M3-Cash Cycle Flashcards
Kiting occurs when a check drawn on one bank is deposited in another bank and no record is made of the disbursement in the balance of the first bank. Frequent kiting may result in a high level of deposits coupled with a low average balance. (true or false)
true
The standard AICPA bank confirmation form includes spaces for the bank to confirm both cash balances on deposit at the bank and collateral pledged on loans originating from the bank. (true or false)
true
Good internal control for cash includes the separation of cash handling, recordkeeping, and reconciliation of bank statements. If the same person who disburses cash (via blank checks and signature plates) also reconciles the bank statement, there is an opportunity for that person to embezzle cash and cover it up. (true or false)
true
When lapping occurs, an employee uses current remittances to conceal remittances that have been stolen previously. Thus, a lag will exist from the time that this current payment is deposited until the current customer’s account is actually credited. (The current payment is applied to the previous customer’s account). (true or false)
true
A lockbox system is the best means of preventing defalcation of cash by employees because the employees never have direct access to cash receipts. (true or false)
true
An auditor would be most likely to identify a contingent liability by obtaining a standard bank confirmation, which has an “exceptions and comments” box that specifically discloses contingent liabilities as endorser of loans, for open letters of credit, etc. (true or false)
true
The auditor should obtain bank cutoff statements that include transactions for 10 to 15 days after year-end. The outstanding checks and deposits in transit at year-end on the bank reconciliation should agree with the information in the bank cutoff statement. (true or false)
true
The standard confirmation request seeks information on contingent liabilities and security agreements in addition to information related to deposit account balances. (true or false)
true
The primary evidence regarding year-end cash balances in the financial statements is documented in the bank reconciliation, which reconciles the balance per the bank to that per the financial statements. (true or false)
true
The primary purpose of sending a standard confirmation request to financial institutions is to corroborate information regarding deposit and loan balances. (true or false)
true
