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Exam 4: Cash and Internal Controls

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Question 31

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Which of the following is NOT a design feature of effective internal controls?

A) Allow greater reliance by investors on reported financial statements.
B) Prevent fraudulent or errant financial reporting.
C) Ensure the company's price advantage over competitors.
D) Prevent misuse of company funds by employees.

E) C) and D)
F) All of the above

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Question 32

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Under the provisions of the Sarbanes-Oxley Act,corporate executives:

A) Have limited responsibility for financial statements.
B) Must personally prepare the company's financial statements.
C) Must personally certify the company's financial statements.
D) Are not allowed to view the company's financial statements.

E) B) and D)
F) A) and C)

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Question 33

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Separation of duties refers to:

Separation of duties refers to auditors not being allowed to perform both audit and nonaudit services for the same client.

When customers pay for services with a debit card,the company should debit Cash and credit Service Revenue.

After preparing a bank reconciliation,the collection of a note by the bank on a company's behalf would be recorded with:

The act of collusion refers to:

Interest earned on a bank account is an example of a cash transaction recorded by the company and then later by the bank after notification.

Management needs to monitor the internal control system,just like any other system.Any control deficiencies spotted by employees should be reported immediately to management.

A company establishes a $400 petty cash fund on August 3 to pay for minor cash expenditures.The fund is replenished at the end of each month.At the end of August,the fund contains $40 in cash and the following receipts: $\begin{array} { l r } \text { Delivery fees } & \$ 100 \\\text { Plumbing maintenance } & 70 \\\text { Postage } & 40 \\\text { Flowers for the office } & 50\end{array}$ Record the establishment of the petty cash fund on August 3,the expenditures of the fund,and replenishment on August 31.

The following data were obtained from the bank statement and from the process of reconciling it: Bank service charges = $20 Deposit outstanding = $150 Interest earned on the bank account = $10 Checks outstanding = $400 Which items should be deducted from and added to the bank balance in completing the reconciliation?

A company uses the following process for its cash receipts.At the end of each day,the secretary places all cash and checks received from customers in a desk drawer.Each Monday,the secretary totals all amounts received,records this in the accounting records,and deposits the money in the bank account.Then,once every three months,the office manager requests information from the bank necessary to prepare a bank reconciliation.Discuss the company's internal control procedures related to cash receipts.

Opening mail and making a list of checks received once per week is considered a good internal control over cash receipts.

Occupational fraud:

A company had the following sales transactions: 1.Total debit card sales = $200,000. 2.Total credit card sales = $400,000. 3.Total cash sales = $800,000. 4.Total check sales = $100,000. There is a charge of 2% on all credit card transactions.Calculate total sales revenue recorded for the year.

The petty cash fund should have just enough cash to make minor expenditures over a reasonable period (such as a week or a month).

Common types of financial statement fraud include creating fictitious revenues from a fake customer,improperly valuing assets,and mismatching revenues and expenses.

Which of the following is correct regarding a petty cash fund?

Recording all cash receipts as soon as possible is considered a good internal control.

An NSF check is an example of a cash transaction that is initially recorded by the bank and later by the company after notification.