1) The Sarbanes-Oxley Act of 2002 was passed by Congress due to the public outcry after the financial scandals of the early 2000s

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1) The Sarbanes-Oxley Act of 2002 was passed by Congress due to the public outcry after the financial scandals of the early 2000s.

2. Sarbanes-Oxley’s purpose is to improve financial reporting.
3. There are two internal control objectives and they are to ensure accurate financial reports, and ensure compliance with applicable laws.
4. Sarbanes-Oxley requires companies to maintain strong and effective internal controls and thus prevent fraud and misleading financial statements.

 

5. The Sarbanes-Oxley Act requires that financial statements of all public companies report on management's conclusions about the effectiveness of the company's internal control procedures.

 

6. The control environment in an internal control structure is the attitude and awareness of internal control by all employees.

 

7. Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the control procedure: separating operations, custody of assets, and accounting.

 

 

8. Internal control is enhanced by separating the control of a transaction from the record-keeping function.

 

9. A backlog in recording transactions is an example of a warning sign from the accounting system.

 

10. Money orders are considered cash.

 

11. A customer's check received in settlement of an account receivable is considered cash.

 

12. Businesses who have several bank accounts, petty cash, and cash on hand, would maintain a separate ledger account for each type of cash.

 

13. For strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees.

 

14. When a clerk enters a sale and the customer can see the amount displayed and is given a cash receipt, this is an example of a preventive control.

 

15. If the balance in Cash Short and Over at the end of a period is a credit, it indicates that cash shortages have exceeded cash overages for the period.

 

16. If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as an "other income" item on the income statement.

 

 

17. An example of good internal controls over cash payments is the taking of all cash discounts offered.

 

18. A voucher is a form on which is recorded pertinent data about a liability and the particulars of its payment.

 

19. When the voucher system is used, the amount due on each voucher represents the credit balance of an account payable if the voucher is in full payment to a creditor.

 

20. A voucher system is an example of an internal control procedure over cash payments.

 

21. A voucher is a written authorization to make a cash payment.

 

22. A payment system that uses computerized electronic impulses to effect a cash transaction is called electronic funds transfer (EFT).

 

23. A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice being paid.

 

24. The bank often informs the company of bank service charges by including a credit memo with the monthly bank statement.

 

25. Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on the bank's records.

 

 

26. Depositing all cash, checks, etc. in a bank and paying with checks is an internal control procedure over cash.

 

27. For efficiency of operations and better control over cash, a company should maintain only one bank account.

 

28. In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank statement.

 

29. In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank statement.

 

30. In preparing a bank reconciliation, the amount indicated by a debit memo for bank service charges is added to the balance per company's records.

 

31. In preparing a bank reconciliation, the amount of a canceled check omitted from the journal is added to the balance per company's records.

 

32. A check for $342 was erroneously charged by the bank as $432. In order for the bank reconciliation to balance, you must add $90 to the bank statement balance.

 

33. If an adjustment for an NSF check is made in a company’s bank reconciliation, then the company must have written a bad check during the month.

 

 

34. The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date.

 

35. All bank memos reported on the bank reconciliation require entries in the company's accounts.

 

36. The bank reconciliation is an important part of the system of internal controls.

 

37. The main reason that the bank statement cash balance and the company's cash balance do not initially balance is due to timing differences.

 

38. The bank reconciles its statement to the company's records.

 

39. In preparing a bank reconciliation, the amount indicated by a credit memo for a note receivable collected by the bank is added to the balance per company's records.

 

40. In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal for an amount larger than the amount of the check is added to the balance per company's records.

 

41. A check outstanding for two consecutive months will appear only on the first month's bank reconciliation.

 

42. After a bank reconciliation is completed, adjusting entries are prepared for items in the balance per company's records as well as items in the balance per bank statement.

 

 

43. A business that requires all cash payments be made by check can not use a petty cash system.

 

44. In establishing a petty cash fund, a check is written for the amount of the fund and is recorded as a debit to Accounts Payable and a credit to Petty Cash.

 

45. Expenditures from a petty cash fund are documented by a petty cash receipt.

 

46. The sum of the money on hand and petty cash receipts in a petty cash fund will always be equal to the balance in the Petty Cash account.

 

47. When the petty cash fund is replenished, the petty cash account is credited for the total of all expenditures made since the fund was last replenished.

 

48. Most companies who have several bank accounts, petty cash, and cash on hand, would list each separately on the balance sheet.

 

49. A petty cash fund is used to pay relatively large amounts.

 

50. The petty cash fund eliminates the need for a bank checking account.

 

51. A compensating balance occurs when a bank may require a company to maintain a maximum cash balance.

 

 

52. Cash equivalents are short -term investments that will be converted to cash within 120 days.

53. Money market accounts, commercial paper, and United States Treasury Notes are examples of cash equivalents.

54. The doomsday ratio includes both cash and cash equivalents in the numerator.