Chapter 7 - Chapter 7 1 Internal controls guarantee the...

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Chapter 7 1. Internal controls guarantee the accuracy and reliability of the accounting records. False While proper internal controls will enhance accuracy and reliability, honest errors can still be expected and undetected 2. Segregation of duties reduces the risk of errors and irregularities. True Segregation of duties substantially reduces the probability that any one person will make an error or initiate an irregularity that is material and that errors will go undetected 3. Collusion is when two or more people are responsible for a single task. False Collusion is when two or more people work together to get around the rules and regulations in order to conduct unethical or illegal activities, not when two people are responsible for a single task 4. All disbursements, even for incidental amounts, must be paid by check. False Businesses often establish a petty cash fund to pay small unforeseen bills such as postage due deliveries. This fund is a cash fund that is subject to audit as part of the safeguard of assets 5. Deposits in transit are added to the cash balance per books on bank reconciliation. False Deposits in transit are deposits the business knows are in route to the financial institution, but are not yet processed. Thus, they need to be added to the bank's balance in the reconciliation process 6. Avoiding paying bills too early is an effective cash management principle. True Paying bills no earlier than the due date including any discount period is a valid cash management technique as long as payments are not stretched to the point of injuring a company's credit 7. The financing section of a cash budget shows expected repayment of borrowed principle but does not include repayment of interest. False The financing section of a cash budget shows expected repayment of borrowed funds plus interest 8. Which of the following is not a principle of internal control?
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Bonding of employees Collusion between employees Segregation of duties Documentation procedures Internal controls are established to preclude collusion between employees. It is not a principle of internal control 9. Computer programs that limit unauthorized access to certain files is an example of: documentation procedures. independent internal verification. human resource controls. physical, mechanical, and electronic controls. Examples of physical, mechanical, and electronic controls include safes/vaults, guarded warehouses and stockrooms, firewalls on computer access, television monitoring of selected areas and alarm systems 10. Obtaining insurance protection against dishonest employees is an example of: bonding.
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