ACC116 Financial Accounting Chapter 5 Flashcards

Questions and Answers

What is the control principle that relates to one employee selling tickets and another collecting them at a movie theater?

Restrict access

Independently verify

Segregate duties (correct)

Establish responsibility

Document procedures

What kinds of frauds could occur if the same person handled both selling and collecting tickets?

Possibility of recording every sale

Possibility of not issuing tickets (correct)

Possibility of charging too much (correct)

Possibility of not recording the sale (correct)

Which control principle was violated when receipts were only written for donors who asked for one?

Document procedures (correct)

Establish responsibility

Restrict access

Segregate duties

Independently verify

What internal control weakness allowed a supervisor at LRC to steal cash?

The supervisor was responsible for handling the cash, preparing the cash count sheet, and depositing cash in the bank. Signup and view all the answers

The supervisor places the cash in a ______ until it is taken to the bank for deposit.

locked cashbox Signup and view all the answers

What does the supervisor do after counting the cash?

Prepares a cash count sheet. Signup and view all the answers

What is done with the cash count sheets after they are prepared?

They are summarized in a prenumbered daily cash summary and filed by date. Signup and view all the answers

Match the control principles with their appropriate descriptions:

Segregate Duties = One employee sells tickets and another collects them. Document Procedures = Preparing cash count sheets and summaries. Restrict Access = Placing cash in a locked cashbox. Independently Verify = Comparing stamped deposit slips with daily cash summaries. Signup and view all the answers

What does the supervisor send to the accountant for verification?

The stamped bank deposit slip and daily cash summary. Signup and view all the answers

Study Notes

Control Principles in Financial Accounting

Segregate Duties: Essential to prevent fraud; involves splitting responsibilities so no single person handles both sales and cash collection, reducing risk.
Fraud Risks: If one person both sells and collects tickets, potential frauds include not issuing tickets or failing to record sales.
Document Procedures: Critical for accountability; all transactions should generate documentation, not just those requested by donors.
Establish Responsibility: Clearly defined roles, like having specific clerks assigned to different locations, help ensure accountability in a cash-oriented business.
Restrict Access: Safeguards against theft; cash is secured in a locked cashbox until deposited in the bank.
Independently Verify: A secondary check on accuracy; accountants compare bank deposit slips with cash summaries to ensure consistency.

Cash Handling in Locker Rentals Corporation (LRC)

Cash Collection Process: Two clerks collect cash from distinct city locations, fostering a controlled approach.
Supervisor's Role: Responsible for cash counts and preparation of cash count sheets, highlighting the importance of having an overseer.
Daily Cash Summary: Maintains accuracy through prenumbered documentation, which aids in tracking and preventing discrepancies.
Cash Security: Cash is kept secure until bank deposits, minimizing risk during transit.

Internal Control Weaknesses

Single Responsibility Issue: When one supervisor managed multiple cash handling tasks, it created an opportunity for theft, highlighting the need for stricter segregation of duties.
Importance of Internal Controls: The lack of a robust accounting system exacerbated fraud risks, emphasizing the necessity of checks and balances in cash management.

Description

Test your understanding of key concepts from Chapter 5 of Financial Accounting in ACC116. This set of flashcards focuses on important control principles, including the segregation of duties. Prepare to reinforce your knowledge and enhance your accounting skills.