ACCT 3310 - Exam 2 - Holt

Asset Disposal: -At the end of an asset's useful life (or earlier disposition), the asset must be _______________ from the records and depreciation schedule -Disposals require disposal ____________ forms and disposal reports as source documents.

Removed; request

Within the revenue cycle, the assets to protect are cash and inventories and access to records such as the accounts receivable subsidiary ledger and cash journal should be _______________.

Restricted

What is a work order?

Uses the BOM and route sheet to specify the exact materials and production processes for each batch

Proper authorization of transactions (documentation) should occur so that only __________ transactions get processed.

Valid

Physical Procedures: _______________ reconciles the stock release document (picking slip) and packing slip

Warehouse

Sales Order Processing: The merchandise is picked from the _________________ and sent to ________________.

Warehouse; shipping Stock records are adjusted.

Payroll Physical Controls: Accounting Records - audit trail includes:

-time cards -job tickets -disbursement vouchers -labor distribution summary -payroll register -subsidiary ledger accounts -general ledger accounts

What do cash receipts do?

-verifies the accuracy and completeness of the checks -updates the cash receipts journal -prepares a deposit slip -prepares a journal voucher to send to G/L

Sales Order Processing: Sales information is released to: 1. 2. 3.

1. Billing 2. Warehouse (stock release or picking ticket) 3. Shipping (packing slip and shipping notice)

Basic Cash Disbursement System: ________ ________________ department reviews documents for completeness and accuracy and prepares the payment for signature.

Cash disbursements

Conceptual Payroll System: Accounts Payable dept: -prepares a __________ _________________ voucher for the total amount of the payroll -sends copies to the Cash Disbursements and G/L depts.

Cash disbursements

Basic Purchases System: Purchase orders are sent to:

-Vendor -Inventory control -AP -Blind copy to receiving

Conceptual Payroll System: Personnel dept. uses personnel action forms to:

-activate new employees -change the pay rate of employees -change marital status and/or number of dependents -terminate employees

Segregation of functions in Cash receipts processing:

-cash receipts separate from accounting records -accounts receivable sub-ledger separate from general ledger

Segregation of functions in Sales order processing:

-credit authorization separate from SO processing -inventory control separate from warehouse -accounts receivable sub-ledger separate from general ledger control account

The conversion cycle: Internal Controls: Accounting records?

-pre-numbered documents -work orders -cost sheets -move tickets -job tickets -material requisitions -WIP and finished goods files

With a properly maintained audit trail, it is possible to track transactions through the systems and to find where and when errors were made:

-pre-numbered source documents -special journals -subsidiary ledgers -general ledger -files

Cash Disbursements: 1. 2. 3. 4.

1. Identify liabilities due 2. Prepare cash disbursement 3. Update AP records 4. Post to general ledger

Parts of Purchase Processing: 1. 2. 3. 4. 5.

1. Monitor inventory records 2. Prepare purchase order 3. Receive goods 4. Update inventory records 5. Set up accounts payable

The Conversion Cycle: Consists of two subsystems: 1. 2.

1. Physical activities - the production system 2. Information activities - the cost accounting system

Sales Return Procedures: 1. 2. 3. 4. 5. 6. 7.

1. Process sales return request 2. Prepare Return Slip/Receiving Report 3. Prepare Credit Memo 4. Approve Credit Memo 5. Update Sales Journal 6. Update Inventory and AR Records 7. Update General Ledger

Payroll Deductions: Taxes: 1. 2.

1. Social Security Taxes 2. Income Tax Withholding

Segregation of Functions Three Rules: 1. 2. 3.

1. Transaction authorization should be separate from transaction processing. 2. Asset custody should be separate from asset record-keeping. 3. The organization should be so structured that the perpetration of a fraud requires collusion between two or more individuals.

Within the revenue cycle, authorization should take place when: 1. 2. 3.

1. a sale is made on credit (authorization) 2. a cash refund is requested (authorization) 3. posting a cash payment received to a customer's account (cash pre-list)

Access control to: 1. 2. 3.

1. inventories (direct) 2. cash (direct) 3. accounting records (indirect)

Conceptual Payroll System: Production employees fill out two forms: 1. 2.

1. job tickets - account for the time spent by the worker on each production job 2. time cards - used to capture the total time worked each pay period for payroll calculations

Payroll uses personnel action forms and time cards to: 1. 2. 3. 4.

1. prepare the payroll register 2. enter the information into the employee payroll records 3. prepare paychecks 4. send paychecks to Cash Disbursements and a copy of the payroll register to Accounts Payable

Traditional Batch Production Model: consists of four basic processes: 1. 2. 3. 4.

1. production planning and control 2. perform production operations 3. maintain inventory control 4. perform cost accounting

Cash Receipts Processes: G/L department: 1. 2.

1. reconciles the journal voucher from Cash Receipts with the summaries from A/R 2. updates the general ledger control accounts

Basic Cash Disbursement System: _____ department removes the liability and sends AP summary to GL department.

AP

Basic Cash Disbursement System: ______ clerk reviews AP packets each day, identifies items due, sends supporting documents to cash disbursements department.

AP

_____________ to assets and information (accounting records) should be limited.

Access

_______________ _____________ authorizes the payments of bills, not the cash disbursements clerk, who writes the checks

Accounts Payable

Basic Purchases System: _______________ ____________ department reconciles invoice, purchase order and receiving report

Accounts Payable ****3-way match**** Records transaction in the purchases journal

Cash Receipts Processes: ___________ ____________ posts from the remittance advices to the accounts receivable subsidiary ledger.

Accounts Receivable Periodically, a summary of the postings is sent to G/L.

_____________ _____________ dept. verifies much of the work done within the expenditure cycle.

Accounts payable PR, PO, receiving reports, and suppliers' invoices must be checked and verified by A/P.

Sales Order Processing: _________________ ________________ records the information in the customer's account in the accounts receivable subsidiary ledger.

Accounts receivable

Fixed Asset System Controls: __________________ - should be formal and explicit because of high cost of FAS acquisitions and changes in depreciation methods

Authorization

What is materials requisition?

Authorizes the inventory warehouse to release raw materials for use in the production process

Cost Accounting System: Cost accounting clerk creates a new cost record for the __________ and files in WIP file

Batch

Asset Acquisition: ___________ when a dept. manager determines that an old fixed asset needs to be replaced or that a new fixed asset is warranted

Begins

What does Sales order processing begin with?

Begins with a customer placing an order (purchase order) The sales department captures the essential details on a sales order form.

Physical Procedures: ______________ reconciles the shipping notice with the sales invoice

Billing

Sales Order Processing: Shipping information is sent to ____________. ___________ compiles and reconciles the relevant facts and issues an invoice to the customer and updates the sales journal.

Billing; Billing Information is transferred to: Accounts Receivable (A/R) Inventory Control

Production Methods: 1. ____________________ Processing creates a homogeneous product through a continuous series of standard procedures. 2. ___________ Processing produces discrete groups of products. 3. _________________________ Processing involves the fabrication of discrete products in accordance with customer specifications.

Continuous Batch Make-to-order

Cash Receipts Processes: The _________________ reconciles the bank accounts

Controller

Sales Order Processing: The transaction is authorized by obtaining ____________ approval by the ____________ department

Credit; credit

Cost Accounting System: Records the _______________ effects of the events occurring in the production process

Financial

Asset Maintenance: -Involves adjusting FAS subsidiary account balances as assets ___________________ -Depreciation calculations are _____________ transactions that the FAS system bases upon a depreciation schedule. -Physical improvements must also be recorded to _______________ the subsidiary account balance and depreciation schedule.

Depreciation; internal; increase

What is the route sheet?

Details the production path a particular batch will take in the manufacturing process sequence of operations time allotted at each station

Internal Controls: Access control: ____________ and ______________ access to assets

Direct; indirect

What is a sales forecast?

Expected demand for the finished goods

Basic Cash Disbursement System: ______ department posts to the general ledger control accounts and files the documents.

GL

Basic Purchases System: ______________ ____________ department receives journal voucher from AP dept and account summary from inventory control.

General Ledger

Sales Order Processing: Billing, A/R, and Inventory Control submits summary information to the ______________ ______________ dept., which then reconciles this data and posts to the control accounts in the G/L.

General Ledger

____________ ___________ dept. verifies: -the total obligations recorded equal the total inventories received -the total reductions in accounts payable equal the total disbursements of cash

General Ledger

Physical Procedures: _____________ ___________ reconciles journal vouchers from billing, inventory control, cash receipts, and accounts receivable

General ledger

Recording inventory in an automatic system generally does not require a ______________ element

Human

Fixed Asset System Controls: ________________ ________________ - internal auditors should periodically verify FAS records

Independent Verification

Purchases of inventory should be authorized by the ____________ ____________ department, not by purchasing agents

Inventory Control

Sales Order Processing: _________________ _____________ adjusts the inventory subsidiary ledger.

Inventory control

Cost Accounting System: The records are updated as materials and _____________ are used

Labor

Conceptual Payroll System: Cost Accounting dept: -uses the job tickets to allocate _____________ costs to WIP accounts -summarizes these charges in a ____________ distribution summary which is forwarded to G/L dept.

Labor; labor

Cash Receipts Processes: Customer checks and remittance advices are received in the _______ _______.

Mail room A mail room clerk prepares a cash prelist and sends the prelist and the checks to Cash Receipts. The cash prelist is also sent to A/R and the Controller.

Production Planning and Control: _______________ requirement- the difference between what is needed and what is available in inventory

Materials

Internal Controls: Transaction authorizations: ________________ _________________- authorize the warehouse to release materials to the work centers

Materials requisition

Batch Production System: Inventory Control: -___________________: minimize total inventory cost while ensuring that adequate inventories exist of production demand -Provides production _______________ and control with status of finished goods and raw materials inventory -Continually ________________ the raw material inventory during production process -Upon ___________________ of production, updates finished goods inventory

Objective; planning; updates; completion

Production Planning and Control: _________________ requirements - the assembly and/or manufacturing activities to be applied to the product

Operations

Most automated systems still have a lot of ___________ documents.

Paper

Conceptual Payroll System: Cash Disbursements dept: -reviews and signs the ________________ and forwards them to a paymaster for distribution to the employees -writes a check for the ____________ and deposits it into the payroll imprest account

Paychecks; payroll

Conceptual Payroll System: _____________ dept receives personnel action forms and time cards.

Payroll

What is a three-way match and who performs it?

Performed by A/P: taking PO and matching it to the receiving report and then matching it with the invoice - Commonly called the "A/P Packet"

________________ procedures as well as record-keeping should be independently reviewed at various points in the system to check for accuracy and completeness

Physical

Production System: Involves the ____________, scheduling, and _______________ of the physical product through the manufacturing process

Planning; control -determining raw materials requirements -authorizing the release of raw materials into production -authorizing work to be conducted in the production process -directing the movement of work through the various stages of production

Production Planning and Control: __________________ Scheduling- Coordinates the production of multiple batches and Influenced by time constraints, batch size, and other specifications

Production

Cost Accounting System: Receipt of last move ticket signals completion of the ________________ process

Production -clerk removes the cost sheet from WIP file -prepares a journal voucher to transfer balance to a finished goods inventory account and forwards to the General Ledger department

What is the production schedule?

Production plan and authorization to produce

The Fixed Asset System (FAS): Fixed Assets - ______________, ___________, and __________________ used in the operation of a business

Property, plant, equipment

Asset Acquisition: A ________________ requisition is filled out.

Purchase May require an authorizing signature for items over a pre-specified limit

Basic Purchases System: Begins when inventory clerk prints ______________ ______________ by accessing the purchase requisition file

Purchase requisition This file was created when inventories dropped to predetermined reorder point.

Basic Purchases System: The __________________ department receives the requisition

Purchasing Adds a record to the open purchase order file

Batch Production System: Perform Production Operations: -Production operations begin when work centers obtain ________ _________________ from storekeeping. -It ends with the ___________________ product being sent to the finished goods (FG) warehouse .

Raw materials; finished

Within the expenditure cycle, supervision is of highest importance in the ________________ department, where the inventory arrives and is logged

Receiving

Basic Purchases System: ____________________ clerk receives the goods and reconciles with packing slip and blind copy of PO

Receiving Sends receiving report to: Inventory storeroom Purchasing department AP Files hard copy

Accounting ____________ rest on the reliability and security of stored digitalized data.

Records

What is a move ticket?

Records work done in each work center and authorizes the movement of the batch

____________________ of inventory control from the warehouse

Segregation

_____________________ of the general ledger and accounts payable from cash disbursements

Segregation

Internal Controls: ___________________ _____ ___________: -production planning and control department is separate from the work centers -inventory control is separate from materials storeroom and finished goods warehouse -cost accounting function accounts for WIP and should be separate from the work centers in the production process

Segregation of duties

Payroll Physical Controls: _____________________ _______ ____________- timekeeping and personnel functions should be separated

Segregation of duties

Physical Procedures: _____________ verifies the goods sent from the warehouse are correct in type and quantity

Shipping

Sales Order Processing: The merchandise, packing slip, and bill of lading are prepared by _______________ and sent to the customer.

Shipping Shipping reconciles the merchandise received from the Warehouse with the sales information on the packing slip.

What is the Bill of Materials?

Specifies the types and quantities of the raw materials and subassemblies used to produce a single finished good unit

Internal Controls: ___________________: -work center supervisors oversee the usage of raw materials to ensure that all released materials are used in production and waste is minimized -employee time cards and job tickets are checked for accuracy

Supervision

Often used when unable to enact appropriate segregation of duties: ___________________

Supervision

Payroll Physical Controls: __________________ - need to monitor employees to ensure they are not "clocking in" for one another

Supervision

________________ of employees serves as a deterrent to dishonest acts and is particularly important in the mailroom.

Supervision

Fixed Asset System Controls: ________________ - threat of misappropriation requires constant management oversight

Supervision theft - secure physical locations of assets misuse - monitor on-the-job activities

Payroll Physical Controls: Transaction authorization - the personnel action form helps prevent: -___________________ employees from receiving checks -wage rates from being improperly changed for _____________ employees

Terminated; current

Payroll Physical Controls: Independent Verification: -verification of ________ _________ -distribution of _________________ to authorized employees -verification of accuracy of _____________ register by A/P dept. -G/L dept. reconciles the ____________ _______________ summary and the payroll disbursement voucher

Time cards; paychecks; payroll; labor distribution

Payroll Physical Controls: Access Controls - need to prevent employees from having improper access to: -accounting records, such as ________ ________ which can be altered -______________ checks

Time cards; unsigned

Cost Accounting System: Initiated by the _________ order

Work

Internal Controls: Transaction authorizations: _________ ____________- reflect a legitimate need based on sales forecast and the finished goods on hand

Work orders

What is the investment center?

has general authority to make a wide range of decisions affecting costs, revenue, and investments in asset

Internal Controls: Transaction authorizations: ____________ _____________- signatures from each work station authorize the movement of the batch through the work centers

move tickets

Internal Controls: Independent Verification: -cost accounting __________________ material usage (material requisitions) and labor usage (job tickets) with standards variances are investigated -GL dept. ________________ movement from WIP to FG by reconciling journal vouchers from cost accounting and inventory subsidiary ledgers from inventory control -internal and external auditors periodically ___________ the raw materials and FGs inventories through a physical count

reconciles; verifies; verify

Asset Acquisition: FAS dept. performs ___________________________ functions.

record-keeping

The Conversion Cycle: Transforms input _________________, raw __________________, __________, and ________________ into finished products or services for sale

resources; materials; labor; overhead

What is the profit center?

responsible for both cost control and revenue generation

What is the cost center?

responsible for keeping costs within budgetary limits