Chapter 4 - Internal Control & Cash
Directed Reading Worksheet
Student name
1. What is the definition of fraud?
1. Fraud is the intentional misrepresentation of facts, designed to persuade another party
to act in a way that causes injury or damage to that party.
2. What are the three elements that make up virtually every fraud?
1. Motive
2. Opportunity
3. Rationalization
3. The U.S. Congress requires public companies to maintain a system of internal controls and
requires their auditors to examine those controls. True or False?
1. True
4. What three key duties need to be separated for proper segregation of duties?
1. Asset handling
2. Record keeping
3. Transaction approval
5. Describe the difference between internal and external auditors.
Internal auditors are the employees of the company. External auditors are usually
certified public accountants who are completely independent on the business.
6. Describe the controls in place during a typical over the counter cash purchase.
Cash register -cash receipts and recording the sale and reducing the inventory
The cash drawer opens when the sales associate enters a transaction and the machine electronically
transmits a record of the sale to the stores main computer at the end of each shift the sales
associate delivers the cash drawer to the office where it’s combined with the cash from al other
terminals and delivered by armored car to the bank for deposit.
7. What is petty cash used for?
Petty cash is used for small funds kept by a single employee for the purpose of making
such on the spot minor purchases
8. What is the purpose of creating a bank reconciliation?
The purpose of creating a bank reconciliation is to keep cash in the bank account
Helps control cash because bamks have established practices for safeguarding customers money.
9. Fill in the following rules that relate to preparing a bank reconciliation.
1. Bank Balance – Always
i. ____add________ deposits in transit.
ii. Subtract ________outstanding checks ______.
iii. Add or subtract _____correction of bank errors __________.
2. Book Balance – Always
i. Add ____bank collections____, interest revenue, and _EFT Reciepts ____.
ii. ___Subtract___ service charges, NSF checks, and EFT payments.
iii. __Add__ or __subtract___ corrections of book errors.
10. Cash equivalents include liquid assets such as _________________, ____________________,
and _____________________________________________.
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