Internal Control- Transaction Cycles

Question 1

Segregation of Duties

Answer 1

authorizing transactions
recording transactions
maintaining custody of assets

Question 2

How can one obtain evidence of segregation of duties?

Answer 2

closely observing personnel/employees

Question 3

Bills of Lading

Answer 3

shipments to customers were invoiced (completeness)

Question 4

How can you be sure that all bill sales are correctly posted to the A/R ledger?

Answer 4

you have to go first to the population of bills which is the daily sales summaries and then compare it to the A/R ledger

Question 5

What is the difference between online systems and batch systems?

Answer 5

online systems immediately update records while batch systems take time

Question 6

Authorization of write-offs should be made by which department?

Answer 6

Treasurer

Question 7

Which tests of controls ensures that goods shipped are properly billed?

Answer 7

shipping matches sales invoices

Question 8

Authorizing credit memos

Answer 8

• defalcation
• weakness in IC
• failure in revenue cycle

Question 9

Bank Lockbox System

Answer 9

-best control over customer receipts which prevents employees to have access over the receipts

Question 10

What should an employee do first as soon as he or she receives cash?

Answer 10

prepare a remittance listing

Question 11

Whenever you receive checks what must one do to avoid being lost?

Answer 11

prepare a duplicate listing

Question 12

When getting checks…

Answer 12

remittance listing->copy of listing should be sent to bookkeeper to update the subsidiary accounts receivable records

Question 13

what can prevent “lapping”?

Answer 13

segregation of duties

Question 14

a person who receives remittances from the mailroom should also deposit slips; person should be the one who signed the check last
(custodial function)

Answer 14

true

Question 15

a person who approves purchase orders also negotiates terms with vendors because they are both authorizing functions; recomputes the calculation on vendor invoices

Answer 15

true

Question 16

Voucher’s payable department

Answer 16

1) determining the mathematical accuracy of the vendor’s invoice;
2) matching the receiving report with the purchase order; and
3) having an authorized person approve the voucher.

-indicate asset and debit account to be debited

Question 17

Adequate seg of duties

Answer 17

authorization, custodial, recordkeeping

Question 18

Treasury functions are custodial functions. Approving invoices is a accounts payable/authorization function

Answer 18

true

Question 19

debit memo

Answer 19

usually for returning goods

Question 20

how does one understand an internal control structure?

Answer 20

inquiries of management and staff, inspection of documents and records, and observation of activities and operations

Question 21

What are management intentions in establishing and maintaining an IC?

Answer 21

1) transactions are executed in accordance with management’s general or specific authorization;
2) transactions are recorded as necessary to permit preparation of the financial statements in accordance with GAAP and to maintain accountability for assets;
3) access to assets is permitted only in accordance with management’s authorization; and
4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and differences are investigated and resolved. (Ensuring that custody of work in process and of finished goods is properly maintained is an example of the third objective)