Chapter 5: Fraud, Internal Control, and Cash

________ can be defined as an attempt to deceive others for personal gain.

________ affects both private and public companies and also has an affect on the economy.

The three categories for employee fraud:

Misusing one's position and being dishonest for personal gain, commonly uses bribery.

Theft or embezzling cash, property, or private business information.

The act of creating false financial statements to create a positive depiction of the company.

The three factors that contribute to employee fraud, aka the fraud triangle:

Employee has a reason to commit fraud, like making company look better and more appealing to investors.

A ________ requires meeting financial targets. If they aren't met, the company may face multiple consequences.

The employee has a means of committing fraud, may be due to weak internal control.

The employee perceives the misdeed as unavoidable or justified.

Fraud effects:

The ________ was passed to help protect investors avoid fraud and establish financial regulations for companies.

The requirements of SOX:

________ involves people within a company enforcing policies to achieve objectives such as operations, reporting, and compliance.

Control environment Risk assessment Information and communication Monitoring activities

These components apply to all divisions in a company (entry level to higher up positions)

The principles of ________ correlate and strengthen the components of internal control.

Establish responsibility Segregate duties Restrict access Document procedures Independently verify

Giving tasks to individual employees makes it easier to detect errors.

________ is giving individual employees separate tasks and responsibilities in a process to avoid mistakes and create equal work. This is the most effective method for record keeping and monitoring those who don't have access to the company's assets.

Assets should be secured and used only to fulfill responsibilities. Physical assets should be locked up and electronic information should require a passcode.

Record activities within documents so they can be referred to later if needed.

Ensure employees are completing their tasks correctly and compare/review financial information.

Two examples of ________ include implementing internal controls only to the extent their benefits exceed their costs and human error.

________ is an internal control to ensure the appropriate amount of cash is gained.

Amount in transaction should be recorded. Access to cash should be limited. The total of cash sales should be documented.

Checks are mailed from customers who paid on account and mail clerks lists the amounts received on a cash receipt list.

With the cash mailed in from the customer, there is usually a ________ note that explains the payment.

________ must be stamped "For Deposit Only" so the bank doesn't exchange it for cash.

Cash received from ________ is when a customer transfers money from their bank account to the company's bank account. They also eliminate need for some internal controls.

Company's prefer ________ because they are immediate.

Cash payments involve:

The primary goal of internal controls for all ________ is to ensure the business pays only for properly authorized transactions.

A(n) ________ system is a process for approving and documenting all purchases and payments made on account. A(n) ________ is a collection of documents prepared at each step in the system.

Requesting a good or service to be ordered needs a ________.

Ordering the goods or services requires purchase ________.

Receiving goods or services requires a ________.

Getting billed for goods or services requires a ________.

Writing a check or using an EFT to pay a bill requires a check or an ________.

________ is a software that combines automation and artificial intelligence to perform certain responsibilities

A(n) ________ is used to pay employees and restricts the total amount paid to others by limiting the amount of money available to be transferred.

The total net pay of all employees is moved into a special account, which is later transferred into the individual employee's checking accounts. You can tell there is an error when.....

A(n) ________ is a system used to reimburse employees for expenditures they may have made on behalf of the organizations.

The process of comparing two sets of records creates a report called ________, which provides independent verification of all cash transactions the bank has processed for the company. They are created monthly.

The typical format of a bank statement:

After the check writer's bank withdraws the amount of the check from the check writer's account, it will be reported as a deduction on the bank statement. This is also known as ________.

Banks account balances are ________ when checks are deposited, interest is earned, and funds are transferred electronically.

Bank account balances are ________ when service fees are charged and funds are transferred out electronically.

The bank statement is presented from the ________ point of view.

A company's account balance is considered a(n) ________ to the bank.

Increased liabilities are credited on the bank statement.

Decreased amounts are debited on the bank statement.

The bank reconciliation process involves comparing a company's records to their bank statement to see if they match up. The company's record may be different because:

________ refers to depositing a check after "closing time" and will be processed the next day.

________ is a type of lag where the bank doesn't know about the company's deposit until the company deposits the check into its own bank, which notifies the other bank.

________ (non- sufficient funds) checks are checks from your customers that were rejected due to the insufficient balance is the the customers personal bank account.

Cash on the balance sheet includes:

________ are short term and highly liquid investments purchased within three months of maturity. They are readily convertible to known amounts of cash. There is little risk their value will change.

Cash equivalents can include:

________ is money a company must legally set aside for purposes not related to day to day operations. It is reported separately on the balance sheet.

Restricted cash used within a year is a(n) ________.

Restricted cash not used within a year is a(n) ________.