Fraud & Fraud Triangle
This type of fraud involves employees stealing or misusing company assets.
misappropriation of assets
This is the primary way companies prevent, detect, and correct fraud.
internal controls
Why does cash require specific internal controls?
Cash is relatively easy to steal.
A deposit that the company has recorded but the bank has not yet recorded is called this
deposit in transit
Which side of the bank reconciliation generally requires journal entries?
book side
This type of fraud involves managers making false or misleading accounting entries to deceive investors or creditors.
fraudulent financial reporting
Name three objectives of internal control
safeguarding assets, encouraging employees to follow company policy, promoting operational efficiency, ensuring accurate/reliable accounting records, and complying with legal requirements
Free Points
YOU WIN $200
On the bank side of a reconciliation, outstanding checks are generally _____
subtracted
Name three items that increase the book balance during a bank reconciliation.
bank collections, interest revenue, and EFT receipts
Name the three parts of the Fraud Triangle
motive, opportunity, and rationalization
These are the five components of internal control: control environment, risk assessment, information system, control procedures, and _____.
Monitoring
In cash receipts by mail, checks should be sent to this person while remittance information goes to accounting.
the treasurer
A bank service charge appears on the bank statement but has not yet been recorded in the company's books. Which side of the reconciliation does it belong on, and what happens to the balance?
book side, and subtract it
A bank accidentally deducts another company's $100 check from your account. What should happen to your bank-side balance?
add $100 back
An employee says, “I deserve this money because my company doesn't pay me enough.” Which part of the Fraud Triangle is this?
Rationalization
A company separates the employee who handles cash from the employee who records transactions and the employee who approves transactions. What internal-control principle is being used?
separation of duties
Which law requires public companies to maintain strong internal control systems?
Sarbanes-Oxley Act (SOX)
A company's bank balance is $8,000. It has a $900 deposit in transit and $500 of outstanding checks. What is the adjusted bank balance?
$8,000 + $900 − $500 = $8,400
A check was recorded in the company's books as $510, but the actual check was only $150. Is this a bank error or book error, and how does the company correct it?
book error, and the company must correct its books
A company has one employee who handles cash, records transactions, and reconciles the bank account. Which part of the Fraud Triangle does this weak control create?
Opportunity
An employee purchases inventory, receives the inventory, records the transaction, and approves the payment. Identify the control problem and explain why it creates risk.
inadequate separation of duties, because one person has control over too many parts of the transaction
what is yours SI's Name
Nonny
A company's book balance is $7,000. The bank collected $600 on the company's behalf, earned $50 of interest, charged a $20 service fee, and returned a $30 NSF check. What is the adjusted book balance
$7,000 + $600 + $50 − $20 − $30 = $7,600
Why don't all bank-reconciliation adjustments require journal entries?
Only book-side adjustments require entries in the company's accounting records; bank-side adjustments correct the bank balance for timing differences or bank errors.