Question

True/False 1) The purposes and principles of internal control are fundamentally the same across the globe. However, cultural differences sometimes suggest different emphasis on the mix of control procedures 2.) Controls of cash disbursements are important for companies as most large thefts occur from payment of fictitious invoices 3.) A good voucher system includes a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations. 4.) An effective voucher system has limited ability to prevent a dishonest employee from colluding with a dishonest supplier to fraudulently acquire cash payments for goods and services not received 5.) An example of the rationalization factor of the fraud triangle would be an employee justifying stealing money from his or her employee by stating, "I am underpaid and deserve a raise". 6.) Notes receivable are classified as current liabilities regardless of the time to maturity 7.) The percent of sales method for estimating bad debts assumes that a given percent of a company's credit sales for the period are uncollectible. 8.) When using the allowance method of accounting for uncollectible accounts, the entry to record the estimated bad debts expense is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts. 9.) The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. 10.) The formula for computing interest on a note is: Principal of the note x Annual interest rate x Time expressed in fraction of year.

Answer 1

1. True. They are specified policies and procedures used by the organization to achieve specified objectives. The basic purpose and principles are the same in terms of financial and operational activities undertaken by the company. However across globe, the way they implement these controls may be in their own fashion depending on their cultural differences but ultimately whether the risk is mitigated or not is important with the help of control that the management has implemented

2.True. Controls of cash disbursement are very important at the big organizations because there may be fictitious invoices that may get paid. As the size of the organization increases there will be number of invoices that gets processed on a day to day basis and finding the fictitious invoices among these invoices are very difficult. Controls such as segregation of duties should implemented in this area. These controls include processing invoice is different person and processing payment for the same invoice is different. Duplication invoice check should be there before processing. Two persons should authorize a payment in bank

3. True. Any cash disbursement should follow a set of procedures so that only genuine transactions happen. The statement is partially true because for every petty payment the procedures are burdensome. In such cases basis the threshold value these set of procedures should be followed. say any payment above 500 dollars should follow these procedures and rest of the transactions should be reviewed for its genuineness once in a while.

4. True- An effective voucher requires the details of payment made to be filled and will be reviewed by independent person before approving the payment hence there is less scope of fraud

5.True- Employees who are underpaid may be motivated to commit fraud and they would quote such reasons for justifying the same.

6. False- Notes receivable will be classified as current assets and not as payables

7. True- Percent of sales method requires calculation of bad debts expense on the amount of credit sales made during the year

8. True - The allowance to bad debts is later debited and trade receivable is credited when actual bad debts is confirmed

9. True- This method is used when the company is sure on the bad debts and Trade receivable is directly credited by debiting bad debts account

10. True- The formula for computing interest on any amount is amount*% of interest rate*proportion of time for which interest is computed.