ACC 303 Exam 1

Which of the following is NOT a component of the fraud triangle? A. Reliance B. Rationalization C. Opportunity D. Pressure

A. Reliance

Required absences

An employee may be able to cover up fraudulent activities if they are always present at work. All employees should be required to take regular vacations and their duties should be rotated periodically.

Liability

An obligation to pay cash in the future.

Recognition of revenue on account.

Assets + ; Stockholders' Equity + ; Revenue + ; Net Income +

Write-off of uncollectible accounts.

Assets +/-

Collection of cash from accounts receivable.

Assets +/- ; Cash Flow + Operating Account

Recognition of uncollectible accounts expenses through a year-end adjusting entry.

Assets - ; Stockholders' Equity - ; Expense + ; Net Income -

Retained Earnings

Assets - Liabilities - Common Stock.

Paid cash to reduce the principal on a bank note.

Assets decrease Liabilities decrease

Paid a cash dividend to the stockholders.

Assets decrease Retained earnings decrease

Paid utilities expenses with cash.

Assets decrease Retained earnings decrease

Provided services to clients for cash.

Assets increase Retained earnings increase

Sold land for cash at an amount equal to its cost.

Assets would I/D

Acquired cash from the issue of common stock.

Assets would increase Common stock would increase

Which financial statement is prepared at a point in time and not for period of time?

Balance Sheet

Which financial statement are assets, liabilities, stockholders' equity, revenues, expenses, and dividends shown on?

Balance sheet

Advantages/Disadvantages of accepting credit card sales? How are they accounted for?

CC company deducts a fee from gross amount of the sales and pays the merchant the net balance in cash

Cash flows from financing activities

Cash receipts (inflows) from borrowing funds Cash receipts (inflows) from issuing common stock Cash payments (outflows) to repay borrowed funds Cash payments (outflows) for dividends

Cash flows from operating activities

Cash receipts (inflows) from customers Cash payments (outflows) to suppliers

Cash flows from investing activities

Cash receipts (inflows) from the sale of long-term assets Cash payments (outflows) for the purchase of long-term assets

Common Stock

Certificates that evidence ownership in a company.

Stockholders' Equity

Common Stock + Retained Earnings.

Stockholders' Equity is comprised of two elements:

Common Stock and Retained Earnings

Which of the following is not a common internal control activity? A. Establishment of clear lines of authority B. Having employees covered by a fidelity bond C. Requiring regular vacations for certain employees D. Customer service comment cards

D. Customer service comment cards

Which of the following is not one of the purposes of an internal control system? A. Safeguarding the company's assets B. The evaluation of performance C. The assessment of the degree of compliance with company policies and public laws D. Ensuring that the company is using the most effective marketing plan

D. Ensuring that the company is using the most effective marking plan

Assets

Economic resources that will be used by a business to produce revenue.

Bonded employees

Employers should screen job applicants using interviews, background checks and recommendations. employees in positions of trust should be bonded.

A well-designed system of internal controls will eliminate employee theft and fraud in a company. T or F

False

Under proper internal controls, the person who collects customer payments should also maintain the records of cash receipts. T or F

False

A fidelity bond is a form of insurance that companies ask employees to buy to protect the company from loss due to employee dishonesty. T or F

False - company purchases the bond, not employee

List the four financial statements in their order or preparation.

Income Statement - for a period of time Statement of Changes in Stockholders' Equity - for a period of time Balance Sheet - at a point in time Statement of Cash Flows - for a period of time

Stockholders

Individuals or institutions that have contributed assets or services to a business in exchange for an ownership interest in the business.

Creditors

Individuals or institutions that have loaned goods or services to a business.

Policies and procedures designed to reduce the opportunities for fraud are often called:

Internal controls

Limitations

Internal controls can be circumvented by collusion among employees

Who are the parties of a promissory note?

Maker or Issuer - person responsible for making payment on the due date Payee or Purchaser - person whom the note is made payable

Prenumbered documents

Prenumbered forms are used for all important documents such as checks, purchase orders, receiving reports, and invoices. The use of prenumbered forms helps keep track of all forms issued during a particular period.

Accrual of Interest

Principal x Annual interest rate x Time outstanding

What is historical cost concept?

Requires that most assets be reported at the amount paid for them (their historical cost) regardless of increases in market value - no entry required

Which internal control procedure addresses the idea that the likelihood of employee fraud or theft is reduced if collusion is required to accomplish it?

Seperation of duties

Inventory cash flow methods

Specific identification ; first-in, first out (FIFO) ; last-in, first-out (LIFO) ; and weighted average

Physical control

To limit losses, companies should establish adequate physical control over valuable assets

What determines net income/loss?

Total revenue - total expenses

Even a good system of internal controls can be overridden by collusion among employees. T or F

True

One of the basic rules of internal control is to require some employees to take regular vacations. T or F

True

Separation of duties in an organization should be required to reduce the likelihood of theft. T or F

True

Separation of duties is an internal control feature that requires different individuals to perform the following functions: authorization, recording, and custody of assets. T or F

True

The internal controls of a business are designed to reduce the opportunities for fraud. T or F

True

Under proper internal controls, those who are given authority should bear the corresponding responsibility. T or F

True

Quality of Employees

a business is only as good as the people it employs. Employees should be properly trained to a perform a variety of tasks.

Procedures manual

appropriate accounting procedures should be documented

Resources a business uses to make money are called _____________.

assets

Authority and Responsibility

businesses should prepare an authority manual that establishes a definitive chain of command

Uncollectible accounts expense

charge made to the books when a customer defaults on a payment - bad debt expense. Found under assets on balance sheet. Calculate by multiplying percent you expect will be uncollectible by the dollar amount of your accounts receivable

Distribution of earnings to stockholders are called _________.

dividends

Cost incurred to earn revenues are known as __________.

expenses

In what section of the Statement of Cash Flows does "cash inflows from selling stock" go?

financing activities

Performance evaluation

internal controls should include independent verification of employee performance

Obligations a business has to its creditors are known as _______.

liabilities

A net __________ occurs when expenses exceed revenues.

loss

Allowance Method

reporting accounts receivable at net realizable value requires accountants to estimate the amount of uncollectible accounts

Net Realizable Value (NRV)

represents the amount of receivables a company estimates it will actually collect. Equation: face value - allowance for doubtful accounts. found under accounts receivable

Cash received from operations is known as _________.

revenue

Net income

revenues are greater than expenses

Net loss

revenues are less than expenses

Separation of Duties

when duties are separated, the work of one employee can act as a check on the work of another employee