Questions and Answers
What is the effect of a company paying for a purchase with a credit card?
Accounts payable will increase.
What is a critical aspect of a good internal control system?
Separation of duties.
Preparation of a bank __________ helps maintain control of cash accounts.
reconciliation.
A(n) _________ difference in cash occurs when a company records a transaction either before or after the bank.
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When a person intentionally deceives another person or company for personal gain, this is referred to as?
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What is the most common source of occupational fraud?
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What are the three main objectives of internal control?
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The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the?
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Which events led to the passage of the Sarbanes-Oxley Act of 2002?
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What framework did the Committee of Sponsoring Organizations (COSO) provide?
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What are the two types of control activities?
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What are some examples of preventive controls?
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What are some examples of detective controls?
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Who has the responsibility to apply accounting standards when communicating with investors and creditors?
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What is collusion in terms of internal control?
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One of the most important internal controls for cash is the bank?
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If a company records a transaction before the bank records the same transaction, this is called a/an _______ difference.
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The Sarbanes-Oxley Act applies to?
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The framework for designing an internal control system is provided by the?
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Separation of duties and E-commerce controls are examples of _______ controls.
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List the steps for a bank reconciliation in the correct order.
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What affects cash flows?
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Give some examples of cash inflows.
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Give some examples of cash outflows.
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Selling goods to customers is a(n) ________ activity.
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Selling stocks to investors is a ____________ activity.
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Purchasing equipment is a(n) ___________ activity.
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The entry for a sale to customers is different depending on whether the customer pays with cash or a check.
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If a prospective investor wants to know how much cash a company has on December 31st, where could she find the information?
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What asset is most easily stolen and susceptible to fraud?
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A small amount of cash on hand to pay for minor purchases is commonly referred to as a?
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What is required if a non-sufficient funds check is written?
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How will the bank show a customer's deposit on bank statements?
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Study Notes
Accounting Principles and Internal Controls
- Accounts payable increases when a purchase is made using a credit card.
- Effective internal control systems rely on the separation of duties to prevent errors and fraud.
- Bank reconciliation is vital for maintaining accurate cash account controls.
Timing Differences and Fraud
- A timing difference in cash occurs when transaction recording by a company does not align with bank recording.
- Fraud is the intentional deception for personal gain and often involves misuse of company resources.
- Collusion occurs when two or more individuals work together to bypass internal controls and commit fraud.
Legislation and Frameworks
- The Sarbanes-Oxley Act, enacted in response to high-profile accounting scandals, mandates stricter compliance for publicly traded companies.
- The Committee of Sponsoring Organizations (COSO) provides a framework for designing effective internal control systems.
Types of Controls
- Control activities are categorized into preventive and detective controls.
- Preventive controls include physical measures and separation of duties to minimize risks before they occur.
- Detective controls identify issues after they arise, including audits and reconciliations.
Cash Flow Management
- Changes in cash flows result from any debit or credit transactions involving cash.
- Cash inflows can arise from collections on accounts and sales of services, while cash outflows include payments on accounts and salaries.
- Operating activities involve selling goods, financing activities involve selling stocks, and investing activities pertain to purchasing equipment.
Cash Management Practices
- A petty cash fund is used for minor, miscellaneous purchases.
- Cash remains the most vulnerable asset to theft and fraud.
- A bank review will show customer deposits as credits, reflecting increases in bank liabilities.
Reconciliation Process
- To perform a bank reconciliation, first adjust the bank's cash balance, followed by adjusting the company's cash balance, and finally update the company's cash account.
- Non-sufficient funds checks require cash balance adjustments on reconciliations.
Accounting and Reporting Standards
- Management is responsible for applying accounting standards effectively when dealing with investors and creditors.
- Cash information as of a specific date can be found on the statement of cash flows or the balance sheet.
Summary of True/False Concept
- Transactions involving customer payments do not differ in entry method whether cash or check is used, both are treated as cash transactions.
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Test your knowledge of key concepts in Accounting Chapter 4 with these smart flashcards. Topics include accounts payable, internal controls, and cash account reconciliations. Perfect for reinforcing your understanding of accounting fundamentals.