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  1. What are the two types of control activities?
  2. Internal controls
  3. After preparing the bank reconciliation, an NSF check would result in which of the following when recording the adjustment to the company's cash balance?

    Debit to Service Fee Expense.
    Credit to Accounts Payable.
    Credit to Service Revenue.
    Debit to Accounts Receivable.
  4. Monitoring includes..
  5. Checks outstanding
  6. Which of the following is an example of a preventive control in a company?

    The management evaluates the overall performance by comparing sales for the current year with sales for the previous year.

    Employees responsible for making cash disbursements are not in charge of cash receipts.

    Management periodically determines whether the amount of physical assets of the company match the accounting records.

    Actual performance of individuals are routinely checked against their expected performance.
  7. The provision of auditor rotation meant ...
  8. A company records a daily deposit of $1,000, but an employee deposits only $100 into the bank account and pockets the rest. This is an example of a(n) __________.
    Timing Difference or error
  9. Collusion
  10. The management establishes a petty cash fund by writing a check for ..
  11. The control environment ...
  12. Halle's Berry Farm establishes a $560 petty cash fund on September 4 to pay for minor cash expenditures. The fund is replenished at the end of each month. At the end of September, the fund contains $233 in cash and the following receipts:


    Office party decorations $ 75
    Lawn maintenance $116
    Postage $62
    Fuel for delivery $74

    Record the establishment of the petty cash fund on September 4, the expenditures made during the month, and the replenishment of the fund on September 30. (Omit the "$" sign in your response.)
  13. A furniture store accepts MasterCard as payment for $1,000 worth of furniture. MasterCard charges a service fee of 2 percent. Which of the following would be recorded by the store?

    Debit $20 to Service Fee Expense
    Debit $1,000 to Cash
    Credit $980 to Service Revenue
    Credit $980 to Cash
  14. Separation of duties refers to..

    Making each manager personally responsible for his/her department.

    Keeping functions across different departments separate.

    Preventing top management and lower-level employees from interacting.

    Individuals who have physical responsibility for assets should not also have access to accounting records.
  15. Risk assessment ...
  16. Internal control systems are especially susceptible to ..
  17. What are some examples of cash transactions recorded by a bank but not yet recorded by the company?
  18. Five key components to an internal control system are ...
  19. What are Physical Controls
  20. Section 404 requires company management and auditors to document and assess the effectiveness of a company's ..
  21. Deposits outstanding
  22. Reconciling the bank account involves what three steps?
  23. what is separation of duties
  24. Accounting for the petty cash fund involves..
  25. Earnings quality
  26. What is an example of Collusion?
  27. Among all of the company's assets, what is the most susceptible to employee fraud?
  28. Petty cash fund
  29. Which of the following is an example of a detective control in a company?

    Accounting personnel routinely reconciles the company's cash records with those of its bank to identify discrepancies.

    Only senior managers are authorized to make purchases over a certain amount.

    Electronic records are backed up daily, and require user-ID and password for access.

    Concession supplies are kept in a locked room with access allowed only to authorized personnel.
  30. What is proper authorization
  31. Which account would be credited when a firm pays for supplies using a credit card?

    Notes Payable
    Cash
    Service Fee Expense
    Accounts Payable
  32. What are performance reviews
  33. Control activities are the..
  34. Preventive controls are designed to..
  35. SOX also required audit firms to be hired by the...
  36. To address conflicts of interest issues, audit firms are not allowed to ...
  37. Occupational fraud
  38. Recording revenue is similar for debit card transactions and credit card transactions.

    True
    False
  39. Auditors must retain all work papers for...
  40. What errors should you catch in the steps of reconciling the bank account?
  41. Important elements of a cash disbursement control system include the following steps..(5)
  42. Detective controls are designed to..
  43. The fund should have just enough cash to make minor expenditures over a reasonable period, such as ..
  44. Cash
  45. To pay for minor purchases, companies keep some cash on hand in a petty cash fund. At the end of the period, expenditures from the petty cash fund are recorded with a debit to Miscellaneous Expense and a credit to Cash, and the fund is replenished.

    True
    False
  46. What provides control by reducing employees' need to directly handle cash?
  47. Cash disbursements include..
  48. Information and communication depend on..
  49. A chocolate store pays its supplier $800 by check. The company records a decrease in cash immediately, but the bank doesn't record a decrease in cash until the supplier later deposits the check. This gives rise to a(n) __________.
    Timing difference or error
  50. McGregor Company allows customers to pay with credit cards. The credit card company charges McGregor 3% of the sale. When a customer uses a credit card to pay McGregor $200 for services provided, McGregor would:

    Debit Cash for $200.
    Credit Service Revenue for $194.
    Debit Service Fee Expense for $6.
    Credit Service Revenue for $206.
  51. What is employee management
  52. Free cash flow
  53. Bank reconciliation
  54. SOX also made it unlawful for the auditors of public companies to perform
  55. Separation of duties
  56. SOX established what company?
  57. A customer paid $250 using a check for purchases made in the first week of January. The bank statement received at the end of the month showed that this was an NSF check. The entry needed to adjust this in the company's cash balance for reconciliation will include a credit to __________.
    Cash for $250 or Accounts Recievable for $250
  58. Recording the establishment of a petty cash account will include _____.

    a debit to Accounts Payable
    a credit to Petty Cash
    a debit to Miscellaneous Expense
    a credit to Cash
  59. Give an example of Risk Assesment in a movie theator. Give internal risks and external risks.
  60. NSF Checks
  61. __________ could decrease a bank's cash balance during the reconciliation process.
    Debit Outstanding or Outstanding Check
  62. What are reconciliations
  63. Recording expenditures from the petty cash fund will involve a credit to the Petty Cash account.

    True
    False
  64. In response to the corporate accounting scandals and to public outrage over seemingly widespread unethical behavior of top executives such as Enron and WorldCom, Congress passed the...
  65. The corporate form of business is an entity separate from its owners. This means that corporate executives need not personally certify the company's financial statements and financial disclosures.

    True
    False
  66. Information for next Problem
  67. Record the necessary cash adjustments.
  68. Recording the replenishment of the petty fund cash fund will involve a debit to the Cash account.

    True
    False
  69. At the time a $400 petty cash fund is being replenished, the company's accountant finds vouchers totaling $350 and petty cash of $50. The vouchers include: postage, $100; business lunches, $150; delivery fees, $75; and office supplies, $25. Which of the following is not recorded when recognizing expenditures from the petty cash fund?

    Debit Postage Expense, $100.
    Debit Supplies, $25.
    Credit Petty Cash, $350.
    Debit Petty Cash, $350.
  70. Cash equivalents
  71. Which of the following is a good internal control mechanism for cash disbursements?
  72. The PCAOB has the authority to...
  73. Suppose an electronic services store accepts MasterCard as payment for $5,000 worth of products, and MasterCard charges the store a service fee of 3 percent (or $150 on sales of $5,000). How would the store record this transaction?
  74. According to the provisions of the Sarbanes-Oxley Act, audit firms are not allowed to audit public companies whose chief executives worked for the audit firm and participated in that company's audit during the preceding year.

    True
    False
  75. The CEO and CFO sign a report each year assessing ..
  76. Prepare a bank reconciliation for Oscar's checking account on February 29, 2012. (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)
  1. a Small amount of cash kept on hand to pay for minor purchases
  2. b detect errors or fraud that already have occurred. These include reconciliations and performance reviews.
  3. c Accounts Payable
  4. d preventive and detective
  5. e Outstanding Check (After a bank recieves the checks outstanding, the banks cash balance will decrease.)
  6. f Internal Controls
  7. g
  8. h False, Think of responsibilities of executives after the passing of the Sarbanes-Oxley Act.
  9. i True, We need to reduce the balance in the petty cash account to recognize expenditures.
  10. j Cash
  11. k False, Think about the requirement for appropriate documentation.
  12. l that the lead auditor in charge of auditing a particular company must rotate off that company within five years and allow a new audit partner to take the lead.
  13. m These include items such as interest earned by the company, collections made by the bank on the company's behalf, service fees, and charges for NSF checks.
  14. n The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources
  15. o disbursing physical cash, writing checks and using credit cards and debit cards to make payments.
  16. p Maximum purchase limits set on debit and credit cards.
    (Think about authorization for all purchases and use of credit and debit cards.)
  17. q audit public companies whose chief executives worked for the audit firm and participated in that company's audit during the preceding year.
  18. r has the authority to establish standards dealing with auditing, quality control, ethics, independence, and other activities relating to the preparation of audited financial reports.
  19. s The company should maintain security over assets and accounting records.
  20. t certain non-audit services, such as consulting, for their clients.
  21. u audit committee of the Board of Directors of the company, not by company management.
  22. v A company's plans to (1) safeguard the company's assets and (2) improve the accuracy and reliability of accounting information
  23. w the reliability of the accounting information system itself. If the accountant's office has papers scattered everywhere, and you learn the company still does all its accounting by hand without a computer, wouldn't you, as an investor or lender, be a bit worried?
    Example:an anonymous tip hotline should be in place to encourage communication about unethical activities, such as an employee giving concession items free to her friends.
  24. x Sarbanes-Oxley Act, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX.
  25. y True
  26. z A credit to Cash (Recording the establishment of a petty cash account will include a debit to the Petty Cash account and a credit to Cash.)
  27. aa Authorizing transactions, recording transactions, and maintaining control of the related assets should be separated among employees
  28. ab policies and procedures that help ensure that management's directives are being carried out. These activities include authorizations, reconciliations, and separation of duties.
  29. ac A week or Month
  30. ad Operating cash flows plus investing cash flows during the period
  31. ae If the cashier and the accountant in a firm decide to work together to steal cash, theft will be much more difficult to detect.
  32. af The ability of net income to help predict future performance of the company
  33. ag whether the internal controls are adequate.
  34. ah False, The journal entry is similar to the one required to establish a petty cash fund.
  35. ai Cash for 250 (Think of the asset account that the company would have increased earlier, when it recieved the check.)
  36. aj In the first two steps, we should catch timing differences as well as errors made by either the company or the bank. In the third step, we update the company's accounting records for cash transactions that have occurred but have not yet been recorded.
  37. ak identifies and analyzes internal and external risk factors that could prevent a company's objectives from being achieved.
  38. al Management should periodically determine whether the amounts of physical assets of the company match the accounting records.
  39. am Short-term investments that have a maturity date no longer than 3 months from the date of purchase. Common examples of such investments are money market funds, Treasury bills, and certificates of deposit.
  40. an True, From a store's perspective, think of similarities between debit cards and credit cards.
  41. ao Make all disbursements, other than small ones, by check, debit card, or credit card.

    Authorize all expenditures before purchase and verify the accuracy of the purchase itself.

    Make sure checks are serially numbered and signed only by authorized employees. Require two signatures for larger checks.

    Periodically check amounts shown in the debit card and credit card statements against purchase receipts.

    Make sure that duties are separated. Employees responsible for making cash disbursements should not also be in charge of cash receipts.
  42. ap The company should provide employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties.
  43. aq
  44. ar Debit $20 to Service Fee Expense
  45. as Authorizing transactions, recording transactions, and maintaining control of the related assets should be separated among employees.
  46. at Two+ people acting in coordination to circumvent internal controls.
  47. au Checks drawn on nonsufficient funds, or "bad" checks from customers
  48. av 7 years or face a prison term for willful violation.
  49. aw Error
  50. ax Accounting personnel routinely reconciles the company's cash records with those of its bank to identify discrepancies. (Bank reconciliation is an example of a detective control.)
  51. ay Public Company Accounting Oversight Board (PCAOB),
  52. az control environment, risk assessment, control activities, monitoring, and information and communication.
  53. ba Cash receipts of the company that have not been added to the bank's record of the company's balance
  54. bb recording transactions to establish the fund, recognize expenditures from the fund, and replenish the fund as the cash balance becomes sufficiently low.
  55. bc Internal risks for the theatre include issues such as unsafe lighting, faulty video projectors, unsanitary bathrooms, and employee incompetence with regard to food preparation. Common examples of external risks include a vendor supplying lower-grade or unsafe popcorn, moviegoers' security in the parking lot, or perhaps the decline in customer demand from DVD rentals or On Demand at home.
  56. bd reconciling the bank's cash balance, reconciling the company's cash balance, and adjusting the company's cash balance.
  57. be Employees responsible for making cash disbursements are not in charge of cash receipts. ( Preventive controls are designed to keep errors or fraud from occurring in the first place.)
  58. bf
  59. bg the store records the $5,000 credit card transaction as $4,850 cash received and $150 service fee expense.
  60. bh Debit Service Fee Expense for $6.
  61. bi Collusion
  62. bj keep errors or fraud from occurring in the first place. These include separation of duties, physical controls over assets and accounting records, proper authorization to prevent improper use of the company's resources, and employee management.
  63. bk Timing Difference
  64. bl Debit to Accounts Receivable.
  65. bm Matching the balance of cash in the bank account with the balance of cash in the company's own records. (If you have your own checking account, you know that the balance of cash in your checkbook often does not equal the balance of cash in your bank account.)
  66. bn Debit Petty Cash, $350.
  67. bo To prevent improper use of the company's resources, only certain employees are allowed to carry out certain business activities.
  68. bp sets the overall ethical tone of the company with respect to internal control.
  69. bq Individuals who have physical responsibility for assets should not also have access to accounting records.
  70. br The actual performance of individuals or processes should be checked against their expected performance.
  71. bs Acceptance of Credit Cards
  72. bt Checks the company has written that have not been subtracted from the bank's record of the company's balance
  73. bu
    last one is credit cash 2458
  74. bv cash against the company's checking account and putting that amount of withdrawn cash in the hands of an employee who becomes responsible for it.
  75. bw Currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), and cash equivalents
  76. bx formal procedures for reporting control deficiencies. Monitoring of internal controls needs to occur on an ongoing basis. For instance, a movie theater manager should compare daily cash from sales with the number of tickets issued, compare concession sales with units purchased, and make sure employees are paid only for actual hours worked.