ACFI1002 Lecture 7: Topic 7 Internal control and cash

1) A properly designed internal control system is a key part of accounting information systems' design, analysis, and performance. True False

2) The use of internal controls provides guaranteed protection against losses due to operating activities. True False

3) Good internal control dictates that a person who controls an asset should also maintain the accounting records for that asset. True False

4) Once a good system of internal control is in place, it rarely needs review. True False

5) Two important limitations of internal control systems are (1) human error or human fraud and (2) cost-benefit. True False

6)The main principles of internal control include which of the following:

Establish responsibilities.

Maintain minimal records.

Use only computerized systems.

Bond all employees.

Require automated sales systems.

7) A good system of internal control:

Urges adherence to prescribed managerial policies.

Insures profitable operations.

Eliminates the need for an audit.

Requires the use of noncomputerized systems.

Is not necessary if the company uses a computerized system.

8) A company's internal control system:

Eliminates the risk of loss.

Monitors and controls business activities.

Eliminates human error.

Eliminates the need for audits.

Is not necessary in large companies.

Match the following terms with their definitions

Internal control a.two or more people working together to overcome internalcontrol

Control procedures b. part of internal controlthat ensures resources are not wasted.

Firewalls c. requires companies to review internal control and takeresponsibility for the accuracy and completeness of their financialsupport

Encryption d. should be pre-numbered to prevent theft andinefficiency.

Environment e. limits access to a local network.

Information system f. example: theperson who opens the bank statement should not also be the personwho is reconciling cash.

Separation of duties g. identificationof uncertainties that may arise due to a company’s products,services, or operations.

Collusion h. examination of a company’s financialstatements and accounting system by a trained accountingprofessional

Documents i. without a sufficient one ofthese, information cannot properly be gathered and summarized.

Audits

j. the organizational plan and all the related measures thatsafeguard assets, encourage employees to follow company policies,promote operational efficiency, and ensure accurate and reliableaccounting data.

Operational efficiency k. component of internal control that helps ensure business goalsare achieved.

Risk assessment l. rearrange data by a mathematical process.

Sarbanes-Oxley Act m. to establish one, a company’s CEO and top managers must behavehonorably to set a good example foremployees.

True or False:

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

A properly designed internal control system is a key part of systems design, analysis, and performance.

An internal control system consists of the policies and procedures companies use to protect assets, ensure reliable accounting, promote efficient operations, and uphold company policies.

Technologically advanced accounting systems rarely need monitoring for errors because computers always process transactions correctly.

Separation of duties involves dividing responsibility for a transaction or a series of related transactions between two or more individuals or departments.

The Sarbanes-Oxley Act (SOX) requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

A receivable is an amount due from another party.

Credit sales are recorded by crediting Accounts Receivable.

The accounts receivable turnover indicates how often accounts receivable are received and collected during the period.

A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.