Accounting 2020 Test 2

If the company's accountant mistakenly recorded an $75 deposit as $119, the error would be shown on the bank reconciliation as a(n):

$44 deduction from the book balance

what are the 5 control components a company should implement

1. Control environment 2. risk assessment 3. control activities 4. information and communication 5. monitoring activities

what are the 3 trade offs of extending credit

1. Increased wage costs 2. bad debt expense 3. delayed receipt of cash

what are 3 primary goals of inventory managers

1. Maintain Quantity 2. Quality 3. Minimize Cost

what are the four steps of the budgetary control process

1. develop the budget 2.compare actual results to budgeted amounts 3.take corrective actions 4.establish new objectives and a new budget

5 common principles of internal control

1.Establish Responsibility 2.Segregate Duties 3.Restrict Access 4.Document Procedures 5.Independently verify

Which of the following statements about an auto manufacturer's inventory is not correct?

Cars that have been sold to dealers would be included in finished goods inventory.

which of the following is not a commonly used internal control?

Consolidating duties

what are the SOX key requirements

Counteractive Incentives, Reduced Opportunity, Encourage Honesty

A company uses the direct write-off method. The company writes off a $3,000 customer account balance when it becomes clear that the particular customer will never pay. What is the journal entry that would be prepared to record this write-off?

Debit Bad Debt Expense and credit Accounts Receivable for $3,000.

Polk Company uses a perpetual inventory system and had the following transactions during November: November 6—Purchased $8,700 of inventory on account, terms 2/10, n/30. November 8—Returned $1,200 of defective units and received full credit. November 15—Paid the amount due. What journal entry will be recorded by Polk Company on November 6 using the gross method?

Debit Inventory and credit Accounts Payable for $8,700.

Which inventory costing method will result in the highest inventory if the cost of goods grows over time

FIFO

LIFO reserves represent the excess of ______.

FIFO over LIFO and is reported in the inventory footnote of companies using LIFO

True or False: A different inventory costing method can be used on the income tax return than the financial statements.

False

Lower of cost or market value (LCM)

GAAP requires the inventory to be written down to its lower value when its value falls below its cost

Why is the direct write off method not allowed under GAAP to account for doubtful accounts?

It violates the expense recognitions principle ("Matching")

A $6,000 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?

It would be added to the bank balance.

which inventory costing method will result in the highest cost of goods sold if the cost of goods grows over time

LIFO

Which of the following is not one of the primary goals of inventory management?

Minimize the quantity of ending inventory.

Offering customers ______ increases the likelihood the seller will receive the cash before the customer runs out of funds and encourages prompt payment.

Sales discounts

Accepting only cash and canceling a credit card program that previously allowed customers to purchase merchandise on credit may cause ______.

Sales to decrease and Bad Debt Expense to decrease

In which situations does a company issue a note receivable? (Check all that apply.)

The company lends money to employees or businesses.The company makes an exception for a financially troubled customer and extends the payment period and charges interest.

Ace Electronics recorded a debit to Sales Returns and Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

The customer received a damaged product and returned it.

What information is provided by the receivables turnover ratio?

The number of times the average receivables balance is collected during the periodThat a higher ratio means faster (better) turnover

cost is recorded as

a decrease in inventory and an increase expenses (cost of goods sold)

budget

a formal statement of a company's plans, expressed in monetary terms

petty cash fund

a system to reimburse employees for expenditures they have made on behalf of the organization

FOB shipping point

a term of sale indicating that goods are owned by the buyer the moment they leave the seller's premises

FOB desitnation

a term of sale indicating that goods are owned by the seller until they are delivered to the buyer

Requiring approval of customers' credit history, reviewing the age of past due accounts and rewarding speedy collections are examples of controls over ______.

accounts receivable

A company made a bank deposit on September 30 that did not appear on the bank statement dated September 30. In preparing the September 30 bank reconciliation, the company should:

add the deposit to the end cash balance per bank statement.

Compliance

adhering to laws and regulations

Which method for accounting for doubtful accounts is more accurate?

aging of accounts receivable

fraud

an attempt to deceive others for personal gain

selling price is recorded as

an increase in revenue and an increase in cash or account receivable

Accounts Receivable

are amounts owed to a business by its customers

what type of fraud occurs the most but causes the least amount of loss?

asset misappropriation

FIFO, LIFO, and weighted average inventory costing methods are based on:

assumptions that accountants make about the flow of inventory costs

ending inventory=

beginning inventory+ purchases- cost of goods sold

Internal Control

behind the scenes practices that help businesses achieve their objectives

In a retail business that uses a perpetual inventory system, scanning a bar code does not:

calculate the gross profit

purchase discount/ sales discount

cash discount received fro prompt payment of an account

what occurs when a sales return or allowance takes place?

cash is decreased and revenue is decreased, inventory is increased and cost of goods sold is decreased (an expense)

any difference between the sales revenue and cash collected is recorded as

cash overage or shortage

reduced opportunities

companies must establish an audit committee of independent directors and evaluate and report on the effectiveness of internal control over financial reporting

weighted average cost=

cost of goods available for sale/ units available for sale

what do merchandisers report that service companies do not?

cost of goods sold, inventory

What conclusion are managers likely to draw from a constant increase to sales returns and allowances?

customers are unhappy with the quality of the merchandise

to write off a customer's account one must

decrease allowance for doubtful accounts (debit) and decrease accounts receivable (credit)

to record a LCM one must

decrease inventory and decrease cost of goods sold

The allowance method is a method of accounting that ______ for estimated bad debts

decreases net accounts receivable

on a bank reconciliation, the amount of an NSF check is:

deducted from the company's balance of cash

Sales discounts should appear in the financial statements as a

deduction from sales

aging of accounts receivable method

estimates the allowance for doubtful accounts ending balance with the chart

cash shortage is an

expense and debited when it increases

the accounting principle that governs the recording of bad debt expense in the same period as sales revenue is called

expense recognition principle

notes payable are typically used for

expensive items, extending payment period, lending money

True or False: When bad debt expense on notes receivable or interest receivable occurs it is recorded differently than bad debt expense for an account receivable.

false

what financial statement is cost of goods sold reported on

income statement

to adjust for bad debt one must

increase allowance for doubtful accounts (credit) and increase bad debt expense (debit)

to record interest received/ paid one must

increase cash (debit), decrease previous interest receivable (credit), increase interest revenue (credit)

to establish a note receivable one must

increase interest receivable (debit) and decrease cash (credit)

Generally accepted accounting Principles (GAAP) require that the inventory be reported at

lower of cost or market/net realizable value

financial statement fraud

misreporting amounts in the financial statements, usually to portray more favorable financial results than what actually exist

corruption

misusing one's position for inappropriate personal gain

percentage of credit sales method

multiplying the estimated percentage of bad debt losses by the current period's credit sales

Electronic Funds Transfer (EFT)

occurs when a customer electronically transfers funds from his or her bank account to the company's bank account

The of credit sales is the method that estimates bad debt expense using credit sales and the of accounts receivable method estimates the allowance for doubtful accounts based on the time each account receivable has been outstanding.

percentage

what is the part of the fraud triangle most affected by SOX

reduce opportunity

purchase returns and allowances are accounted for by

reducing the cost of the inventory and either recording a cash refund or reducing the liability owed to the supplier

gross profit=

sales revenue - cost of goods sold

retailers

sell directly to individual consumers

wholesalers

sell their inventory to retail businesses for resale to consumers

Multistep income statements

separate core results from peripheral results

On January 1, goods were picked up by a FedUp Delivery, Inc. The goods arrived at the customer's place of business on January 12. If the seller recorded the sale on January 1, then the terms must have been FOB ______.

shipping point

An individual customer's accounts receivable is recorded in the customer's ______ account and then summarized with all other customers' accounts on the balance sheet as Accounts receivable.

subsidiary

what do service companies report that merchandisers do not?

supplies

Control environment

the attitude people in the organization hold regarding internal control

managers must ensure that activities of employees and departments contribute to meeting

the company's overall goals

shrinkage

the cost of inventory lost to theft, fraud, and error

Incentive

the employee has a reason for committing fraud

asset misappropriation

theft, embezzlement

counteractive incentives

those who willfully misrepresent financial results face stiff penalties including fines

true or false, Notes receivable generally charged interest

true

periodic inventory system

updates inventory records at the end of the accounting period

perpetual inventory system

updates inventory records every time an item is bought, sold, or returned

Grandview, Inc. uses the allowance method. At December 31, 2018, the company's balance sheet reports Accounts Receivable, Net in the amount of $21,000. On January 2, 2019, Grandview writes off a $2,300 customer account balance when it becomes clear that the customer will never pay. What is the amount of Accounts Receivable, Net after the write-off?

21,000

True or False: Goods in transit and consignment inventory are reported on the balance sheet of the company not the owner.

False

True or false: Net sales is the same as net income and is reported on the income statement

FalseRationale:Net sales is the first line of the income statement above expenses. Net income is net of all expenses.

what makes up the Fraud triangle

Incentive Opportunity Rationalization

______ inventory system will always give updated balances for ______.

Perpetual; cost of goods sold

Interest=

Price of note x interest rates time/12

To help minimize bad debt expense and provide feedback, a good internal control system will require ______.

a periodic aging of accounts receivableapproval of customers' credit history

voucher system

a process for approving and documenting all purchases and payments on account

Expense is associated with the estimated uncollectible accounts receivable.

bad debt

the adjusting entry to record the estimated bad debts in the period credit sales occur would normally include a debit to

bad debt expense and a credit to allowance for doubtful accounts

The line item Trade accounts receivable, net of allowances will be found on the ______.

balace sheet

Outstanding checks have:

been recorded by the company but not yet by the bank

sales discounts should appear in the financial statements an a

deduction from sales

A high receivables turnover ratio is a sign of a company's ______.

effectiveness in granting and collecting crediteffectiveness in granting and collecting credit

recording the estimate of bad debt expense

follows the expense recognition "matching" principle

beginning inventory + purchases=

goods available for sale

to show accrued interest one must

increase interest receivable (debit) and increase interest revenue (credit)

All of the following will likely be incurred by a company that extends credit except

increased advertising expenses

Identify two benefits to the seller of offering sales discounts to its customers.

increases the likelihood the seller will receive the cash before the customer runs out of fundsprompt receipt of cash

Interest Receivable

is an asset reported the balance sheet

budgetary control process

refers to management's use of budgets to see that planned objectives are met

Imprest System

restricts the total amount paid to others by limiting the amount of money available to be transferred

opportunity

the employee as a means of committing fraud, stem from weak internal controls

Although there are some clear disadvantages associated with extending credit to customers, such as bad debt costs, most managers believe a particular advantage outweighs the costs. To which primary advantage do they refer?

Additional Sales Revenue

Companies may use which of the following to motivate sales and collections? (Select all that apply.)

Allow customers to purchase on creditProvide discounts for early collection

operating cycle

a series of activities that a company undertakes to generate revenues and ultimately cash

Surbanes-Oxley Act

a set of laws established to strengthen corporate reporting in the United States

what financial statement is ending inventory reported on

balance sheet

Rationalization

the employee perceives the misdeed as unavoidable or justified

what is the main difference between the imprest system and a petty cash fund

the imprest system puts cash in a separate account, while for a petty cash fund cash is put in a locked box

Budgeting

the process of planning future business actions and expressing them are formal plans

The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period?

the same period as credit sales

the inventory turnover ration directly measures:

the times per period the average inventory balance is sold

The inventory turnover ratio directly measures

the times per period the average inventory balance is sold.

True or False: Allowance for doubtful accounts is a contra-asset account.

true

True or False: In a perpetual inventory system inventory still must be counted at least once a year.

true

True or False: Shipping costs are recorded as inventory.

true

True or false: GAAP require companies to include in the notes FIFO values if LIFO is used and is significantly different.

true