Financial Accounting Chapter 7 Review

Internal controls is an organizational plan that ensures that the financial statements are prepared and submitted on time. (True or false)

Which of the following is true of internal controls? A) A company's outside auditor is responsible for the company's internal control system. B) One of the major purposes of internal control is to ensure that the assets are safeguarded. C) Internal control procedures tend to diminish the importance of operational efficiency. D) Internal controls are mainly used to ensure timely payment of liabilities.

Which of the following is an objective of internal control? A) to encourage employees to follow company policies B) to ensure timely payment of accounts payable C) to ensure timely collection of accounts receivable D) to guarantee that a business makes a profit

Reducing expenses to increase operating profit is representative of ____________.

Which of the following is representative of safeguarding assets? A) attaching electronic sensors to merchandise inventory B) reducing expense to increase operating profit C) increasing operating profit to increase net income D) allowing company accountants to handle cash

Which of the following is a benefit provided by internal control? A) It ensures timely collection of accounts receivables. B) It ensures that collusion will never happen. C) It guarantees that a business makes profit. D) It promotes operational efficiency.

The Sarbanes-Oxley Act requires all private companies in the United States to maintain an internal control system. (True or false)

The Public Company Accounting Oversight Board oversees the work of auditors of public companies. (True or false)

Under the Sarbanes-Oxley Act, accounting firms are allowed to audit public company and provide certain consulting services for the same client. (True or false)

An information system is one of five components by which a company can achieve its internal control objectives. (True or false)

The environment is the culture of a business, and it starts with the CEO or CFO and the top managers. (True or false)

Which of the following is a requirement of the Sarbanes-Oxley act? A) An outside auditor must evaluate the client's internal controls and report on the internal controls as part of the audit report. B) The Public Company Oversight Board must conduct audits of public companies. C) The accounting firm that audits a public client must also provide consulting services for the same client. D) The Public Company Oversight Board must create new accounting standards.

Internal auditors are employees of the business who ensure that employees are following company policies and that operations are running efficiently. (True or false)

External auditors evaluate company controls to ensure the financial statements are presented fairly, in accordance with Generally Accepted Accounting Principles. (True or false)

Which of the following components of internal control consists of work performed by internal and external auditors? A) monitoring of controls B) information systems C) control procedures D) control environment

Which of the following describes the risk assessment component of internal control? A) Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate. B) Risk assessment is the "tone at the top" of the business. C) A company must identify its risks and take necessary steps to minimize them. D) Risk assessment is designed to ensure that the business's goals are achieved.

Which of the following is an attribute of the internal control component-monitoring of controls? A) Internal auditors monitor company controls to safeguard assets, and external auditors evaluate the controls to ensure that the accounting records are accurate. B) Monitoring of controls is the "tone at the top" of the business. C) Monitoring of controls is designed to ensure that the business's goals are achieved. D) Monitoring of controls deals with identification and assessment of business risks.

Rearranging plain-text messages by a mathematical process is known as ______________.

Two or more people working together to circumvent internal controls and defraud a company is known as ________________.

In a large company, the person who is responsible for comparing cash and the bank balance is the __________________.

Which of the following is a measure for discouraging theft for a retail store that accepts cash receipts over the counter? A) A receipt is issued for each transaction to ensure that each sale is recorded. B) At the end of the day, the sales clerk proves the cash by comparing the cash in the drawer against the machine's record of cash sales. C) The sales clerk uses the machine tape to record the journal entry for cash receipts and sales revenue. D) The store clerk deposits the cash in the bank.

Before signing a check, the controller or the treasurer should examine the purchase order, the invoice, and the receiving report to determine that the company received the goods and that the company is paying only for the goods received. (True or false)

A receiving report should be matched with the supplier invoice before a payment to the supplier is approved. (True or false)

For good controls over cash payments, the person who orders goods from a supplier should always be different from the person who approves the payment. (True or false)

A streamlined process that bypasses paper documents altogether and in which computers of retailers communicate directly with the computers of suppliers to automate routine business transactions is known as ________. A) Real Time Gross Settlement B) Electronic Data Interchange C) Electronic Fund Transfer D) Evaluated Receipts Settlement

In a good internal control system, which of the following sets of documents is required for proper approval of a payment to a supplier? A) a journal entry, a supplier invoice, and a description of the goods being purchased B) a receiving report, an invoice, and a purchase order C) a purchase order, a journal entry, and a price catalog D) a supplier invoice, a bill of lading, and the supplier's financial statements

Evaluated Receipts Settlement is ________. A) a streamlined process that bypasses paper documents altogether B) a process that eliminates the need for separation of duties C) a procedure that compresses the payment approval process into a single step by comparing the receiving report to the purchase order D) an organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records

A business keeps cash in a bank account because banks have established practices for safeguarding the business's money. (True or false)

Which of the following items will not appear as deductions on a bank statement? A) NSF B) EFT C) Service Charge D) Deposits

All items on the book side of the bank reconciliation require journal entries. (True or false)

In a bank reconciliation, a NSF check will be shown on the book side of the reconciliation. (True or false)

The bank recorded a $3,000 deposit as $300. How would this information be included on the bank reconciliation?

A check payment for $658 was incorrectly entered in the cash account as $856. which adjustment needs to be made

Which item requires an adjustment on the bank side of the bank reconciliation? A) interest earned B) a bank service charge C) a note collected by the bank D) deposits in transit

The bank statement reveals an EFT received from a customer that has not yet been recorded in the ledger. How would this information be included on the bank reconciliation?

A ___________ is a document explaining the reasons for the difference between a depositor's Cash account in the ledger and the depositor's cash balance in its bank account.

In a bank reconciliation, a deposit in transit will be shown on the bank side of the reconciliation. (True or false)

A bank made an EFT payment of a telephone bill of $5,000. How would this information be included on the bank reconciliation?

A check of $300,000, deposited by company, was returned to the bank for nonsufficient funds. How would this information be included on the bank reconciliation?

On a bank reconciliation, deposits in transit are added on the bank side of the reconciliation. (True or false)

If the bank reconciliation includes a bank service charge, a journal entry is required, which debits Bank Expense and credits cash. (True or false)

Which of the following would be included in the journal to record an NSF check?

Journal entries are required for the reconciling items on the book side because _________________.

Cash ratio

Cash and cash equivalents are divided by ____________ to detrmine the cash ratio.

The cash ratios for 4 companys are below. Juan Corp. -0.26 Rose Inc. - 0.15 Freelance Inc. - 0.18 Pioneer Corp. - 0.27 which has the maximum ability to repay its current liabilities?