Accounting 25th Edition Solution
(Download complete and 100% accurate work written as per
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Topic: _________________
Student Name: __________
Course Title: ____________
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Complete Answer (Next Page)
CHAPTER 8
SARBANES-OXLEY, INTERNAL CONTROL, AND CASH
8-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, DISCUSSION QUESTIONS
1. a. The five elements of internal control are the control environment, risk assessment, control
procedures, monitoring, and information and communication. The control environment
is the overall attitude of management and employees about the importance of controls.
Risk assessment includes evaluating various risks facing the business, including
competitive threats, regulatory changes, and changes in economic factors. Control
procedures are established to provide reasonable assurance that business goals will be
achieved. Monitoring is the evaluation of the internal control system. Information and
communication provide management with feedback about internal control.
b. No. One element of internal control is not more important than another element. All five
elements are necessary for effective internal control.
2. To reduce the possibility of errors and embezzlement, the functions of operations and
accounting should be separated. Thus, one employee should not be responsible for handling
cash receipts (operations) and maintaining the accounts receivable records (accounting).
3. The control procedure requiring that responsibility for a sequence of related operations be
divided among different persons is violated in this situation. This weakness in the internal
control may permit irregularities. For example, the ticket seller, while acting as ticket taker,
could admit friends without a ticket.
4. The responsibility for maintaining the accounting records should be separated from the
responsibility for operations so that the accounting records can serve as an independent check
on operations.
5. Controls that could have prevented or detected the fraud include (1) requiring supporting
documentation such as receiving reports and purchase orders of all payments, (2) requiring
approval by an independent party, and (3) allowing payments to only vendors who have been
previously approved by upper management.
6. The three documents supporting the liability are the vendor’s invoice, the purchase order, and
the receiving report. The invoice should be compared with the receiving report to determine that
the items billed have been received and with the purchase order to verify quantities, prices,
and terms.
7. The cash balance and the bank statement balance are likely to differ because of (1) a delay by
the bank or company in recording transactions or (2) errors by the bank or company in
recording transactions.
8. The purpose of a bank reconciliation is to determine the reasons for the difference between the
balance according to the company’s records and the balance according to the bank statement
and to correct those items representing errors in recording that may have been made by the
bank or by the company.
8-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
DISCUSSION QUESTIONS (Continued)
9. a. Yes. Even though the petty cash fund is only $750, if the fund is replenished frequently, a
significant amount of cash could be stolen. For example, if the fund is replenished weekly,
then $39,000 ($750 × 52 weeks) could be subject to theft.
b. Controls for petty cash include (1) designating one person who is responsible for the fund,
(2) maintaining a written record of all payments, (3) requiring support (receipts) for
payments from the fund, and (4) periodic review of the funds on hand and the payments by
an independent person.
10. a. Cash and cash equivalents are usually reported as one amount in the Current Assets section
of the balance sheet.
b. Examples of cash equivalents include certificates of deposit, U.S. government securities,
corporate notes and bonds, and commercial paper.
8-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
PRACTICE EXERCISES
PE 8–1A
1. (a) the control environment
2. (c) information and communication
3. (b) control procedures
PE 8–1B
1. (c) monitoring
2. (a) the control environment
3. (b) control procedures
PE 8–2A
Appears on the Bank Increases or Decreases
Statement as a Debit the Balance of the
Item No. or Credit Memo Company’s Bank Account
1 debit memo decreases
2 debit memo decreases
3 credit memo increases
4 debit memo decreases
PE 8–2B
Appears on the Bank Increases or Decreases
Statement as a Debit the Balance of the
Item No. or Credit Memo Company’s Bank Account
1 credit memo increases
2 credit memo increases
3 credit memo increases
4 debit memo decreases
8-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
(Download complete and 100% accurate work written as per
requirements)
Topic: _________________
Student Name: __________
Course Title: ____________
Instructor: ______________
Date of submission: _______
For any problem feel free to message me on “Stuvia”
Complete Answer (Next Page)
CHAPTER 8
SARBANES-OXLEY, INTERNAL CONTROL, AND CASH
8-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, DISCUSSION QUESTIONS
1. a. The five elements of internal control are the control environment, risk assessment, control
procedures, monitoring, and information and communication. The control environment
is the overall attitude of management and employees about the importance of controls.
Risk assessment includes evaluating various risks facing the business, including
competitive threats, regulatory changes, and changes in economic factors. Control
procedures are established to provide reasonable assurance that business goals will be
achieved. Monitoring is the evaluation of the internal control system. Information and
communication provide management with feedback about internal control.
b. No. One element of internal control is not more important than another element. All five
elements are necessary for effective internal control.
2. To reduce the possibility of errors and embezzlement, the functions of operations and
accounting should be separated. Thus, one employee should not be responsible for handling
cash receipts (operations) and maintaining the accounts receivable records (accounting).
3. The control procedure requiring that responsibility for a sequence of related operations be
divided among different persons is violated in this situation. This weakness in the internal
control may permit irregularities. For example, the ticket seller, while acting as ticket taker,
could admit friends without a ticket.
4. The responsibility for maintaining the accounting records should be separated from the
responsibility for operations so that the accounting records can serve as an independent check
on operations.
5. Controls that could have prevented or detected the fraud include (1) requiring supporting
documentation such as receiving reports and purchase orders of all payments, (2) requiring
approval by an independent party, and (3) allowing payments to only vendors who have been
previously approved by upper management.
6. The three documents supporting the liability are the vendor’s invoice, the purchase order, and
the receiving report. The invoice should be compared with the receiving report to determine that
the items billed have been received and with the purchase order to verify quantities, prices,
and terms.
7. The cash balance and the bank statement balance are likely to differ because of (1) a delay by
the bank or company in recording transactions or (2) errors by the bank or company in
recording transactions.
8. The purpose of a bank reconciliation is to determine the reasons for the difference between the
balance according to the company’s records and the balance according to the bank statement
and to correct those items representing errors in recording that may have been made by the
bank or by the company.
8-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
DISCUSSION QUESTIONS (Continued)
9. a. Yes. Even though the petty cash fund is only $750, if the fund is replenished frequently, a
significant amount of cash could be stolen. For example, if the fund is replenished weekly,
then $39,000 ($750 × 52 weeks) could be subject to theft.
b. Controls for petty cash include (1) designating one person who is responsible for the fund,
(2) maintaining a written record of all payments, (3) requiring support (receipts) for
payments from the fund, and (4) periodic review of the funds on hand and the payments by
an independent person.
10. a. Cash and cash equivalents are usually reported as one amount in the Current Assets section
of the balance sheet.
b. Examples of cash equivalents include certificates of deposit, U.S. government securities,
corporate notes and bonds, and commercial paper.
8-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash
PRACTICE EXERCISES
PE 8–1A
1. (a) the control environment
2. (c) information and communication
3. (b) control procedures
PE 8–1B
1. (c) monitoring
2. (a) the control environment
3. (b) control procedures
PE 8–2A
Appears on the Bank Increases or Decreases
Statement as a Debit the Balance of the
Item No. or Credit Memo Company’s Bank Account
1 debit memo decreases
2 debit memo decreases
3 credit memo increases
4 debit memo decreases
PE 8–2B
Appears on the Bank Increases or Decreases
Statement as a Debit the Balance of the
Item No. or Credit Memo Company’s Bank Account
1 credit memo increases
2 credit memo increases
3 credit memo increases
4 debit memo decreases
8-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
