LO 8.2Internal control is said to be the backbone of all businesses. Which of the following is the best description of internal controls?
- Internal controls ensure that the financial statements published are correct.
- The only role of internal controls is to protect customer data.
- Internal controls and company policies are important to protect and safeguard assets and to protect all company data and are designed to protect the company from fraud.
- Internal controls are designed to keep employees from committing fraud against the company.
LO 8.4What is the best way for owners of small businesses to maintain proper internal controls?
- The owner must have enough knowledge of all aspects of the company and have controls in place to track all assets.
- Small businesses do not need to worry about internal controls.
- Small businesses should make one of their employees in charge of all aspects of the company, giving the owner the ability to run the company and generate sales.
- Only managers need to be concerned about internal controls.
LO 8.4Which of the following is not considered to be part of the internal control structure of a company?
- Ensure that assets are kept secure.
- Monitor operations of the organization to ensure maximum efficiency.
- Publish accurate financial statements on a regular basis.
- Ensure assets are properly used.
LO 8.4There are several elements to internal controls. Which of the following would not address the issue of having cash transactions reported in the accounting records?
- One employee would have access to the cash register.
- The cash drawer should be closed out, and cash and the sales register should be reconciled on a prenumbered form.
- Ask customers to report to a manager if they do not receive a sales receipt or invoice.
- The person behind the cash register should also be responsible for making price adjustments.
LO 8.4A company is trying to set up proper internal controls for their accounts payable/inventory purchasing system. Currently the purchase order is generated by the same person who receives the inventory. Together the purchase order and the receiving ticket are sent to accounts payable for payment. What changes would you make to improve the internal control structure?
- No changes would be made since the person paying the bills is different from the person ordering the inventory.
- The person in accounts payable should generate the purchase order.
- The person in accounts payable should generate the receiving ticket once the invoice from the supplier is received.
- The responsibilities of generating the purchase order and receiving the inventory should be separated among two different people.
LO 8.4Which one of the following documents is not needed to process a payment to a vendor?
- vendor invoice
- packing slip
- check request
- purchase order
LO 8.4What is the advantage of using technology in the internal control system?
- Passwords can be used to allow access by employees.
- Any cash received does not need to be reconciled because the computer tracks all transactions.
- Transactions are easily changed.
- Employees cannot steal because all cash transactions are recorded by the computer/cash register.
LO 8.4Which of the following assets require the strongest of internal controls?
- credit cards
- computer equipment
LO 8.5Which of the following is true about the Sarbanes-Oxley Act?
- It was passed to ensure that internal controls are properly documented and tested by public companies.
- It applies to both public and smaller companies.
- It requires all companies to report their internal control policies to the US Securities and Exchange Commission.
- It does not require additional costs or resources to have adequate controls.
LO 8.5The external auditor of a company has certain requirements due to Sarbanes-Oxley. Which of the following best describes these requirements?
- The auditor is required to only report weaknesses in the internal control design of the company he or she is auditing.
- The auditor must issue an internal control report on the evaluation of internal controls overseen by the Public Company Accounting Oversight Board
- The auditor in charge can serve for a period of only two years.
- The Public Company Accounting Oversight Board reviews reports submitted by the auditors when no evaluations have been performed.
LO 8.5A company has decided to start a petty cash fund for $150. Which of the following is the correct journal entry?
- No entry is required.
LO 8.6Which of the following are found on the bank side of the bank reconciliation?
- NSF check
- interest income
- wire transfer into client’s account
- deposit in transit
LO 8.7What would be a reason a company would want to overstate income?
- to help nudge its stock price higher
- to lower its tax bill
- to show a decrease in overall profits
- none of the above