Principles of Internal Control

question 81

Multiple Choice

Principles of internal control

• A)Fundamental guidelines applicable to all companies established to minimize the risk of fraud and theft and to increase the reliability and accuracy of the accounting records.
• B)Short-term, highly liquid investment assets that are readily convertible to cash and close enough to their due date so that their market value will not greatly change.
• C)An internal document used to collect information to control cash payments and to ensure that a transaction is properly recorded.
• D)An income statement account used to record the income effects of cash overages and cash shortages arising from missing petty cash receipts or errors in making change.
• E)A measure of how quickly a company can convert its accounts receivable into cash.
• F)Principle that says the costs of internal controls must not exceed their benefits
• G)A set of procedures and approvals designed to control cash payments and the acceptance of liabilities.
• H)Used by the bank to verify signatures of persons authorized to write checks.
• I)A report explaining any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement.
• J)The ability of a company to pay for its near-term obligations.

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Definitions:

Freeze-Out Acquisition

A strategy used in mergers and acquisitions where a majority shareholder forces out minority holders to take full control of the company.

Share Split

Traditionally, a corporation’s dividing existing shares into two or more shares, thereby increasing the number of authorized, issued, and outstanding shares and reducing their par value. In modern corporation law, treated like a share dividend. Also called stock split.

Total Fairness Test

A legal standard used to evaluate the overall fairness and equity of a corporate action or decision, especially in mergers and acquisitions.

Straight Voting

A form of voting for directors that ordinarily permits a shareholder to cast a number of votes equal to the number of shares he or she owns for as many nominees as there are directors to be elected. See also cumulative voting.