Accounting Chapter 6 Flashcards

Questions and Answers

Which of the following are principles of internal control? (Select all that apply)

Maintain insufficient records

Divide responsibility for related transactions (correct)

Separate recordkeeping from custody of assets (correct)

Establish responsibilities (correct)

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?

Assets should be insured while employees that handle cash or easily transferable assets should be bonded. Signup and view all the answers

An employee who has access to an asset must also have access to that asset's accounting records.

False Signup and view all the answers

What is the purpose of dividing responsibility for related transactions?

Responsibility should be divided between two or more individuals or departments. Signup and view all the answers

What is the role of technological controls in internal control?

Use technology such as ID scanners to protect assets and improve control. Signup and view all the answers

What should regular reviews of internal controls be performed by?

Outside reviewers, preferably auditors. Signup and view all the answers

What constitutes a cash account?

Includes currency, coins, checks, and deposits in bank accounts. Signup and view all the answers

Define cash equivalents.

Short-term, liquid investment assets that are convertible to a known cash amount and are close to their due date. Signup and view all the answers

Which of the following are cash management strategies? (Select all that apply)

Plan expenditures Signup and view all the answers

Sales are recorded on a cash register after each sale, and customers are given a __________.

receipt Signup and view all the answers

Match the cash receipt control procedures with their descriptions:

Sales recorded on a cash register = Ensure every transaction is logged Cash registers hold a locked-in record = Provide security for financial data Custody over cash is separate from recordkeeping = Prevent access to both cash and records Signup and view all the answers

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.

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.