Podcast
Questions and Answers
Which of the following are principles of internal control? (Select all that apply)
What is a key aspect of establishing responsibilities?
Responsibility for a task should be assigned to one person.
Why is it important to maintain adequate records?
Good record keeping helps protect assets and helps managers monitor company activities.
What does it mean to insure assets and bond key employees?
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An employee who has access to an asset must also have access to that asset's accounting records.
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What is the purpose of dividing responsibility for related transactions?
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What is the role of technological controls in internal control?
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What should regular reviews of internal controls be performed by?
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What constitutes a cash account?
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Define cash equivalents.
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Which of the following are cash management strategies? (Select all that apply)
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Sales are recorded on a cash register after each sale, and customers are given a __________.
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Match the cash receipt control procedures with their descriptions:
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Study Notes
Principles of Internal Control
- Establish responsibility to assign specific tasks to individuals, making it easier to determine accountability.
- Maintain adequate records to protect assets and enable managers to monitor company activities effectively.
- Insure assets to minimize risk; employees handling cash or valuable assets should be bonded for additional security.
- Separate recordkeeping from Custody of assets; prevent a single employee from having access to both assets and their accounting records.
- Divide responsibility for related transactions among multiple individuals or departments to create checks and balances against errors.
- Apply technological controls, utilizing tools like ID scanners to enhance asset protection and control.
- Perform regular and independent reviews of internal controls, ideally by outside auditors, to ensure effectiveness.
Cash Management
- Cash accounts include physical currency, coins, checks, and deposits held in bank accounts.
- Cash equivalents are short-term, liquid investments that can rapidly be converted to cash—typically with maturity within three months, e.g., Treasury bills.
- Key cash management strategies involve:
- Encouraging early collection of receivables to improve cash flow.
- Delaying payments on liabilities to maintain cash availability longer.
- Keeping only necessary cash assets and planning expenditures accordingly.
- Investing excess cash to optimize financial returns.
Over-the-Counter Cash Receipt Control Procedures
- Sales transactions are recorded immediately on cash registers, and customers receive receipts to acknowledge their purchases.
- Cash registers maintain a secure, locked-in record of all transactions and are often integrated with the company’s accounting systems.
- Ensure cash custody is separate from recordkeeping; the individual handling cash should not have access to accounting records, promoting transparency and accountability.
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Description
Test your knowledge on the key concepts of internal control principles with these flashcards from Chapter 6. Each card presents important terms and their definitions to help you understand effective internal control systems in accounting.
