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Match the accounting terminology to the definitions.

1. Sarbanes-Oxley Act

2. Internal control

3. Encryption

4. Separation of duties

5. Internal auditors

a. Organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records.

b. Employees of the business who ensure that the company’s employees are following company policies and meeting legal requirements and that operations are running efficiently.

c. Rearranging plain-text messages by a mathematical process—the primary method of achieving security in e-commerce.

d. Requires companies to review internal control and take responsibility for the accuracy and

completeness of their financial reports.

e. Dividing responsibilities between two or more people.

Short Answer

Expert verified

Answer :

  1. (d)
  2. (a)
  3. (c)
  4. (e)
  5. (b)

Step by step solution

01

Meaning of Accounting Terminology:

Accounting terminology refers to the specific word or terms used in the field of accounting.

02

Correct option

S.No.

Terminology

Definitions

1

Sarbanes-Oxley Act

(d)The Sarbanes-Oxley act is the act that requires companies to review internal control and takes responsibility for the accuracy and completeness of their financial reports.

2

Internal Control

(a) Internal control is an organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational, efficiency and ensure accurate and reliable accounting records

3

Encryption

(c) Encryption means rearranging plain-text messages by a mathematical process—the primary method of achieving security in e-commerce.

4

Separation of Duties

(e)The separation of duties is dividing responsibilities between two or more people.

5

Internal Auditors

(b)Internal auditors are the employees of the business who ensure that the company’s employees are following company policies and meeting legal requirements and that operations are running efficiently

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Most popular questions from this chapter

Understanding internal control, components, procedures, and laws

Match the following terms with their definitions.

1. Internal control

2. Control procedures

3. Firewalls

4. Encryption

5. Environment

6. Information system

7. Separation of duties

8. Collusion

9. Documents

10. Audits

11. Operational efficiency

12. Risk assessment

13. Sarbanes-Oxley Act

a. Two or more people working together to overcome internal controls.

b. Part of internal control that ensures resources are not wasted.

c. Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

d. Should be prenumbered to prevent theft and inefficiency.

e. Limits access to a local network.

f. Example: The person who opens the bank statement should not also be the person who is reconciling cash.

g. Identification of uncertainties that may arise due to a company’s products, services, or operations.

h. Examination of a company’s financial statements and accounting system by a trained accounting professional.

i. Without a sufficient one of these, information cannot properly be gathered and summarized.

j. The organizational plan and all the related measures that safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting data.

k. Component of internal control that helps ensure business goals are achieved.

l. Rearranges data by a mathematical process.

m. To establish an effective one, a company’s CEO and top managers must behave honorably to set a good example for employees.

Evaluating internal control over cash receipts Dogtopia sells pet supplies and food and handles all sales with a cash register. The cash register displays the amount of the sale. It also shows the cash received and any change returned to the customer. The register also produces a customer receipt butkeeps no internal record of the transactions. At the end of the day, the clerk counts the cash in the register and gives it to the cashier for deposit in the company bank account.

Requirements

1. Identify the internal control weakness over cash receipts.

2. What could you do to correct the weakness?

Preparing a bank reconciliation and journal entries

The May cash records of Donald Insurance follow:

Cash Receipts Cash Payments

Date Cash Debit Check No. Cash Credit

May 4 \( 4,230 1416 \) 890

9 520 1417 120

14 530 1418 630

17 1,950 1419 1,090

31 1,840 1420 1,420

1421 900

1422 670

Donald’s Cash account shows a balance of \(17,750 at May 31. On May 31, Donald

Insurance received the following bank statement:

Deposits and other Credits:

May 10

May 1

May 5

May 15

May 18

May 22

Checks and other Debits:

8

11 (check no. 1416)

19

22 (check no. 1417)

29 (check no. 1418)

31 (check no. 1419)

May

May

May

May

May

May

May 31

Ending Balance

Beginning Balance

EFT \) 450

NSF

EFT

BC

\( 18,730

1,700

890

1,100

120

520

4,230

530

1,950

\) 14,400

9,380

375

630

1,900

35 (5,050)

Bank Statement for May

SC

Explanations: BC–bank collection; EFT–electronic funds transfer;

NSF–nonsufficient funds checks; SC–service charge

Additional data for the bank reconciliation follow:

a. The EFT credit was a receipt of rent. The EFT debit was an insurance

payment.

b. The NSF check was received from a customer.

c. The \(1,700 bank collection was for a note receivable.

d. The correct amount of check 1419, for rent expense, is \)1,900. Donald’s controller

mistakenly recorded the check for $1,090.

Requirements

1. Prepare the bank reconciliation of Donald Insurance at May 31, 2018.

2. Journalize any required entries from the bank reconciliation

Preparing a bank reconciliation and journal entries

The October 31 bank statement of Wyndham’s Healthcare has just arrived from State

Bank. To prepare the bank reconciliation, you gather the following data:

a. The October 31 bank balance is \(6,290.

b. The bank statement includes two charges for NSF checks from customers. One is

for \)370 (#1), and the other is for \(180 (#2).

c. The following Wyndham’s checks are outstanding at October 31:

Check No. Amount

237 \) 120

288 140

291 570

294 570

295 30

296 110

d. Wyndham’s collects from a few customers by EFT. The October bank statement

lists a \(2,200 EFT deposit for a collection on account.

e. The bank statement includes two special deposits that Wyndham’s hasn’t recorded

yet: \)900 for dividend revenue and \(100 for the interest revenue Wyndham’s

earned on its bank balance during October.

f. The bank statement lists a \)80 subtraction for the bank service charge.

g. On October 31, the Wyndham’s treasurer deposited \(270, but this deposit does

does not appear on the bank statement.

h. The bank statement includes a \)750 deduction for a check drawn by Multi-State

Freight Company. Wyndham’s notified the bank of this bank error.

i. Wyndham’s Cash account shows a balance of $3,200 on October 31.

Requirements

1. Prepare the bank reconciliation for Wyndham’s Healthcare at October 31, 2018.

2. Journalize any required entries from the bank reconciliation. Include an explanation for each entry.

Question: What is the difference between an internal auditor and an external auditor?

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