BAT Chapter 7 Review

Which of the following factors does not contribute to the likelihood of fraud?

• Rationalization

• Financial pressure

• Segregation of duties

• Opportunity

Which of the following factors could limit a company's system of internal control?

• Collusion by two or more employees

• The cost of internal control being greater than the benefit

• Difficulty in segregating duties in small businesses

• All of the above

Permitting only designated personnel to handle cash receipts is an application of the concept of:

• segregation of duties

• establishment of responsibility

• independent checks of performance

• human resource controls

Frankcs Jewellers accepted $12,000 of Visa credit card charges for merchandise sold on July 1. Visa charges Franks 5.0% for its credit card use. The entry to record this transaction by franks Jewellers includes:

• DR Accounts Receivable $12,000

  CR Sales $12,000

• DR Cash $11,400

  CR Sales $11,400

• DR Accounts Receivable $11,400

  DR Credit Card Expense $600

  CR Sales $12,000

• DR Cash $11,400

  DR Credit Card Expense $600

  CR Sales $12,000

Authorizing only designated personnel to sign cheques is an application of the principle of:

• establishment of responsibility

• segregation of duties

• independent checks of performance

• documentation procedures

Bank accounts improve control over cash by:

• safeguarding cash by using a bank as a depository

• minimizing the amount of cash that must be kept on hand

• giving a double record of all bank transactions

• all of the above

A company mistakenly recorded a $348 cheque written in payment of an account as $384. The journal entry required to correct this would be:

• DR Accounts Payable $36

  CR Cash $36

• DR Cash $36

  CR Accounts Payable $36

• DR Accounts Payable $348

  CR Cash $348

• DR Cash $384

  CR Accounts Payable $384

Which of the following correctly describes the reporting of cash?

• Petty cash is used for major purchases when the seller doesn't accept cheques

• Restricted cash funds are always reported as a current asset

• Cash equivalents may be combined with cash on the balance sheet

• Postdated cheques from customers are included in the Cash account balance

Internal control helps an organization achieve all of the following except:

• reliable financial reporting

• compliance with relevant laws and regulations

• absolute assurance that fraud will not occur

• effective and efficient operations

Documentation procedures do NOT include which of the following?

• prenumbered documents

• source documents sent promptly to the accounting department

• all controls written down and kept updated

• alarms set at the close of the business day