Income Statement 36 Month by qxq29545

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									                                        FINAL EXAM
                                 PRINCIPLES OF ACCOUNTING
                                          ACC/280
                               DUE: MONDAY- DECEMBER 7, 2009




1.        Which of the following events cannot be quantified into dollars and cents and recorded
          as an accounting transaction?
          a. The appointment of a new CPA firm to perform an audit.
          b. The purchase of a new computer.
          c. The sale of store equipment.
          d. Payment of income taxes.


2.        Which of the following would not be considered an internal user of accounting data for
          the XYZ Company?
          a. President of the company
          b. Production manager
          c. Merchandise inventory clerk
          d. President of the employees' labor union



3.        Morreale Beaver Company buys a $12,000 van on credit. The transaction will affect the
          a. income statement only.
          b. balance sheet only.
          c. income statement and retained earnings statement only.
          d. income statement, retained earnings statement, and balance sheet.

4.        The organization(s) primarily responsible for establishing generally accepted accounting
          principles is(are) the
               FASB             SEC
          a.    no               no
          b.   yes               no
          c.    no               yes
          d.   yes               yes


     5.   Ethics are the standards of conduct by which one's actions are judged as
          a. right or wrong.
          b. honest or dishonest.
          c. fair or unfair.
          d. all of these
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     6.   The body of theory underlying accounting is not based on
          a. physical laws of nature.
          b. concepts.
          c. principles.
          d. definitions.


7.        Joan and Sara met at law school and decide to start a small law practice after
          graduation. They agree to split revenues and expenses evenly. The most common form
          of business organization for a business such as this would be a
          a. joint venture.
          b. partnership.
          c. corporation.
          d. proprietorship.


8.        A net loss will result during a time period when
          a. liabilities exceed assets.
          b. dividends exceed revenues.
          c. expenses exceed revenues.
          d. revenues exceed expenses.

9.        If total liabilities increased by $15,000 and stockholders' equity increased by $5,000
          during a period of time, then total assets must change by what amount and direction
          during that same period?
          a. $20,000 decrease
          b. $20,000 increase
          c. $25,000 increase
          d. $30,000 increase

10.       As of December 31, 2008, Anders Company has assets of $35,000 and stockholders'
          equity of $20,000. What are the liabilities for Anders Company as of December 31,
          2008?
          a. $15,000
          b. $10,000
          c. $25,000
          d. $20,000

11.       Stockholders' equity changed by what amount from the beginning of the year to the end
          of the year?
          a. $15,000
          b. $14,000
          c. $6,000
          d. $3,000
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12.   During the year 2008, Toronto Enterprises earned revenues of $45,000, had expenses
      of $25,000, purchased assets with a cost of $5,000 and paid dividends of $3,000. Net
      income for the year is
      a. $45,000.
      b. $20,000.
      c. $17,000.
      d. $15,000.


13.   At October 1, Bennington Enterprises reported stockholders' equity of $35,000. During
      October, no stock was issued and the company earned net income of $4,000. If
      stockholders' equity at October 31 totals $32,000, what amount of dividends were paid
      during the month?
      a. $0
      b. $1,000
      c. $3,000
      d. $7,000

14.   An account is a part of the financial information system and is described by all except
      which one of the following?
      a. An account has a debit and credit side.
      b. An account is a source document.
      c. An account may be part of a manual or a computerized accounting system.
      d. An account has a title.

15.   Denton Company showed the following balances at the end of its first year:
           Cash                                  $ 7,000
           Prepaid insurance                         700
           Accounts receivable                     3,500
           Accounts payable                        2,800
           Notes payable                           4,200
           Retained Earnings                       1,000
           Dividends                                 700
           Common Stock                              400
           Revenues                               21,000
           Expenses                               17,500
      What did Denton Company show as total credits on its trial balance?
      a. $30,100
      b. $29,400
      c. $28,700
      d. $30,800
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16.    At September 1, 2008, Foli Co. reported retained earnings of $136,000. During the
       month, Foli generated revenues of $20,000, incurred expenses of $12,000, purchased
       equipment for $5,000 and paid dividends of $2,000. What is the amount of retained
       earnings at September 30, 2008?
       a. $136,000
       b. $8,000
       c. $137,000
       d. $142,000

17.    Which of the following journal entries is recorded correctly and in the standard format?
       a. Wages Expense ................................................................               600
                 Cash ............................................................................              1,500
            Advertising Expense . .........................................................            900


       b. Wages Expense .................................................................                        600
            Advertising Expense . .........................................................                      900
                 Cash ............................................................................    1,500


       c. Cash ..................................................................................     1,500
                 Wages Expense ...........................................................                       600
                 Advertising Expense ....................................................                        900


       d. Wages Expense ................................................................               600
            Advertising Expense ..........................................................             900
                 Cash . ...........................................................................             1,500


18..   Management could determine the amounts due from customers by examining which
       ledger account?
       a. Service Revenue
       b. Accounts Payable
       c. Accounts Receivable
       d. Supplies


 19.   The ledger accounts should be arranged in
       a. chronological order.
       b. alphabetical order.
       c. financial statement order.
       d. order of appearance in the journal.
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20.    A trial balance may balance even when each of the following occurs except when
       a. a transaction is not journalized.
       b. a journal entry is posted twice.
       c. incorrect accounts are used in journalizing.
       d. a transposition error is made.

21.    Which of the following time periods would not be referred to as an interim period?
       a. Monthly
       b. Quarterly
       c. Semi-annually
       d. Annually

22.    Which of the following are in accordance with generally accepted accounting principles?
       a. Accrual basis accounting
       b. Cash basis accounting
       c. Both accrual basis and cash basis accounting
       d. Neither accrual basis nor cash basis accounting

 23.   The following is selected information from J Corporation for the fiscal year ending
       October 31, 2008.
            Cash received from customers                                       $300,000
            Revenue earned                                                      350,000
            Cash paid for expenses                                              170,000
            Cash paid for computers on November 1, 2007 that will be used
              for 3 years (annual depreciation is $16,000)                        48,000
            Expenses incurred, not including any depreciation                   200,000
            Proceeds from a bank loan, part of which was used to pay for
               the computers                                                    100,000
       Based on the accrual basis of accounting, what is J Corporation’s net income for the
       year ending October 31, 2008?
       a. $114,000
       b. $134,000
       c. $82,000
       d. $150,000



 24.   Quirk Company purchased office supplies costing $6,000 and debited Office Supplies for
       the full amount. At the end of the accounting period, a physical count of office supplies
       revealed $2,400 still on hand. The appropriate adjusting journal entry to be made at the
       end of the period would be
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       a.   Debit Office Supplies Expense, $2,400; Credit Office Supplies, $2,400.
       b.   Debit Office Supplies, $3,600; Credit Office Supplies Expense, $3,600.
       c.   Debit Office Supplies Expense, $3,600; Credit Office Supplies, $3,600.
       d.   Debit Office Supplies, $2,400; Credit Office Supplies Expense, $2,400.


25.    At December 31, 2008, before any year-end adjustments, Karr Company's Insurance
       Expense account had a balance of $1,450 and its Prepaid Insurance account had a
       balance of $3,800. It was determined that $3,000 of the Prepaid Insurance had expired.
       The adjusted balance for Insurance Expense for the year would be
       a. $3,000.
       b. $1,450.
       c. $4,450.
       d. $2,250.

26 .   A new accountant working for Metcalf Company records $800 Depreciation Expense on
       store equipment as follows:
           Dr.    Depreciation Expense ............................................        800
           Cr.         Cash ..............................................................     800
       The effect of this entry is to
       a. adjust the accounts to their proper amounts on December 31.
       b. understate total assets on the balance sheet as of December 31.
       c. overstate the book value of the depreciable assets at December 31.
       d. understate the book value of the depreciable assets as of December 31.


27.    A company shows a balance in Salaries Payable of $40,000 at the end of the month.
       The next payroll amounting to $45,000 is to be paid in the following month. What will be
       the journal entry to record the payment of salaries?
       a. Salaries Expense ................................................................          45,000
                   Salaries Payable ........................................................                  45,000
       b. Salaries Expense ................................................................          45,000
                   Cash ..........................................................................            45,000
       c. Salaries Expense ................................................................           5,000
                   Cash ..........................................................................             5,000
       d. Salaries Expense ................................................................           5,000
            Salaries Payable .................................................................       40,000
                   Cash ..........................................................................            45,000


28.    Which of the statements below is not true?
       a. An adjusted trial balance should show ledger account balances.
       b. An adjusted trial balance can be used to prepare financial statements.
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       c. An adjusted trial balance proves the mathematical equality of debits and credits in
          the ledger.
       d. An adjusted trial balance is prepared before all transactions have been journalized

29 .   Jim is a lawyer who requires that his clients pay him in advance of legal services
       rendered. Jim routinely credits Legal Service Revenue when his clients pay him in
       advance. In June Jim collected $12,000 in advance fees and completed 75% of the work
       related to these fees. What adjusting entry is required by Jim's firm at the end of June?
       a. Unearned Revenue ............................................................                 9,000
                    Legal Service Revenue .............................................                               9,000
       b. Unearned Revenue ............................................................                 3,000
                    Legal Service Revenue .............................................                               3,000
       c. Cash ..................................................................................      12,000
                    Legal Service Revenue .............................................                             12,000
       d. Legal Service Revenue ......................................................                  3,000
                    Unearned Revenue ...................................................                              3,000


Use the following information for questions 31–32.
The income statement and balance sheet columns of Pine Company's worksheet reflects the
following totals:


                                              Income Statement                                      Balance Sheet
                                               Dr.                  Cr.                        Dr.              Cr.
                 Totals                    $58,000              $48,000                    $34,000           $44,000
 31.   The net income (or loss) for the period is
       a. $48,000 income.
       b. $10,000 income.
       c. $10,000 loss.
       d. not determinable.


 32.   To enter the net income (or loss) for the period into the above worksheet requires an
       entry to the
       a. income statement debit column and the balance sheet credit column.
       b. income statement credit column and the balance sheet debit column.
       c. income statement debit column and the income statement credit column.
       d. balance sheet debit column and the balance sheet credit column.



Use the following information for questions 33-36.
                                                                                  Page |8




The income statement for the month of June, 2008 of Delgado Enterprises contains the
following information:
       Revenues                                                          $7,000
       Expenses:
          Wages Expense                                        $2,000
          Rent Expense                                          1,000
          Supplies Expense                                        300
          Advertising Expense                                     200
          Insurance Expense                                       100
              Total expenses                                              3,600
       Net income                                                        $3,400


 33.   The entry to close the revenue account includes a
       a. debit to Income Summary for $3,400.
       b. credit to Income Summary for $3,400.
       c. debit to Income Summary for $7,000.
       d. credit to Income Summary for $7,000.


 34.   The entry to close the expense accounts includes a
       a. debit to Income Summary for $3,400.
       b. credit to Rent Expense for $1,000,
       c. credit to Income Summary for $3,600.
       d. debit to Wages Expense for $2,000.


 35.   After the revenue and expense accounts have been closed, the balance in Income
       Summary will be
       a. $0.
       b. a debit balance of $3,400.
       c. a credit balance of $3,400.
       d. a credit balance of $7,000.


 36.   The entry to close Income Summary to Retained Earnings includes
       a. a debit to Revenue for $7,000.
       b. credits to Expenses totalling $3,600.
       c. a credit to Income Summary for $3,400
       d. a credit to Retained Earnings for $3,400.
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 37.   At June 1, 2008, Delgado reported retained earnings of $35,000. The company had no
       dividends during June. At June 30, 2008, the company will report retained earnings of
       a. $35,000.
       b. $42,000.
       c. $38,400.
       d. $31,600.
38..   Which account listed below would be double ruled in the ledger as part of the closing
       process?
       a. Cash
       b. Retained Earnings
       c. Dividends
       d. Accumulated Depreciation

39.    The first required step in the accounting cycle is
       a. reversing entries.
       b. journalizing transactions in the book of original entry.
       c. analyzing transactions.
       d. posting transactions.


40.    Tyler Company paid $530 on account to a creditor. The transaction was erroneously
       recorded as a debit to Cash of $350 and a credit to Accounts Receivable, $350. The
       correcting entry is
       a. Accounts Payable ...............................................................              530
                     Cash .......................................................................                530
       b. Accounts Receivable ..........................................................                350
                     Cash .......................................................................                350
       c. Accounts Receivable ..........................................................                350
                     Accounts Payable ...................................................                        350
       d. Accounts Receivable ..........................................................                350
           Accounts Payable ...............................................................             530
                     Cash .......................................................................                880



41.    The following selected account balances appear on the December 31, 2008 balance
       sheet of Ming Co.
           Land (location of the corporation’s office building)                                     $150,000
           Land (held for future use)                                                                225,000
           Corporate Office Building                                                                 900,000
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           Inventory                                                       300,000
           Equipment                                                       675,000
           Office Furniture                                                150,000
           Accumulated Depreciation                                        450,000
       What is the net amount of property, plant, and equipment that will be reported on the
       balance sheet?
       a. $1,950,000
       b. $1,650,000
       c. $2,400,000
       d. $1,425,000

42.    Operating guidelines that are part of FASB's conceptual framework would best be
       described as
       a. laws.
       b. rules.
       c. regulations.
       d. principles.


 43.   All of the following are objectives of financial reporting except
       a. provide information that is helpful in making investment decisions.
       b. provide information that is helpful is assessing future cash flows.
       c. provide information that identifies economic resources.
       d. maximize social welfare.


44.    Accounting information is relevant if it
       a. has either predictive or feedback value.
       b. is consistently presented from year to year.
       c. is verifiable.
       d. is neutral.


 45.   It is assumed that the activities of Daimler Chrysler Corporation can be distinguished
       from those of General Motors because of the
       a. going concern assumption.
       b. economic entity assumption.
       c. monetary unit assumption.
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       d. time period assumption.


46.    The principle that dictates that expense be matched with revenues in the period in which
       efforts are made to generate revenues is the
       a. revenue recognition principle.
       b. matching principle.
       c. cost expiration principle.
       d. cash flow principle.


 47.   In a merchandising enterprise, revenue should be recognized
       a. when a order from a customer is received.
       b. at the point of sale.
       c. when cash is received from the customer.
       d. when the goods are received by the customer.


48.    The expensing of small tools is an application of
       a. conservatism.
       b. the matching principle.
       c. materiality.
       d. the time period assumption.


 49.   A common application of the conservatism constraint is the use of the

               1. straight-line depreciation method for plant assets.
               2. lower of cost or market method for inventories.
               3. FIFO method for inventory valuation.

       a. 1
       b. 2
       c. 3
       d. 1 and 2


50.A classified income statement typically includes all of the following except:
       a. sales revenue section.
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       b. cost of goods sold.
       c. capital investments.
       d. other revenues and gains.


51. Having one person post entries to accounts receivable subsidiary ledger and a different
      person post to the Accounts Receivable Control account in the general ledger is an
      example of
      a. inadequate internal control.
      b. duplication of effort.
      c. external verification.
      d. segregation of duties.

 52.   Joe is warehouse custodian and also maintains the accounting record of the inventory
       held at the warehouse. An assessment of this situation indicates
       a. documentation procedures are violated.
       b. independent internal verification is violated.
       c. segregation of duties is violated.
       d. establishment of responsibility is violated.

53.     Allowing only designated personnel to handle cash receipts is an example of
       a. establishment of responsibility.
       b. segregation of duties.
       c. documentation procedures.
       d. independent internal verification.
 54.   Control over cash disbursements is generally more effective when
       a. all bills are paid in cash.
       b. disbursements are made by the accounts payable subsidiary clerk.
       c. payments are made by check.
       d. all purchases are made on credit.

 55.   An employee authorized to sign checks should not record
       a. owner cash contributions.
       b. mail receipts.
       c. cash disbursement transactions.
       d. sales transactions.

56.    A $100 petty cash fund has cash of $15 and receipts of $80. The journal entry to
       replenish the account would include a credit to
       a. Cash for $85.
       b. Petty Cash for $85.
       c. Cash Over and Short for $5.
       d. Cash for $80.
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57.    Which one of the following would not cause a bank to debit a depositor's account?
       a. Bank service charge
       b. Collection of a note receivable
       c. Wiring of funds to other locations
       d. Checks marked NSF



58.    In the month of May, Klein Company Inc. wrote checks in the amount of $27,750. In
       June, checks in the amount of $37,974 were written. In May, $25,404 of these checks
       were presented to the bank for payment, and $32,649 in June. What is the amount of
       outstanding checks at the end of June?
       a. $5,325
       b. $2,346
       c. $7,671
       d. $10,650



59.In ratio analysis, the ratios are never expressed as a
        a. rate.
        b. negative figure.
        c. percentage.
        d. simple proportion.


60.    Assume the following sales data for a company:
             2009           $945,000
             2008            780,000
             2007            650,000
       If 2007 is the base year, what is the percentage increase in sales from 2007 to 2008?
       a. 25%
       b. 20%
       c. 125%
       d. 143%

Use the following information for questions 61–62:

Moon Beam, Inc. has the following income statement (in millions):
                         MOON BEAM, INC.
                         Income Statement
               For the Year Ended December 31, 2008
       Net Sales                                            $180
       Cost of Goods Sold                                    120
       Gross Profit                                           60
       Operating Expenses                                     33
       Net Income                                           $ 27
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 61.   Using vertical analysis, what percentage is assigned to Cost of Goods Sold?
       a. 67%
       b. 33%
       c. 100%
       d. None of the above

62.    Using vertical analysis, what percentage is assigned to Net Income?
       a. 100%
       b. 85%
       c. 15%
       d. None of the above
 63.   A ratio calculated in the analysis of financial statements
       a. expresses a mathematical relationship between two numbers.
       b. shows the percentage increase from one year to another.
       c. restates all items on a financial statement in terms of dollars of the same purchasing
           power.
       d. is meaningful only if the numerator is greater than the denominator.
Use the following information for questions 64-65.
Waters Department Store had net credit sales of $12,000,000 and cost of goods sold of
$9,000,000 for the year. The average inventory for the year amounted to $2,000,000.


 64.   Inventory turnover for the year is
       a. 6 times.
       b. 10.5 times.
       c. 4.5 times.
       d. 3 times.
 65.   The average number of days in inventory during the year was
       a. 122 days.
       b. 81 days.
       c. 61 days.
       d. 35 days.

66.    If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of
       cash by short-term debt and collection of accounts receivable have on the ratio?
            Short-term Borrowing     Collection of Receivable
       a.        Increase                   No effect
       b.        Increase                   Increase
       c.        Decrease                   No effect
       d.        Decrease                   Decrease
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67.       Net sales are $4,500,000, beginning total assets are $2,100,000, and the asset turnover
          is 3.0 times. What is the ending total asset balance?
          a. $1,500,000
          b. $900,000
          c. $2,100,000
          d. $1,200,000


Use the following information for questions 68-71.
The following information pertains to Cashe Company. Assume that all balance sheet amounts
represent both average and ending balance figures. Assume that all sales were on credit.
                                                Assets
      Cash and short-term investments                                     $ 40,000
      Accounts receivable (net)                                             30,000
      Inventory                                                             25,000
      Property, plant and equipment                                        215,000
              Total Assets                                                $310,000
                                  Liabilities and Stockholders’ Equity
      Current liabilities                                                 $ 60,000
      Long-term liabilities                                                 95,000
      Stockholders’ equity—common                                          155,000
          Total Liabilities and Stockholders’ Equity                      $310,000
                                          Income Statement
      Sales                                                               $ 90,000
      Cost of goods sold                                                    45,000
      Gross margin                                                          45,000
      Operating expenses                                                    20,000
          Net income                                                      $ 25,000
      Number of shares of common stock                                       6,000
      Market price of common stock                                             $20
      Dividends per share                                                      1.00


68.       What is the return on assets for this company?
          a. 6.8%
          b. 10.5%
          c. 8.1%
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       d. 16.1%


69.    What is the profit margin for this company?
       a. 50.0%
       b. 55.6%
       c. 23.5%
       d. 27.8%


 70.   What is the return on common stockholders’ equity for this company?
       a. 7.3%
       b. 16.1%
       c. 23.5%
       d. 53.3%


 71.   What is the price-earnings ratio for this company?
       a. 6 times
       b. 4.2 times
       c. 8 times
       d. 4.8 times


72.    Ester’s Bunny Barn has experienced a $40,000 loss due to tornado damage to its
       inventory. Tornados have never before occurred in this area. Assuming that the
       company’s tax rate is 30%, what amount will be reported for this loss on the income
       statement?
       a. $40,000
       b. $28,000
       c. $12,000
       d. $36,000

 73.   Wenger Company reported income before taxes of $600,000 and an extraordinary loss
       of $150,000. Assume that the company’s tax rate is 30%. What amounts will be reported
       on the income statement for income before irregular items and extraordinary items,
       respectively?
       a. $420,000 and $150,000
       b. $420,000 and $105,000
       c. $495,000 and $150,000
       d. $495,000 and $105,000

 74.   Each of the following is a factor affecting quality of earnings except
       a. alternative accounting methods.
       b. improper recognition.
       c. pro forma income.
       d. extraordinary items.
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   75.       Yenn Company developed the following reconciling information in preparing its
             September bank reconciliation:
                Cash balance per bank, 9/30                                                       $15,000
                Note receivable collected by bank                                                     6,000
                Outstanding checks                                                                    9,000
                Deposits in transit                                                                   4,500
                Bank service charge                                                                     75
                NSF check                                                                             1,200
             Determine the cash balance per books (before adjustments) for Yenn Company.
             a. $11,775.
             b. $19,500.
             c. $5,775.
             d. $15,000.


Exercises:


   76. On June 1, 2008, Gore Company prepared a balance sheet that shows the following:
              Assets (no cash) ..............................................................         $100,000
              Liabilities..........................................................................     70,000
              Stockholders' Equity ........................................................             30,000


   Shortly thereafter, all of the assets were sold for cash. How would the balance sheet appear
   immediately after the sale of the assets for cash for each of the following cases?


                Cash Received for                               Balances Immediately After Sale
                      the Assets                    Assets            –       Liabilities         =    Stockholders' Equity

   Cash A             $110,000                   $________                   $________                 $________
   Cash B              100,000                     ________                    ________                 ________
   Cash C                90,000                    ________                    ________                 ________




   77. Under a double-entry system, show how the entry in each statement is entered in the
   ledger by using debit or credit to indicate the increase or decrease in the affected account.
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                                                                         Debit or Credit
     1.    An increase in Salary Expense.                            __________________
     2.    A decrease in Accounts Payable.                           __________________
     3.    An increase in Prepaid Insurance.                         __________________
     4.    An increase in Common Stock.                              __________________
     5.    A decrease in Office Supplies.                            __________________
     6.    An increase in Dividends.                                 __________________
     7.    An increase in Service Revenue.                           __________________
     8.    A decrease in Accounts Receivable.                        __________________
     9.    An increase in Rent Expense.                              __________________
 10.       A decrease in Store Equipment.                            __________________


78.
Indicate (a) the type of adjustment (prepaid expense, unearned revenue, accrued revenue, or
accrued expense), and (b) the accounts before adjustment (overstated or understated) for each
of the following:
      1.   Supplies of $200 have been used.
      2.   Salaries of $600 are unpaid.
      3.   Rent received in advance totaling $300 has been earned.
      4.   Services provided but not recorded total $500.
      (a) Type of Adjustment                    (b) Accounts before Adjustment
1.
2.
3.
4.


79. Indicate the worksheet column (income statement Dr., balance sheet Cr., etc.) to which
each of the following accounts would be extended.

      Account                               Worksheet Column


a.    Accounts Receivable                   ________________
b.    Accumulated Depreciation              ________________
c.    Commission Revenue                    ________________
d.    Interest Expense                      ________________
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e. Dividends                            ________________
f. Unearned Revenue                     ________________


80. Match the qualitative characteristic below with the appropriate statement.
       A.   Comparability              C.   Relevance
       B.   Consistency                D.   Reliability
_____ 1. Provides a basis for forecasts.
_____ 2. A company uses the same accounting methods from year to year.
_____ 3. Different companies use the same accounting principles.
_____ 4. The information is free of error and bias.
_____ 5. Confirms or corrects prior expectations.
_____ 6. Accounting information must be neutral


81. Match each of the following principles of internal control with the appropriate description
below.
                       A.   Establishment of responsibility
                       B.   Segregation of duties
                       C.   Documentation procedures
                       D.   Physical, mechanical, and electronic controls
                       E.   Independent internal verification
                       F.   Other controls
_____ 1.    Involves the review, comparison, and reconciliation of data prepared by other
            employees.
_____ 2.    Provide evidence that transactions and events have occurred.
_____ 3.    Includes the authorization and approval of transactions.
_____ 4.    Rotating employees' duties and requiring employees to take vacations.
_____ 5.    Related activities should be assigned to different individuals.
_____ 6.    Using garment sensors to deter theft.

								
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