QUICK STUDY An internal control system consists of all policies and procedures u

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QUICK STUDY An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal as 6-1 Internal control objectives Cl control system. 1. Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud 2. The primary objective of internal control procedures is to safeguard the revenues of the business. 3. The main objective of internal control procedures is best accomplished by designing an opera- tional system with managerial policies that protect the assets from waste, fraud and theft. 4. Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself as 6-2 Cash and equivalents C2 Choose from the following lhist of terms/phrases to best complete the following statements. a. Cash b. Cash equivalents 1. Thecategory includes currency and coins along with amounts on deposit in bank ac- 2. The termrefers to a company's ability to pay for its near-term obligations. c. Outstanding check d. Liquidity e. Bank reconciliation f. Current assets counts, checking accounts, and savings accounts 3. The category includes short-term, highly liquid investment assets that are readily con- vertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes OS 6-3 Internal control for cash P1 A good system of internal control for cash provides adequate procedures for protecting both cash receipts 1 and cash disbursements. Which of the following statements is true regarding this protection? a. A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly b. A voucher system of control is a control system exclusively for cash receipts. G. A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash d. A petty cash system is not a control procedure for safeguarding cash. 1. For each of the following items, indicate whether its amount ti) affects the bank or book side of a bank from those who keep cash records. as 6-4 ciliation and (ii) represents an addition or a subtraction in a bank reconciliation. P3 b. Bank service charges c. Debit memos e. Credit memos f. NSF checks 2. Which of the items in part I require an adusting journal entry?

Explanation / Answer

Part 6-1

1. separation of record keeping for assets from the custody over assets is intended to reduce theft and fruad - true

2. the primary objective of internal control procedures is to safeguard the business against theft from government agenies - false

3. the main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, theft - true

4. separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself - false

Part 6-2

1. The cash category includes currency and coins along with the amounts on deposit in bank accounts, checking accounts, and savings accounts. - cash category

2. Liquidity refers to a company’s ability to pay for its near-term obligations - liquidity

Cash also includes items that are acceptable for deposit in these accounts including customer checks, cashier checks, certified checks, and money orders.

2. The cash equivalents category includes short-term, highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes. - cash equivalents

Part 6-3

Answer is option C

A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.

Part 6-4 (1)

a. Outstanding checks - Affects banks side and is a subtraction

b. Debit memos - Affects the book side and are subtractions

c. NSF checks - Affects book side and are subtractions

d. Unrecorded deposits - Affects book side and are additions, outstanding deposits affect the bank side and are additions

e. Interest on cash balance - Affects book side and are additions

f. Credit memos - Affects book side and are additions

g. Bank service charges - Affects book side and are subtractions

Part 6-4 (2)

a. Outstanding checks - No

b. Debit memos - Yes

c. NSF checks - Yes

d. Unrecorded deposits - No

e. Interest on cash balance - Yes

f. Credit memos - Yes

g. Bank service charges - Yes

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