash counts are made by cashier department supervisors.

Question 12

Documentation procedures

Answer 12

A prenumbered shipping document is prepared for each shipment of goods to customers

Question 13

physical controls

Answer 13

safes, time clocks, where you store safe things

Question 14

cash management

Answer 14

Increase the speed of collection on receivables, keep inventory low, delay payment of liabilities, do not maintain idle cash

Question 15

how do I journalize service charge ?

Answer 15

debit bank charges expense then credit cash

Question 16

How do I journalize electronic funds transfer

Answer 16

Debit Cash, credit accounts receivable.

Question 17

why are the independent records of checking account are seldom in agreement?

Answer 17

time lags

error

Question 18

adjustments to bank balance

Answer 18

+deposits in transit,
+/-bank errors if needed to add for adjustment
-outstanding checks

Question 19

adjustments to the book balance

Answer 19

\+electronic funds transfer(EFT) 
\+/- bank recording error
-bounced checks (NSF)
\+/-notes collect by banks
company errors
-service charges or check printing

Question 20

Which of the following would be deducted from the balance per bank on a bank reconciliation?

Answer 20

outstanding checks.

Question 21

Cash disbursements

Answer 21

? do i add or subract

Question 22

Cash equivalents

Answer 22

Readily convertible to known amounts of cash, and
2.So near their maturity that their market value is relatively insensitive to changes in interest rates. (Generally only investments with maturities of three months or less qualify under this definition.)
Examples of cash equivalents are Treasury bills, commercial paper (short-term corporate notes), and money market funds. All typically are purchased with cash that is in excess of immediate needs.

Question 23

what’s recorded as cash?

Answer 23

cash on hand, cash in banks, and petty cash are often combined and reported simply as Cash
-deposits in transit

Question 24

how to calculate deposits in transit

Answer 24

Compare the cash receipts to the bank statement checking off each receipt to each check in the statement and see if any are left out.

Question 25

how to calculate deposits in transit

Answer 25

Compare the cash receipts to the bank statement checking off each receipt to each deposit in the statement and see if any are left out.

Question 26

how to determine checks that are in transit

Answer 26

?

Question 27

how to journalize error in checks

Answer 27

debit accounts payable

credit cash

Question 28

how to journalize error in deposits

Answer 28

Debit accounts receivable

credit cash

Question 29

what is considered cash and cash equivalents?

Answer 29

??