Internal Controls - Financial Accounting

Chapter 6 focuses on cash and the importance of internal controls. Internal controls are policies and procedures that help protect assets, ensure reliable accounting, promote efficient operations, and ensure adherence to company policies. While they do not guarantee prevention of loss, they significantly reduce risk. The chapter emphasizes understanding these controls to mitigate risks associated with cash handling.

Why is cash considered particularly vulnerable in a business setting?

• It is easily stolen or manipulated.

• It is difficult to track.

• It is not used frequently.

• It is not a liquid asset.

Which of the following is NOT one of the main objectives of internal controls?

• Protecting assets

• Increasing company profits

• Promoting efficient operations

• Ensuring reliable accounting

How do internal controls contribute to reliable accounting?

• By eliminating all financial errors

• By ensuring assets are not stolen or broken

• By increasing the speed of transactions

• By reducing the number of employees

What is a key benefit of promoting efficient operations through internal controls?

• It increases the number of employees.

• It eliminates the need for audits.

• It saves the company money.

• It guarantees no errors occur.

What is a limitation of internal controls?

• They increase the risk of loss.

• They guarantee complete security.

• They do not provide a guarantee against all risks.

• They are only applicable to large companies.