Quality Assurance & Compliance Flashcards
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Read the first 7 Quality Assurance & Compliance flashcards as text
Which of the following is the best example of an error of principle in bookkeeping?
Answer: Debiting Rent Expense instead of Prepaid Rent for an advance payment
An error of principle occurs when a transaction is recorded using the wrong type of account, such as expensing an item that should be capitalized or treated as prepaid.
A bookkeeper wants to verify that all checks issued during the month were properly authorized. Which document would be most useful for this review?
Answer: The check register cross-referenced against approved vouchers
Comparing the check register against approved payment vouchers confirms that each disbursement had proper prior authorization.
Under the Fair Labor Standards Act (FLSA), which of the following records must employers retain for at least 3 years?
Answer: Payroll records including hours worked and wages paid
The FLSA requires employers to keep payroll records, including time cards and wage computations, for a minimum of 3 years.
Which of the following best describes materiality as it applies to financial reporting?
Answer: An item is material if its omission or misstatement could influence the economic decisions of users
Materiality is a threshold concept: information is material if omitting or misstating it could affect the decisions of financial statement users.
A bookkeeper is asked to back-date a journal entry to the prior fiscal year to improve that year's reported profit. This action would violate which ethical principle?
Answer: Integrity
Back-dating entries to manipulate reported results is a deliberate misrepresentation that violates the principle of integrity, which requires honest and straightforward conduct.
Which of the following situations would require a bookkeeper to record an accrued liability at period end?
Answer: Employees earned wages in December that will not be paid until January
Wages earned but not yet paid represent a liability that must be accrued to match expenses to the period in which employees worked.
Which of the following is a key characteristic of a strong internal control environment for small businesses that lack sufficient staff for full segregation of duties?
Answer: Implementing compensating controls such as owner review of bank statements and transaction reports
When full segregation of duties is not feasible, compensating controls such as active owner oversight can mitigate the increased risk.