Chapter 7

Question 1

Internal controls

Answer 1

Policies and procedures to protect assets

Question 2

Fraud

Answer 2

A person tries to circumvent Internal controls for personal gain

Question 3

Collusion

Answer 3

A group of people work together to circumvent internal controls

Question 4

Cash receipts and payments

Answer 4

Cash disbursement’s

Question 5

3 frequent internal controls for cash

Answer 5

1. Tasks divided
2. Cash deposited same day
3. Chèque or eft used when possible

Question 6

Expense account when there is a shortage/overage petty cash

Answer 6

Cash over/short expense

Question 7

Entries for allowance for bad debts

Answer 7

Bad debt expense debit
Allowance for doubtful accounts credit
To record the adjustment estimating uncollectible accounts receivable

Question 8

3 ways to estimate uncollectable accounts rec. or AFDA

Answer 8

1. Income Statement Method (% x credit sales) - don’t consider existing ADFA
2. Balance Sheet Method - historic % x category (sum) - consider existing ADFA
3. Simplified Balance Sheet
   % x outstanding accounts receivable
   Consider existing ADFA

Question 9

Write off entry

Answer 9

ADFA debit
Accounts Rec credit
“To record write off of account rec.)

Question 10

If write off reversed (entry)

Answer 10

ADFA credit
Accounts rec. debit

To reverse write off and reinstate portion of account rec.

Question 11

Account receivable becomes note

Answer 11

Acc rec. credit

Note rec. debit