Brainscape's Knowledge GenomeTM

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


See full index

Accounting 110 > Chapter 7: Internal Controls and Cash > Flashcards

Chapter 7: Internal Controls and Cash Flashcards

1
Q

What is cash?

A

Resources such as coins, currency, cheques, money orders, traveller’s cheques, and money on deposit in a bank or similar depository

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

What does cash not include?

A
  • Cheques that are payable in the future (post-dated)
  • Cheques that are more than six months old (stale-dated)
  • Cheques that are returned (NSF - not sufficient funds)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are cash equivalents?

A

Highly liquid (easily sold), short-term investments with maturities of three months or less that are subject to an insignificant risk of changes in value

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

What are the risks associated with cash?

A

Frauds and errors may easily occur when cash is handled and recorded. Safeguarding and ensuring the accuracy of accounting records is critical

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

Why does fraud occur?

A

1) Opportunity: Opportunities occur when the workplace lacks sufficient controls to detect fraud

2) Motivation: Financial problems, excessive lifestyles

3) Rationalization: Employees may believe they are underpaid

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

What are internal controls?

A

The related methods and measures that management adopted within a company to help it achieve:
reliable financial reporting, effective an efficient operations, compliance with relevant laws and regulations

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

What is an effective way to detect and prevent fraud?

A

Internal controls

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

What do good internal control systems have?

A

1) Control environment

2) Risk assessment

3) Control activities

4) Information and communication

5) Monitoring

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

What results for a business that has weak internal controls?

A
  • Errors in its records
  • Vulnerable to fraud, theft, and costly losses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the objectives of internal control?

A

1) Safeguarded assets

2) Accurate information

3) Compliance with laws and regulations

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

What are some facts about control activities

A
  • Control activities are the backbone of the company’s efforts to address the risks it faces
  • Control activities vary depending on management’s assessment of the risks faced
  • It is heavily influenced by the size and nature of the company
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the six control activities?

A

1) Establishment of Responsibility

2) Segregation of Duties

3) Documentation Procedures

4) Physical and IT Controls

5) Independent checks of performance

6) Human Resource controls

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

What is Establishment of Responsibility?

A

Ensuring only one person as responsibility for a task

e.g. cash register sign-on
IT system log-on

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

What are Segregation of Duties?

A

Different individuals should be responsible for related activities

e.g. custody, authorization, recording

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

What are Documentation Procedures?

A

All procedures should be documented, pre-numbered, and original documents are used for data entry

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

What are Physical and IT Controls?

A

Provides reasonable assurance

e.g. safes, vaults, passwords, computers

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

What are independent checks of performance?

A

Independent checks of performance

e.g. internal reviews, internal and external audit

  • Review should be done periodically or by surprise
  • Review should be done by someone independent of the employee
  • Discrepancies and exceptions reported to management
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are human resource controls?

A
  • Bonding employees who handle cash
  • Rotating employees’ duties and requiring employees to take vacation
  • Conducting thorough background checks
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the limitations of internal control?

A

Internal control can only provide reasonable assurance that assets are safeguarded and records are reliable.

Limitations include:

  • Cost/benefit
  • Human element
  • Collusion
  • Size of business
20
Q

What is fraud?

A

An intentional act to misappropriate (steal) assets or to misstate financial statements

Examples of miststatements:

  • Recording expenses as assets
  • Overstating useful lives of assets
  • Recording revenues that do not exist
21
Q

What causes many high-profile collapses of companies?

A

Fraud

22
Q

What are over the counter receipts?

A

Includes customers making payments on account and all sales

23
Q

What are cash receipts in the mail?

A

Customers making payments on account

24
Q

What are electronic receipts by eft, debit and credit

A

Includes customers making payments on account and all sales

Automatic payments are encouraged:

  • Cost less than cheques in the mail
  • Enhanced internal control
  • Automatic transactions reduce late payments
25
Q

What are cash payments?

A

1) Payments are as for authorized transactions

2) Cash is used effectively and efficiently

The purchase of goods, inspecting/receiving goods, verifying invoices and payment have segregation of duties. Duo signature are also required for cheques.

26
Q

Why are bank accounts critical to internal control?

A

Bank accounts are critical to internal control because:

  • Reduces the amount of cash on hand
  • Provides an independent record of cash transactions
  • Facilitate the transfers of funds using EFT systems
  • Facilitate the segregation of cash for specific purposes
27
Q

A cash balance is a debit to the company… but a _____ to the bank

A

Credit

28
Q

Why are deposit slips good internal controls?

A
  • Has all the information required to create the journal entry - ALWAYS a debit to cash
  • Deposits might be from the day’s sale revenue or a collection of amounts owing
29
Q

Why are cheque records good internal controls?

A
  • Always include all information needed to ensure the payment is allocated properly
  • Cheques might be a payment on account or payment for goods/services
30
Q

What is a petty cash fund?

A

A cash fund that is used for paying relatively small amounts

31
Q

What does the bank statement do?

A
  • Shows the company’s bank transactions and balance
  • From bank’s perspective: The bank account is a liability account
32
Q

What is a credit memoranda?

A

Supporting documentation for increases to a bank account that appear on a bank statement

  • It is used by the bank to identify and explain miscellaneous amounts added to bank account

e.g. interest earned, eft

33
Q

What is a debit memoranda?

A

Supporting documentation for decreases to a bank account that appear in a bank statement

34
Q

What is a NSF (Not Sufficient Funds) Cheque?

A

A cheque that is not paid by the customer’s bank and is returned to the depositor’s bank because of insufficient funds in the customer’s account

35
Q

What is a bank reconciliation?

A

A method of showing the differences between the Bank records and the Company’s
records

36
Q

Who should prepare a bank reconciliation?

A

It should be prepared by an employee who has no other responsibilities related with cash or the owner of the company

37
Q

What is the book balance?

A

The cash balance that the company has in accounting records for the chequing account

38
Q

What is the bank balance?

A

The cash balance according to the monthly bank statement

39
Q

What are the deposits in transit?

A

Deposits recorded by the company, but have not been recorded by the bank

40
Q

What are outstanding cheques?

A

Cheques recorded by a company that have not cleared the bank

41
Q

Where do you find the beginning balance of the bank balance?

A

Starts with the closing amount on the bank statement

42
Q

Where do you find the beginning balance of the book balance?

A

Starts with the ending balance in the general ledger

43
Q

When are journal entries required for adjustments?

A

Journal entries are only required for adjustments that impact the general ledger

Adjusted balances from the bank and the company must equal

44
Q

Differences in the bank balance are only…

A

Timing issues and will correct themselves overtime. Bank errors will be corrected by the bank

45
Q

Differences in the book balance can only be corrected with..

A

Journal entries. Only adjustments that impact the general ledger are recorded

Accounting 110 (11 decks)

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