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1、CHAPTER 5 1.THE KNOWLEDGE THAT JOB ROTATION IS PRACTICED AND THAT ONE EMPLOYEE MAY PERFORM ANOTHERS JOB AT A LATER DATE TENDS TO DISCOURAGE DEVIATIONS FROM PRESCRIBED PROCEDURES. ALSO, ROTATION HELPS TO DISCLOSE ANY IRREGU LARITIES THAT MAY OCCUR.2.Authorizing complete control over a sequence of rel
2、ated operations by one individual presents opportunities for inefficiency, errors, and fraud. The control over a sequence of operations should be divided so that the work of each employee is automatically checked by another employee in the normal course of work. A system functioning in this manner h
3、elps prevent errors and inefficiency. Fraud is unlikely without collusion between two or more employees.3.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 (ope
4、rations) and maintaining the accounts receivable records (accounting).4.No. Combining the responsibility for related operations, such as combining the functions of purchasing, receiving, and storing of supplies, increases the possibility of errors and fraud.5.The control procedure requiring that res
5、ponsibility 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.6.The responsibility
6、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.7.The individual accounts receivable ledger accounts provide business managers information on the status of individual cust
7、omer accounts, which is necessary for managing collections. Managers need to know which customers owe money, how much they owe, and how long the amount owed has been outstanding.8.The major advantages of the use of special journals are substantial savings in record-keeping expenses and a reduction o
8、f record-keeping errors.9.a.250；b.None10.a.250；b.111.a.Sometime following the end of the current month, one of two things may happen: (1) an overdue notice will be received from Hoffman Co., and/or (2) a letter will be received from Hoffer Co., informing the buyer of the overpayment. (It is also pos
9、sible that the error will be discovered at the time of making payment if the original invoice is inspected at the time the check is being written.)b.The schedule of accounts payable would not agree with the balance of the accounts payable account. The error might also be discovered at the time the i
10、nvoice is paid.c.The creditor will call the attention of the debtor to the unpaid balance of $1,000.d.The error will become evident during the verification process at the end of the month. The total debits in the purchases journal will be less than the total credits by $2,000.12.a.No, the error will
11、 not cause the trial balance totals to be unequal.b.No, the sum of the balances in the creditors ledger will not agree with the balance of the accounts payable account in the general ledger.13.a.Cash payments journal；b.Purchases journal；c.Cash payments journald.Purchases journal；e.Cash payments jour
12、nal14.An electronic form is a software window that provides the inputs for a particular transaction. For example, a check form provides the inputs (payee, amount, date) for a cash payment transaction. An electronic invoice provides the inputs (customer, amount sold, item sold) for recording revenues
13、 earned on account.15.The use of controlling accounts to verify the accuracy of subsidiary accounts is used in a manual system. In a computerized system, it is assumed that the computer will accurately sum the individual transactions in the subsidiary accounts in determining the aggregate balance. T
14、hus, there is no need for controlling accounts for controlling the accuracy of the individual postings.16.For automated systems that use electronic forms the special journals are not used to record original transactions. Rather, elec-tronic forms capture the original transaction detail from an invoi
15、ce, for example, and automatically post the transaction details to the appropriate ledger accounts.17.E-commerce can be used by a business to conduct transactions directly with customers. Thus, an order can be received directly from the customers Internet input and cash can be received from the cred
16、it card. Many times, the cash is received prior to actually shipping the product, resulting in a faster revenue/collection cycle. Reducing paperwork throughout the cycle also improves the efficiency of the process. For example, all of the accounting transactions can be fed automatically from the ini
17、tial Web-based inputs. EX. 51As an internal auditor, you would probably disagree with the change in policy. First Charter has some normal business risk associated with default on bank loans. One way to help minimize this is to carefully evaluate loan applications. Large loans present greater risk in
18、 the event of default than do smaller loans. Thus, it is reasonable to have more than one person involved in making the decision to grant a large loan. In addition, loans should be granted on their merits, not on the basis of favoritism or mere association with the bank president. Allowing the bank
19、president to have sole authority to grant large loans can lead to the president granting loans to friends and business associates, without the required due diligence. This can result in a bank becoming exposed to very poor credit risks. Indeed, this scenario is one of the causes of savings and loan
20、and bank failures of the past.Ex. 52This is an example of a fraud with significant collusion. Frauds that are perpetrated with multiple parties in different positions of control make detecting fraud more difficult. In this case, the fraud began with an employee responsible for authorizing claim paym
21、ents. This is a sensitive position because his decisions would initiate payments. However, claims would need to be authorized and verified before payment would be made. Knowing this, the employee made sure each claim had a phony “victim.” Thus, there was a verifiable story behind each claim. Only by
22、 tracking physical evidence of the accident could it be discovered that the claim was fictitious. However, the very nature of the process was to resolve small claims quickly without excessive control. Lastly, corrupt lawyers were brought into the fraud to act as attorneys for the claimants. This gav
23、e the claims even more credibility. In actuality, the lawyers had done legitimate business with the trucking company, so all appeared normal. This fraud was discovered when the fraudulent employees bank noticed irregularities in his bank account and notified authorities. As the saying goes, “Follow
24、the money!” As a side note, the corrupt claims administrator fell into this behavior due to gambling problems.Ex. 53Event Sound should not have relied on the unusual nature of the vendors and delivery frequency to uncover this fraud. The purchase and payment cycle is one of the most critical busines
25、s cycles to control, because the potential for abuse is so great. Purchases should be initiated by a requisition document. This document should be countersigned by a superior so that two people agree as to what is being purchased. The requisition should initiate a purchase order to a vendor for good
26、s or services. The vendor responds to the purchase order by delivering the goods. The goods should be formally received using a receiving document. An accounts payable clerk matches the requisition, purchase order, and invoice before any payment is made. Such “triple matching” prevents unauthorized
27、requests and payments. In this case, the requests were unauthorized, suggesting that the employee had sole authority to make a request. Second, this employee had access to the invoices. This access allowed the employee to change critical characteristics of the invoice to hide the true nature of the
28、goods being received. The invoice should have been delivered directly to the accounts payable clerk to avoid corrupting the document. There apparently was no receiving document (common for smaller companies); thus, only the invoice provided proof of what was received and to be paid. If there had bee
29、n a receiving report, the invoice could not have been doctored and gone undetected, because it would not have matched the receiving report.Note to Instructors: This exercise is based on an actual fraud. Ex. 54a.The most difficult frauds to detect are those that involve the senior management of a com
30、pany that is in a conspiracy to commit the fraud. The senior managers have the power to access many parts of the accounting system, while the normal separation of duties is subverted by involving many people in the fraud. In addition, the authorization control is subverted because most of the author
31、ization power resides in the senior management.b.Overall, this type of fraud can be stopped if there is strong oversight of senior management, such as an audit committee of the board of directors. Individual “whistle blowers” in the company can make their concerns known to the independent or interna
32、l auditors who, in turn, can inform the audit committee. The audit committee should be independent of management and have the power to monitor the actions of management.Ex. 551.General ledger accounts: (e)；2.Subsidiary ledger accounts: (a), (b), (c), (d)Ex. 56a.Cash receipts journal；b.Cash receipts
33、journal；c.General journal (not a revenue transaction)d.General journal；e.Cash receipts journal；f.Cash receipts journalg.Cash receipts journal；h.Revenue journal；i.Cash receipts journal；j.General journalEx. 57a.Cash payments journal；b.Purchases journal；c.Cash payments journal；d.General journale.Genera
34、l journal；f.Cash payments journal；g.Purchases journal；h.Cash payments journali.General journal；j.General journal；k.Purchases journal Ex. 58Nov.3Provided service on account; posted from revenue journal.9Granted allowance or corrected error related to sale of November 3; posted from general journal.13
35、Received cash for balance due; posted from cash receipts journal.Ex. 59REVENUE JOURNALPAGE 8InvoicePost.Accounts Rec. Dr.DateNo.Account DebitedRef.Fees Earned Cr.20061Mar.2512Conrad Co. 790128513Orlando Co. 3102312514Drake Inc. 5803422515Electronic Central, Inc. 250431Total1,9305CASH RECEIPTS JOURNA
36、LPAGE 12FeesAccts.Post.EarnedRec.CashDateAccount CreditedRef.Cr.Cr.Dr.20061Mar.4CMI, Inc. 2402401219Drake Inc. 5305302327Fees Earned70703429Conrad Co. 7907904531Fees Earned40405631Total1101,5601,6706 Ex. 5101.General ledger account: (c), (e), (h), (j), (k), (l)2.Subsidiary ledger account: (a), (b),
37、(d), (f), (g), (i)；3.No posting required: (m)Ex. 5111.General ledger account: (b), (c), (d), (f), (g), (i), (k), (l)2.Subsidiary ledger account: (a), (e), (h)；3.No posting required: (j)Ex. 512Feb.6Purchased services, supplies, equipment, or other commodities on account; posted from purchases journal
38、.10Received allowance or corrected error related to purchase of February 6; posted from general journal.16Paid balance owed; posted from cash payments journal. Ex. 514Revenue journal: (d), (i)；Cash receipts journal: (a), (e)Purchases journal: (g), (h)；Cash payments journal: (b), (f)；General journal:
39、 (c), (j)Ex. 5151.The Cash column is for debits (not credits).2.The Other Accounts column is for credits (not debits).3.A better order of columns would be to place the Other Accounts Cr. column to the left of the Fees Earned Cr. column.A recommended and corrected cash receipts journal is as follows:
40、CASH RECEIPTS JOURNALPAGE 12DATEACCOUNTCREDITEDPOST. REF.OTHER ACCOUNTS CR.FEES EARNED CR.ACCOUNTS REC. CR.CASH DR.4Ex. 513PURCHASES JOURNALPAGE 36OTHER ACCOUNTS DR.DATEACCOUNT CREDITEDPOST REF.ACCOUNTS PAYABLE CR.CLEANING SUPPLIES DR.ACCOUNTPOST REF.AMOUNT20071May3Industrial Products, Inc.85851212C
41、arver Paper Products, Inc.2052052317Liquid Klean Supplies1701703420Fountain Laundry Service70Laundry Service Exp.53704531Total530460705CASH PAYMENTS JOURNALPAGE 41OtherAccountsCheckPost.AccountsPayableCashDateNo.Account DebitedRef.Dr.Dr.Cr.20071May157Liquid Klean Supplies14514512858Equipment18450450
42、241559Fountain Laundry Service115115452560Industrial Products, Inc.8585563161Salary Expense512,9002,9006731Total3,3503453,695722 Ex. 516a.REVENUE JOURNALPAGE 1DATEINVOICENO.ACCOUNT DEBITEDPOST.REF.ACCTS.REC.DR.FEESEARNEDCR.SALES TAXPAYABLECR.1June161A. Sommerfeld3153001512192K. Lee126120623213J. Kos
43、s8480434224D. Jeffries126120645265J. Koss2732601356286K. Lee6360367309879404778(12)(41)(22)8JOURNALPAGE 1Post.DateDescriptionRef.DebitCredit2006June24Office Supplies14168Fees Earned41160Sales Tax Payable228ACCOUNTS RECEIVABLE SUBSIDIARY LEDGERD. JeffriesPost.DateItemRef.Dr.Cr.Balance2006June22R11261
44、26J. Koss2006June21R1848426R1273357K. Lee2006June19R112612628R163189A. Sommerfeld2006June16R1315315b.GENERAL LEDGERAccounts Receivable12Post.BalanceDateItemRef.Dr.Cr.Dr.Cr.2006June30R1987987Office Supplies142006June24J1168168Sales Tax Payable222006June24J18830R14755Fees Earned412006June24J116016030R
45、19401,100c.1.$987 ($126 + $357 + $189 + $315)2.$987 CHAPTER 61.Merchandising businesses acquire merchandise for resale to customers. It is the selling of merchandise, instead of a service, that makes the activities of a merchandising business different from the activities of a service business.2.Yes. Gross profit is the excess of (net) sales over cost of merchandise sold. A net loss arises when operating expenses exceed gross profit. Therefore, a business can earn a gross profit but incur operating expenses in excess of this gros