Deck 11: Other Benefits and Reimbursements

Question 1

When an accountant improperly copies information from a journal into a ledger, this error is said to occur during the

A) Recognition stage
B) Classification stage
C) Summarization stage
D) Reporting stage

Answer 1

C

Question 2

Objectives of internal controls control which of the following?

A) Ensuring compliance with company policies
B) Ensuring operations are conducted efficiently
C) Ensuring accurate financial reporting
D) All of the above

Answer 2

D

Question 3

Which of the following is the clearest example of a preventive control?

A) Once each year, a company looks over its payroll records to see if any employee has been paid more money than their authorized salary.
B) Once each year, a company counts its inventory and investigates why some items are missing.
C) Before it accepts any new orders from a customer, it checks to make sure the customer has a good credit rating.
D) The company hires attorneys to sue customers who have not paid their bills.

Answer 3

C

Question 4

Which of the following is the clearest example of a detection control?

A) The company only accepts customer orders after it has checked that their credit card numbers are valid.
B) Once each year, the company examines its payroll records and looks for employees who have been paid a very large amount of overtime pay.
C) The company keeps its warehouse locked at night.
D) The company only allows certain high-level employees to approve payments to suppliers.

Question 5

A company has a policy that a receipt has to be created every time a customer makes a payment. This is an example of which type of general accounting control?

A) Segregation of duties
B) Authorization procedures
C) Documentation and record-keeping
D) Regular independent reviews

Question 6

A company has a policy of having bank reconciliations prepared every month by an employee who has no other duties with respect to cash. This is an example of which type of general accounting control?

A) Authorization procedures
B) Documentation and record-keeping
C) Physical control over assets and records
D) Regular independent reviews

Question 7

A retail store has a policy that cash must be deposited in the bank twice each day. This would most likely be an example of which type of internal control?

A) Authorization procedures
B) Documentation and record-keeping
C) Loss limitation procedures
D) Regular independent reviews

Question 8

A company that makes significant sales over the internet has customers enter their addresses on screens that have drop-down menus for certain items, such as the name of the state and the available colors of the items for sale. This use of drop-down menus is most likely an example of which type of internal controls?

A) Segregation of duties
B) Process design features to prevent errors
C) Loss limitation procedures
D) Regular independent reviews

Question 9

A company pays the right amount of rent for November, but mistakenly records this payment of November rent twice. This misstatement can be said to occur during the

A) Recognition stage
B) Classification stage
C) Summarization stage
D) Reporting stage

Question 10

A company improperly records a check for property tax as a printing expense. This misstatement can be said to arise during the

A) Recognition stage
B) Classification stage
C) Summarization stage
D) Reporting stage

Question 11

The land account normally has a credit balance.

Question 12

The salaries payable account normally has a credit balance.

Question 13

The accounts payable account normally has a debit balance.

Question 14

For information to meet the FASB's criterion of "representational faithfulness," it should be free from material misstatements.

Question 15

It is a good control practice to make sure that the same person who is responsible for authorizing transactions is also responsible for recording them and handling the assets related to the transaction.

Question 16

Expense accounts normally have credit balances.

Question 17

Which of the following statements is true regarding errors in accounting?

A) They are intentional.
B) They are designed to achieve a particular effect in the financial statements.
C) They tend to be random, and different errors in computing income often partially offset each other.
D) They are usually carefully concealed.

Question 18

A company does not realize that an employee is stealing some of its inventory, and therefore its records do not reflect this theft. This misstatement can be said to arise during the

A) Recognition stage
B) Classification stage
C) Summarization stage
D) Reporting stage

Question 19

A company has a policy that the accounting department personnel who keep records of inventory must never actually be the ones who have custody of the inventory. This is an example of which type of general accounting control?

A) Segregation of duties
B) Authorization procedures
C) Documentation and record-keeping
D) Physical control over assets and records

Question 20

A company has a policy that the internal audit department should audit records of every division once each year. This is an example of which type of general accounting control?

A) Authorization procedures
B) Documentation and record-keeping
C) Physical control over assets and records
D) Regular independent reviews

Question 21

Even though major companies have internal control systems, errors and irregularities still sometimes occur. List and briefly discuss two general limitations of internal control systems that help explain how these problems can still occur.

Question 22

A company has a policy that only the chief financial officer or the chief executive officer are allowed to sign checks. This is an example of which type of general accounting control?

A) Authorization procedures
B) Documentation and record-keeping
C) Physical control over assets and records
D) Regular independent reviews

Question 23

"Segregation of duties" means that different people should be responsible for the steps of authorizing transactions, recording them, and actually handling the assets related to a transaction.

Question 24

Describe the major objectives of a system of internal control.

Question 25

The accounts receivable account normally has a debit balance.

Question 26

Investigating reported variances from budget can sometimes help to uncover errors in accounting.

Question 27

A bookkeeper using a double entry system can record an increase in cash without indicating whether any other accounts were affected by this increase in cash.

Question 28

The accounting record that is used to initially record transactions at the time they occur is called a "journal."

Question 29

The accounting record that is used to initially record transactions is called a "general ledger."

Question 30

A "general ledger" typically contains separate accounts for every classification of asset, liability, equity, revenue, dividend, and expense that a company has, sorted by account.

Question 31

"Management override" occurs when management instructs employees to ignore the normal accounting processes, and to change the numbers in a particular direction.

Question 32

One of the objectives of company internal control systems is to ensure accurate and reliable financial reporting.

Question 33

Company internal controls are entirely related to financial reporting, and are not related to the effectiveness or efficiency of company operations.

Question 34

Company internal control systems are entirely devoted to ensuring that company employees safeguard company assets, and are not intended to ensure that companies follow laws and regulations.

Question 35

The double entry system of bookkeeping is used because it is cheap, but it does not have any significant internal control functions.

Question 36

Misstatements only arise at the recognition stage of the accounting process.

Question 37

Fraud can be due to inadvertent errors.

Question 38

As long as an accountant carefully follows GAAP, financial statements will always accurately portray economic reality.

Question 39

Errors in accounting are, in general, equally likely to make a company look better or to make it look worse.

Question 40

One reason that accounting reports are sometimes misleading is that GAAP sometimes differs from economic reality.

Question 41

Fraudulent misstatements are usually easier to detect than errors.

Question 42

A company has a computer system that will not let an accountant make a journal entry if the debits do not equal the credits. This is an example of a process design feature to prevent errors.

Question 43

A well-designed system of internal controls can make material fraud less likely.

Question 44

Misstatements can arise at several different stages of the accounting process, including the recognition and summarization phases.

Question 45

Normally, it is cheaper and easier to use detective controls to catch problems that have occurred than to use preventive controls to try to avoid problems occurring.

Question 46

Reviewing the trial balance for errors is an example of a detection control.

Question 47

"Reconciliation" is the process of comparing two sets of figures, and explaining any differences.

Question 48

An "outstanding check" is a check that the company has written and mailed, but that its bank has not yet received, so the bank has not yet reduced the company's account for that check.

Question 49

The fact that a company has written checks that have not yet been processed by its bank means that the bank's records will show a lower account balance than the company's books will show.

Question 50

The fact that a company has written checks that have not yet been processed by its bank means that the bank's records will show a higher account balance than the company's books will show.

Question 51

The fact that a company has deposited funds at the bank late at night on December 31, which were not processed by its bank until January 2, means that the bank's records will show a higher December 31 account balance than the company's books will show.

Question 52

The fact that a company has deposited funds at the bank late at night on December 31, which were not processed by its bank until January 2, means that the bank's records will show a lower December 31 account balance than the company's books will show.

Question 53

A company that carefully prepares bank reconciliations will be likely to discover if checks were written and mailed, but which had not been recorded in the company's books.

Question 54

Assume that a store collects cash every day, and records the amount. It then sends an employee to deposit the money in the bank. The employee steals some of the money, and deposits the rest. (True or false) A company that carefully prepares bank reconciliations will be likely to discover that this kind of theft is occurring.

Question 55

The term for the feature of an accounting information system that allows a person to verify that the reports are correct, and based on properly processed information, is "management override."

Question 56

The feature of an accounting information system that allows a person to verify that the reports are correct, and based on properly processed information, is the "audit trail."

Question 57

Training employees thoroughly before they assume important responsibilities is an example of a preventive control.

Question 58

It is a good internal control practice to make most expenditures using cash, rather than checks.

Question 59

A common internal control practice with regard to cash is to require two people to sign any large checks.

Question 60

Whenever possible, the functions of authorization, recording, and custody should all be performed by the same person.

Question 61

The management technique under which managers focus attention on unusual or unexpected results is called "management by walking around."