CHAPTER 16:

1. List the five primary activities involved in the acquisition and payment cycle.
1. Requisition (request) for goods or services
2. Purchase of goods and services
3. Receipt of, and accounting for, goods and services
4. Approval of items for payment
5. Cash disbursements

2. List at least five common fraud schemes in the acquisition and payment cycle.
1. Recording fictitious cash receipts
2. Failure to record receipt from cash sales
3. Inaccurate recording of a purchase or disbursement
4. Duplicate recording and payment of purchases
5. Unrecorded disbursements

3. Describe the following types of cash accounts; (a) general checking accounts, (b) cash
management accounts, (c) imprest payroll accounts, and (d) petty cash accounts.
a. General Checking Accounts- principal cash account used by the organization for cash
receipts from the revenue process and cash disbursements from the payroll and
purchasing processes
b. Cash Management Accounts- an account held with a financial institution that allows you
to manage your cash transactions through one portal.
c. Imprest payroll Accounts- a separate account held by a corporation that contains funds
strictly for employee payroll use
d. Petty Cash Accounts- established for making small payments that are impractical to pay
by check

4. List at least three common controls for petty cash.

1. Limiting access by keeping funds in a locked box
2. Requiring receipts for petty cash disbursements with:
 Date Amount received
 Purpose or use for funds
 Name of employee receiving funds
3. Reconciling petty cash fund before replenishing it

5. Identify potential fraud schemes related to long-lived assets

 Misstatement of acquisitions of property, plant and equipment
 Failure to record retirements of property, plant and equipment
 Improper reporting of unusual transactions
6. Consider the risks typically associated with tangible long-lived assets and identify the
internal controls over these assets that you would expect a client to have in place.
 A subsidiary ledger consisting of a separate record for each unit of property.
 A system of authorization requiring advance executive approval of all plant and
equipment acquisitions, whether by purchase, lease or construction.
 A reporting procedure assuring prompt disclosure and analysis of variances between
authorized expenditures and actual costs.
 An authoritative written statement of company policy distinguishing between capital
expenditures and revenue expenditures.
 A policy requiring all purchases of plant and equipment to be handled through the
purchasing department and subjected to a standard routine for receiving, inspection and
payment.
 Periodic physical inventories designed to verify the existence, location and condition of
all property listed in the accounts and to disclose the existence of any unrecorded units.
 A system of retirement procedures, including serially numbered retirement work orders,
stating reasons for retirement and bearing appropriate approvals.