ACT2200 – Winter 2017 – Final Exam Information and Review*EXAM is from6:00 – 8:00 PM ON THURSDAY, MAY 4THIN OUR CLASSROOM (#2067).BE EARLY!!!*It contains60 Multiple Choice Questionson Chapters 6, 7, 8, 9, 10, and 11, each covered equally.*Remember to bring apencilandseparate, non-programmable calculatorbecause you willNOTbe allowed to use yourcell phones!Chapter 6 –Internal Control and Financial Reporting for Cash and Merchandise SalesInternal Controls:policies and procedures in place for a corporation to meet key business objectives (system ofchecks and balances).oMain Purposes of internal controls:1.Protect against theft of assets(protect accessibility to assets, cash, computers).2.Enhance reliability of accounting information(internal controls over financial reporting, checks andbalances, insures that numbers are reliable).3.Promote efficient and effective operations(check quality of product, and waste levels).4.Ensure compliance with applicable laws and regulationsoSarbanes-Oxley requirements for the both company and the independent auditor:report on internalcontrol by 2 reports (effectiveness). Management, auditor (generating reliable information).oDefinition/explanation of each type of internal control we discussed:1.Establish task responsibility(employees know what their responsibilities are).2.Segregate duties(prevents fraud, separate person is in control of the assets from person whorecords it).3.Restrict access to assets and information(locks, passwords, security)4.Document Procedures(accurately and properly depicted, leaving a paper trail)5.Independent verify(bank reconciliations)oLimitations on internal controls:1.Cost vs. benefit2.Human error3.Fraud: a) override, b) collusion.Bank ReconciliationsoHow to perform a reconciliationoReconciling items – How do you treat them: add/subtract from the book or bank balance?Timing differences (i.e. deposits in transit and outstanding checks)Other differences (i.e., interest on bank account, service charges, NSF checks, errors, etc.)Key Contract TermsoInventory Systems:1.Perpetual:continually/automatically updates account records.