AC 210 Chapter 5-8 LearnSmarts (unfinished)
gotit inc. paid an invoice for $1,000 of merchandise plus shipping of $100. if the terms were 2/10, n/30, and the bill was paid within one week of receipt, how much cash was paid?
$1,080
beginning inventory was $5,000. during the month, the company purchased an additional $25,000 of inventory and sold goods that cost $20,000. ending inventory was...
$10,000
if the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown on the bank reconciliation as a...
$27 deduction from the book balance
on october 25, yacht doc received $210,000 for a yacht valued at $190,000 and a service contract to be performed evenly from november through february. during november, the yacht was delivered and 1 month of the service contract was performed. the remaining services are to be performed evenly over the next 3 months. in what month should the service contract be recognized as revenue?
$5,000 in each month from November to February
which of the following are limitations in internal control systems?
- a control may not be implemented because the cost of the control may exceed the benefit of reducing the fraud or potential errors - collusion can exist making it impossible to completely prevent fraud
banks provide important controls surrounding a company's cash. these include which of the following?
- banks provide documentation - banks provide statements that are used for independent verification - banks restrict access
in what ways are periodic and perpetual systems similar?
- both record a credit to sales at the time of the sale - both record a credit to accounts payable at the time of the purchase of merchandise account
the 3 categories of employee fraud are _
- corruption - financial statement fraud - asset misappropriation
_ is classified as a _ asset and reports the amount of merchandise available to sell
inventory; current
in a bank reconciliation, interest revenue earned on the bank account balance is...
added to the book balance
deposits in transit have already been...
added to your cash balance per your books and not to the bank balance
while preparing the bank reconciliation for march, the accountant for ABC company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. which of the following is true?
an adjusting entry must be made to debit accounts payable and credit cash for $45
inventory is reported as a _ on the _
current asset; balance sheet only
a check that you have written has cleared the bank when...
funds have been withdrawn from your bank account to cover the check
what does fob shipping point mean?
goods are owned by the buyer when they leave the seller's place of business
beginning inventory + purchases =
goods available for sale
will typically not have inventory on its balance sheet or cost of goods sold on its income statement
service company
fob _ is the term used when ownership of the goods transfers to a buyer as soon as the goods leave the seller's place of business
shipping point
to determine cost of goods sold for the period requires _
subtracting ending inventory from the goods available to sell, which is beginning inventory plus purchases
"nsf" checks stands for "non-_" funds
sufficient
is used to ensure that the appropriate amount is paid for goods received
supplier invoice
a major drawback to the periodic inventory system is...
the amount of inventory on hand and sold is unavailable during the accounting period
ace electronics, which uses a perpetual inventory system, recorded a debit to sales returns & 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
acme enterprises, which uses a perpetual inventory system, recorded a debit to sales returns & allowances and a credit to accounts receivable. (no other accounts were affected.) what business event must have taken place?
the customer received a damaged product, but kept the product and asked for a reduction in the price
a _ is a collection of documents prepared in the process of approving, processing and documenting all purchases and payment made on account
voucher
a _ system involves the processing of purchases and payments made on account
voucher
buys goods and sells them to other companies that will then sell them to individuals
wholesaler
what does the sales discount 2/10, n/30 mean?
you can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days
fob _ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyers place of business
destination
after approval of a purchase has been obtained, the purchasing agent completes a prenumbered _ _ that identifies the supplier, the delivery location, and the approved quantity and cost
purchase order
after approval of a purchase has been obtained, the purchasing agent completes a prenumbered _ that identifies the supplier, the delivery location, and the approved quantity and cost
purchase order
ensures the order is placed w an approved supplier at approved prices
purchase order
t/f: the person who has custody of an asset should also account for the asset. a person who performs both duties will best know what the balance should be in the accounting records
false
which of the following costs should be added to the buyer's inventory account?
freight-in w terms fob shipping point
merchandisers record revenue when they...
fulfill their performance obligations by transferring control of the goods to customers
in a perpetual system, the _ account is debited when a company purchases merchandise on account
inventory
_ sales on an income statement equals sales revenue, gross minus sales returns and allowances minus sales _
net; discounts
ensures the request is made by someone who is approved to order goods or services of the type and amount requested
purchase requisition
the purchasing system begins w an authorized employee completing a manual or electronic _ which is then reviewed and approved by a supervisor before an order is placed w a supplier
purchase requisition
t/f: when a company sells different types of products, the income statement will report the cost of goods sold for all of the products in one line item
true
fraudulent reporting by management includes _
- recording fictitious revenues from a phantom customer - improper asset valuation - mismatching revenues and expenses
inventory began was $30,000. during the period the company purchased $61,000 of merchandise. at the end of the period, inventory was $22,000. if the gross profit percentage was 40%, what was sales revenue?
$115,000
bijoux company has net sales of $40,000; beginning inventory of $5,000; purchase of $25,000 and ending inventory of $7,000. cost of goods sold equals...
$23,000
sales returns and allowances...
- are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months - reduce the amount the seller expects to receive from customers - are typically recorded after the initial sale when the actual return or allowance occurs
which of the following are found on the income statement of a merchandiser?
- cost of goods sold - gross profit - sales revenue
in a perpetual system, the entry to record a purchase of merchandise on account includes a _
- credit to accounts payable - debit to inventory
using a perpetual inventory system, the entry to record the return of goods you previously purchased on account includes a...
- credit to inventory - debit to accounts payable
every merchandise sale has 2 components which require an entry in a perpetual inventory system. select these two components given the sale was made on account to a customer
- debit cost of goods sold and credit inventory in the amount of the cost times the quantity sold - debit accounts receivable and credit sales revenue in the amount of the selling price times the quantity sold
a goal of the sarbanes-oxley act is improving corporations' internal controls. which of these may accomplish this goal?
- external auditors must test the effectiveness of the company's internal controls - marketing managers must determine whether the marketing team is submitting accurate sales and expenses reports - an audit committee of independent directors oversees financial matters of the company
on a bank reconciliation, which of the following are typical reconciling items the bank wouldn't know about because of time lags?
- outstanding checks - deposits in transit
which of the following should be debited to inventory?
- purchases of merchandise on account - freight-in if shipped FOB shipping point
which of the following duties shouldn't be the responsibility of an employee who has access to cash?
- record cash collected in the journal - perform bank reconciliations
which of the following are reported on the income statement?
- sales revenue - cost of goods sold - gross profit
which of the following are typical reconciling items on the book side of a reconciliation because the company didn't know about these items until it got the bank statement?
- service charges - electronic funds transfer - interest income
what would cause a bank statement not to agree w the cash balance in the accounting records?
- the company made an error in recording a deposit - deposits outstanding that have been recorded on the company's records, but not on the bank's - the bank made an error in recording a deposit made by the company - the bank paid interest that the company hasn't been recorded
the bank credited your account for a deposit that should have been deposited into another customer's bank account, not yours. this bank error should be a _ on a bank reconciliation
deduction from the bank balance
which inventory system updates the inventory account only at the end of the accounting period?
periodic
a benefit of the _ inventory system is that inventory shrinkage from theft, fraud, and error is able to be estimated
perpetual
which inventory system requires that the inventory account be updated when merchandise is purchased?
perpetual system
inventory consists of the purchase price...
plus freight-in
the risk assessment component in a system of internal controls refers to the assessment of the _
potential for fraud
cashiers at a supermarket have to talk to a manager before approving price changes at the register. which internal control principle is being followed?
segregate duties
this document is compared to the internally generated documents of the voucher system to ensure the quantity and costs agree w what has been ordered and received. if all reconciles, the accounting department will record the purchase in the accounting records
supplier invoice
which of the following is an example of weak internal controls?
the mail-room clerk records daily cash receipts in the journal
if sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean...
there are product quality issues
which line items are found on a multi-step but not on a single-step income statement
- gross profit - income from operations
the Sarbanes-oxley (SOX) act provides increased regulations for _
- internal controls - corporate executives - auditors
an effective internal control system _
- is monitored regularly to determine whether controls are working as intended - is monitored to detect and communicate deficiencies to those responsible - generate and communicate information to support sound decision making
internal control procedures surrounding payments of bill includes...
- making payments only when a purchase is supported by complete voucher documentation - marking the voucher "paid" to avoid duplication of payments - using prenumbered checks
nsf checks are the same as...
- non-sufficient funds checks - bounced checks
internal control for cash is important because _
- of the high risk of theft - cash is portable and is "owned" by whomever possesses it - the risk of cash-handling errors is significant - of the large volume of cash transactions
in a perpetual system, which of the following statements are true?
- the purchaser should record freight-in as an asset, inventory - the seller should record freight-out as a selling expense
the journal entry to record the payment within the discount period for goods previously purchased on account causes...
- total assets to decrease - total liabilities to decrease
put the 5-step revenue model for a bundle sale in its proper order by placing the 1st step at the top
1. identify the contract 2. identify the seller's performance obligation 3. determine the transaction price 4. allocate the transaction price to each performance obligation in the bundle sale 5. recognize revenue (when or as) each performance obligation is satisfied
place the order of the steps in documenting and controlling purchases in a voucher system w the first step listed on the top and final step at the bottom
1. request goods or services by submitting a purchase requisition 2. prepare a purchase order after suppliers and prices have been approved 3. prepare a receiving report 4. prepare a supplier invoice and prepare the journal entry
place the income statement line items in the proper order from top to bottom
1. sales revenue, gross 2. sales returns, allowances and discounts 3. sales revenue, net 4. cost of goods sold 5. gross profit
a bank service charge should be a _ on a bank reconciliation
deduction from the book balance
which of the following is added to the bank balance on a bank reconciliation?
deposits in transit
a _ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts
direct
prepare documents to show activities that have occurred (or: prepare a receiving report as proof of receipt of purchases)
document procedures
a cash register doesn't _
reconcile accrual accounting w cash accounting
a bank _ is an important control because it provides independent verification of all cash transactions the bank has processed for the company. this internal report should be prepared by an employee whose duties are separate from recording and handling of cash
reconciliation
comparing two sets of records is called...
reconciling
don't make one employee responsible for all parts of a process (or: accounting department prepares the journal entry, not the purchasing department)
segregate duties
_ of duties is essential for safeguarding assets. the person who has custody of an asset shouldn't also account for the asset. a person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records.
segregation
acme, inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. given the bank reconciliation shows outstanding checks of $3,000; deposits in transit of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals...
$9,910
bottom, inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. the net amount paid was...
$990
in a perpetual system, the entry to record the sale of merchandise to a customer on account would include a...
- debit to cost of goods sold - credit to inventory - debit to accounts receivable - credit sales revenue
to ensure the accuracy of inventory accounted for using a perpetual system, physical counts...
- detect bookkeeping errors - detect theft - detect shrinkage
which of the following reconciling items on a bank reconciliation need to be recorded in the company's record to adjust its cash balance so that it's up to date?
- eft received from customers discovered on the bank statement - customer's check rejected by the bank as NSF - interest revenue
the benefits of internal control procedures are that they _
- enhance the reliability of accounting information - improve the efficiency and effectiveness of operations - protect against theft of assets
in which of these situations would a merchandiser record revenue?
- goods were sent fob shipping point but haven't yet arrived at the buyer's place of business - the obligation has been fulfilled and control of the goods has been transferred to the customer
the principles underlying the internal control system include _
- restricting access - segregating duties - documenting procedures - independently verify - establishing responsibility
which of the following items are netted against sales revenue to arrive at net sales (sales revenue, net)?
- sales discount - sales returns - sales allowances
3 rules Sarbanes-oxley act put in place
1. counteract incentives: fines up to 5 mill plus repayment of any fraud proceeds AND max jail sentence of 20 years w judge being able to declare consecutive jail terms for each violation 2. reduce opportunities: all public companies must establish an audit committee of independent directors AND evaluate & report on the effectiveness of internal control over financial reporting (must be done by management &, for large companies, by external auditors 3. encourage honesty: public companies have tip lines, legall protection granted to whistleblowers so they aren't fired, & companies are required to adopt a code of ethics for senior financial officers
a sales discount with terms of 1/10, n/30 means the buyer receives a _ % discount if paid within _ days
1; 10
in which company would you rather invest?
a company with high gross profit percentage and high sales volume
using a perpetual inventory system, what is recorded when a customer returns a product that was purchased on account, and the product is put back on the store shelf to be resold?
a debit to sales returns & allowances and a credit to accounts receivable; and a debit to inventory and a credit to cost of goods sold
using a perpetual inventory system, what is recorded when a customer returns a product and gets the cash back and the product is put back on the store shelf to be resold?
a debit to sales returns and allowances and a credit to cash; and a debit to inventory and a credit to cost of goods sold
fraud is best defined as _
an attempt to deceive others for personal gain
an advantage of direct deposits is that they...
are convenient and efficient
one of the components of an internal control system is the control environment which refers to the _
attitude employees hold regarding internal control
Berkley company had beginning inventory of $4,000 and purchases of $20,000. if half of its inventory is sold, Berkley's total goods available for sale for the period will...
be split between cost of goods sold and ending inventory
the cost of goods sold equation is...
beginning inventory + purchases - ending inventory
in a bank reconciliation, interest revenue on the bank account balance is added to the _ balance
book
nsf checks from customers should be subtracted from the _ balance on a bank reconciliation
book
abc corp. sells a product for $1,000 cash that cost $600. the journal entry(ies) for this transaction using a perpetual inventory system include a debit to ...
cash of $1,000 and a credit to sales revenue of $1,000; a debit to cost of goods sold of $600 and a credit of inventory of $600
when a check is presented to a bank for payment & the amount is deducted from the payer's account the check is said to have _ the bank
cleared
one of the components of an internal control system is "control activities" which refers to the activities _
completed by employees to reduce risks to an acceptable level
objective is to focus on adhering to laws and regulations
compliance
which of the following isn't a significant objective of the Sarbanes-oxley (SOX) act?
conceal fraud
internal control
consists of the actions taken by people at every level of an organization to achieve its objectives relating to 3 principles
refers to the work responsibilities and duties completed to reduce risks to an acceptable level
control activities
refers to the attitude of the people in the organization and their commitment to integrity (or: refers to helping people in the organization to understand the importance of internal control)
control environment
the inventory balance on the balance sheet reports the _
cost of goods available for sale
which step must happen first when determining cost of goods sold using a periodic inventory system?
count the number of units on hand
using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a(n)...
decrease in assets and liabilities
in a bank reconciliation, an outstanding check is...
deducted from the bank balance
outstanding checks written by the company should be a _ on the company's bank reconciliation
deduction from the bank balance
assign each task to only one employee in order to allow one to determine who is at fault for an error or theft (or: ensure that purchase requisition are made by employees approved to make purchases)
establish responsibilities
t/f: gross profit is a stockholders' equity account and is credited when goods are delivered to customers
false
t/f: internal controls prevent and detect all errors and fraud
false
t/f: strong internal control surrounding cash receipts requires the cashier to perform the following procedures: count the cash receipts, take the cash to the bank, and record the amount collected in the accounting records
false
check others' work
independent verify
refers to the documentation of activities that promote effective internal controls
information and communication
which of the following isn't an accurate statement about internal control?
it guarantees the management will behave ethically
a $250 bank deposit made on the last day of the month didn't 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
makes the finished good
manufacturing company
_ companies sell goods that have been obtained from other companies
merchandising
evaluating the internal control system to see if working as intended
monitoring activities
the _ component of an internal control system refers to the evaluation of internal controls to identify deficiencies
monitoring activities
a _ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company
multistep
inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded w a decrease to inventory...
only in a perpetual system
objective is to ensure the efficient and effective completion of work and the protection of assets
operations
_ checks written by the company that haven't cleared the bank are subtracted from the _ balance on a bank reconciliation
outstanding; bank
if accounts payable is debited and cash is credited, then the company is recording a...
payment of amounts owed for purchases made on account
a _ inventory system records the cost of goods sold with a debit to cost of goods sold and a credit to inventory (beginning) and credit to purchases
periodic
objective is to produce reliable and timely accounting information
reporting
the purchasing system begins w an authorized employee completing a manual or electronic purchase _ form which is then reviewed and approved by a supervisor before an order is placed w a supplier
requisition
don't provide access to assets or information unless it's needed to fulfill the assigned task
restrict access
the services provided by a bank help business control cash by...
restricting access and providing documentation and independent verification
buys good and sells them directly to individuals
retailers
evaluate the potential for fraud (or: refers to the continuous evaluation of the potential for fraud)
risk assessment
the journal entry to record the payment for merchandise previously purchased on account includes a...
- credit to cash - debit to accounts payable
which of the following poses a high risk of theft because of its high volume and ease of portability
cash
the inventory account may be credited for...
purchase returns and allowances
if a seller sells its merchandise with the shipping terms fob destination, it credits Revenue when the merchandise is...
received by the customer
is used to verify amounts ordered agree w the suppliers actual shipment
receiving report
this document indicates the date, quantity, and condition of the goods. it is then sent to the accounting department to notify the purchase can be recorded
receiving report