All Of The Following Are Objectives Of Internal Control

all Of The Following Are Objectives Of Internal Control Excepta To

All of the following are objectives of internal control except:

A. to comply with legal requirements.

B. to ensure accurate and reliable accounting records.

C. to maximize net income.

D. to safeguard assets.

In a bank reconciliation, an outstanding check is:

A. added to the bank balance.

B. deducted from the book balance.

C. deducted from the bank balance.

D. added to the book balance.

Controls for cash received over the counter include all the following except:

A. a printed receipt must be given to the customer.

B. the customer should be able to see the amounts entered into the cash register.

C. the sales clerk must have access to the cash register tape.

D. the cash drawer should open only when the sales clerk enters an amount on the keys.

Jubilee’s Bakery is budgeting cash for 2017. The cash balance at December 31, 2016, was $6,000. Budgeted cash receipts for 2017 are $81,000, with estimated payments including $44,000 for inventory, $34,000 for operating expenses, and $15,000 for expansion. The company needs a minimum cash balance of $13,000 and expects to earn net income of $76,000 during 2017. What is the final cash budget outcome?

A. There is $38,000 available for additional investments.

B. There is $19,000 available for additional investments.

C. Pay off $38,000 of debt.

D. Must arrange new financing for $19,000.

Which assets are not included in “cash equivalents” on a typical balance sheet?

A. U.S. government securities

B. Foreign government securities

C. Time deposits

D. Certain very-low risk equity securities

E. All of the above might be included in “cash equivalents.”

Requiring an employee with no access to cash to do the accounting is an example of which internal control characteristic?

A. Competent and reliable personnel

B. Monitoring of controls

C. Assignment of responsibility

D. Separation of duties

In a bank reconciliation, an EFT cash payment is:

A. deducted from the bank balance.

B. deducted from the book balance.

C. added to the book balance.

D. added to the bank balance.

If a bookkeeper mistakenly recorded a $34 deposit as $43, how would this appear on the bank reconciliation?

A. $9 addition to the book balance.

B. $43 deduction from the book balance.

C. $43 addition to the book balance.

D. $9 deduction from the book balance.

Interest earned on your bank balance is shown on the bank reconciliation as:

A. deducted from the book balance.

B. added to the bank balance.

C. added to the book balance.

D. deducted from the bank balance.

All of the following are internal control procedures except:

A. Sarbanes-Oxley reforms.

B. adequate records.

C. assignment of responsibilities.

D. internal and external audits.

USA National Bank paid $650,000 for trading securities on December 5. Two weeks later, the bank received a $40,000 dividend, and at December 31, the securities were quoted at $657,000. The December income statement will record an:

A. unrealized loss of $7,000.

B. unrealized loss of $2,000.

C. unrealized gain of $7,000.

D. unrealized gain of $47,000.

Using the allowance method for uncollectible receivables, the entry to record uncollectible accounts affects:

A. decreases net income and decreases assets.

B. increases expenses and increases owners' equity.

C. decreases assets with no effect on net income.

D. decreases owners' equity and increases liabilities.

Milo Company estimates uncollectibles using 4% of net credit sales of $100,000. The allowance for doubtful accounts has a credit balance of $3,000 prior to adjustment. The expense to recognize is:

A. $7,000.

B. $4,000.

C. $6,000.

D. $1,500.

Azore, Inc. sold equipment and accepted a six-month, 8%, $30,000 note receivable on August 1, 2016. The company's year-end is December 31, 2016. How much interest revenue should Azore accrue?

A. $1,550

B. $2,400

C. $1,200

D. $1,200

The calculation of the quick ratio includes:

A. Prepaid expenses and cash.

B. Cash and accounts receivable.

C. Inventory and prepaid expenses.

D. Inventory and short-term investments.

If Azore, Inc., fails to accrue interest on December 31, 2016, the effect on net income and assets is:

A. Overstated net income and overstated assets.

B. Understated net income and assets.

C. Understated net income and overstated liabilities.

D. Overstated net income and understated liabilities.

Azore, Inc. will collect how much interest on the maturity date (February 1, 2017)?

A. $1,200

B. $2,400

C. $200

D. $2,400

On February 1, 2017, Azore, Inc. will credit which account upon full collection of the note?

A. Cash

B. Note Payable

C. Interest Payable

D. Interest Receivable

Calculate the days' sales outstanding (DSO) for a company with net credit sales of $1,017,000, beginning receivables of $90,000, and ending receivables of $120,000.

A. 48 days

B. 41 days

C. 44 days

D. 38 days

USA National Bank's balance sheet reports:

A. investment in trading securities of $650,000.

B. unrealized gain of $7,000.

C. investment in trading securities of $657,000.

D. dividend revenue of $40,000.

Paper For Above instruction

Internal control systems are fundamental components of effective financial management within organizations. They encompass policies, procedures, and activities designed to safeguard assets, ensure the accuracy of financial records, promote operational efficiency, and encourage compliance with laws and regulations (COSO, 2013). The primary objectives of internal control include compliance with legal requirements, ensuring reliable accounting information, and safeguarding assets. However, they do not aim to maximize net income at all costs, as profit maximization may conflict with the goal of maintaining robust controls against fraud and misstatement (Moeller, 2014). A key distinction of internal controls is their focus on preventing errors and fraud rather than solely enhancing profitability—highlighting their role in building stakeholder trust and ensuring regulatory compliance (Rubin, 2017).

Bank reconciliation processes are critical for detecting discrepancies between a company's books and bank statements. An outstanding check, for example, is a check issued by the company but not yet cleared by the bank, and it must be deducted from the bank balance in the reconciliation (Wild et al., 2017). This practice ensures that the bank statement accurately reflects cash transactions that have already been accounted for in the company's records. Similarly, electronic funds transfers (EFTs) influence the reconciliation process, where cash payments via EFT are deducted from the bank balance, aligning records (Brigham & Ehrhardt, 2016).

Cash controls are designed to prevent theft and errors. For cash received over the counter, mechanisms such as issuing printed receipts and restricting access to cash register operations help maintain control. For example, the cash drawer should open only when the clerk enters valid payment amounts, reducing the risk of theft or accidental misappropriation (Horngren et al., 2018). An effective internal control system also separates duties—such as having employees without access to cash handle accounting tasks—to prevent fraudulent activities (Albrecht et al., 2019).

Budgets remain vital tools for financial planning. A company's cash budget considers beginning balances, expected receipts, and estimated payments to determine available cash for investments, debt repayment, or financing needs. For Jubilee’s Bakery, the budget indicates whether the company maintains the minimum required cash balance of $13,000, and if additional financing is necessary, or if surplus cash can be invested or used to pay down debt (Higgins, 2018). This process ensures liquidity management aligns with strategic objectives.

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, with minimal risk of loss. Typical examples include U.S. government securities, time deposits, and certain very-low risk equity securities. However, some securities such as foreign government securities might not qualify due to differences in liquidity or risk profiles (Kieso et al., 2020). Proper classification ensures the accuracy of financial statements and informs investors of the company's liquidity position.

Internal control also includes personnel policies, such as assigning responsibilities appropriately and monitoring compliance. For instance, requiring staff without cash access to perform accounting functions reduces the risk of misappropriation. Monitoring involves periodic review and internal audits to detect and rectify deviations promptly (Arens et al., 2017). These controls collectively strengthen the integrity of financial reporting.

Bank reconciliation of electronic funds transfers (EFT), interest income, and outstanding checks allows for precise adjustments in financial records. For example, interest earned on bank balances that has not yet been recorded by the company must be accrued, which increases assets and income. Failure to record accrued interest results in overstated net income and assets, potentially misleading stakeholders and violating accounting principles (Khan et al., 2019).

Uncollectible receivables present challenges to accurate financial reporting. The allowance method estimates uncollectible accounts based on historical data or percentages of sales (Horan, 2019). Adjusting entries increase bad debt expense and allowance for doubtful accounts, impacting net income and assets. Proper estimation ensures the financial statements reflect realistic receivable values and comply with GAAP (FASB, 2010).

Periodic valuation of securities, such as trading securities, involves recording unrealized gains and losses based on market prices, influencing income statement performance. For example, if market value exceeds recorded cost, an unrealized gain is reported. Accurate valuation helps investors understand the true financial position and risks associated with holdings (Leisenring & Murphy, 2017).

Interest accruals on notes receivable are calculated based on principal, interest rate, and time period. For Azore, Inc., with a six-month, 8% $30,000 note, accrued interest at December 31, 2016, represents part of the total interest expected at maturity in February. Recognizing interest revenue before receipt aligns with the matching principle and accrual accounting standards (Salzer, 2013).

The calculation of days’ sales outstanding (DSO) measures the average collection period of receivables, indicating the efficiency of credit and collection policies. DSO is computed using the formula: (Average Accounts Receivable / Net Credit Sales) x Number of Days in Period. A lower DSO suggests more efficient receivables management, which reduces liquidity risk (Smith, 2020).

In summary, the comprehensive understanding of internal control procedures, reconciliation processes, investment valuation, and receivables management enhances a company's financial integrity and operational effectiveness. These processes form the backbone of accurate financial reporting, regulatory compliance, and strategic financial decision-making, ensuring organizations can sustain growth and stakeholder confidence in competitive markets.

References

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