Accounting

Millie's Pet Company has a vendor that offers a purchase discount with a 12% APR. They recently purchased dog food for $2,000, but do not have enough cash on hand to take advantage of the discount offered. However, they have the ability to borrow money from the bank at an 8% APR. Should Millie's Pet Company borrow money from the bank to take the discount, or wait until they have enough cash on hand to pay the entire bill?

Borrow from the bank to take the discount

All companies are required to follow GAAP. T or F

F

Internal control is used by companies to prevent all frauds from occurring. T or F

F

Profit Equation

profit=revenues-expenses

historical cost

Record assets at the cost paid to acquire them

SEC

Securities and Exchange Commission

periodicity

regularly providing financial reports (monthly or annually)

The bookkeeper who records cash receipts also deposits daily cash receipts at the bank on his way home from work. This is a violation of which of the following characteristics of good internal control:

a) requiring proper authorization b) maintaining adequate documents and records c) physically controlling assets and documents d) separating incompatible duties d

The controller of Allitron, Inc. is one of two individuals in the company allowed to sign checks. This is an application of which of the following internal controls:

a) separating incompatible duties b) maintaining adequate documents and records c) requiring proper authorization d) physically controlling assets and documents c

Which of the following is an external stakeholder in a supermarket?

a) the manager of the produce department b) the company which supplies the baked goods for the bakery c) the cashier at the checkout counter d) the chief financial officer at the supermarket's corporate headquarters b

going concern

assume the entity will continue into the future

What duties should be segregated?

authorization, execution, custody, recording

6 General Accounting Concepts

business entity, historical cost, monetary unit, materiality, periodicity, going concern

FOB shipping point indicates that goods in transit belong to the:

buyer

non-sufficient funds

when the person who owes you doesn't have the money, the bank knows, books need to be subtracted

Purple Inc. purchased $76,500 of parts from a vendor who offered credit terms of 3/15, n/45. If Purple Inc. takes advantage of the discount, the amount paid to the vendor will be:

$74,205

If a company borrows $20,000 at an APR of 5% for one year, how much interest is due at the end of one month?

$83.33

What is the APR associated with a 2/30, n/60 discount offered to customers?

24.8%

What is a business?

Enterprise designed to accomplish a task, or an organization of individuals providing goods or services to accomplish a specific objective

FASB

Financial Accounting Standards Board, is the private sector body given the primary responsibility to work out the detailed rules that become GAAP.

GAAP

Generally Accepted Accounting Principles. public companies required to follow

Accounting can be defined as financial communication, or the language of business. T or F

T

Which of the following is not part of the revenue process?

a) Receive and accept orders for goods and services b) Receive goods and services c) Receive payments for goods and services rendered d) Provide customer support b

Quinter, Inc., a small company only has one accountant. This person performs all custody, recording and authorization functions for the business. What is the term for an alternative control that can be put into place by the owner of Quinter, Inc. to make up for the lack of separation of incompatible duties?

a) Replacement controls b) Compensating controls c) New controls d) Changing controls B

Which of the following is NOT an example of a for profit company?

a) Wal-Mart b) Koch Industries c) Red Cross d) Chick-fil-a b

Which type of business may be owned by one individual?

a) corporation b) sole proprietorship c) partnership d) both a sole proprietorship and a corporation d

outstanding checks

checks issued and recorded by a company that has not been subtracted by the bank

3 characteristics of relevance

predictive value- helps give an insight to future events confirmatory value- the info can confirm or change your opinion materiality- would leaving it out influence the decision?

Wildcat Floral Company has 2/10, net 30 terms with their wholesale flower vendor. Their most recent invoice was for $1,200, but they do not have enough cash on hand to take the discount, and do not have the option to take a loan from the bank. If they do not take advantage of the discount, how much will Wildcat Floral Company pay their vendor?

$1,200

deposit in transit

a deposit recorded on the books but not yet reflected on the bank statement

At May 31, Allegro Company had a general ledger cash balance of $7,400. At the end of May, the bank statement had a balance of $7,500. Deposits in transit amounted to $1,000 and there was a service charge of $10. Outstanding checks totaled $1,110. What is the correct amount of cash?

a) $7,390 b) $7,000 c) $6,390 d) $6,380 a

Wildcat Corporation has purchased raw materials from a vendor and was offered credit terms of 2/10, n/30. Which of the following explains these terms?

a) 20% discount (2/10) if paid within 30 days b) 2% discount if paid within 10 days c) 10% discount if paid within 30 days and 2% after 30 days d) 2% discount if paid between 10 and 30 day B

Cabela's had $105,350 in Visa and Discover Card sales, $45,391 in store card sales and $35,624 in cash and check sales. Visa and Discover have a 3% interchange fee. Which of the following is true about Cabela's receipt of cash?

a) Cabela's will receive cash from customers that used store cards within 24-48 hours b) The 3% interchange fee will be deducted from the amount of cash that Cabela's receives from Visa and Discover c) The cash from the Visa and Discover sales will be collected when customers pay their bills. d) Cabela's bears the risk of loss for their store card sales and the Visa and Discover Card sales. b

Which of the following reflects a weakness in the internal control for cash?

a) Cash register generates receipt that documents the cash sale that is given to the customer b) Only one employee has access to a cash register in order to reduce chance of theft c) Person making out a check must get authorization before the check is sent. d) The person receiving cash in the mail makes out the deposit ticket, deposits the cash, and then records the deposit in the accounting records. D

Determining the credit and payment policies for customers is part of the:

a) Collection process b) Expenditure process c) Conversion process d) Revenue process d

There were only 30 tubs of ice cream to be sold, but the listing said 38. Which qualitative characteristic does this listing lack?

a) Enhancing information b) Timeliness c) Relevance d) Faithful representation d

Limited liability applies to:

a) Partners in a partnership b) The owner of a sole proprietorship c) The owner of a corporation d) Casual investors in a corporation d

When completing a two-column bank reconciliation for January, the accounting clerk noticed an error for a deposit made in January. While the clerk recorded an $1,000.00 deposit in the accounting records, the bank recorded a $100.00 deposit in the bank account. After double checking the deposit information, the clerk realized that the accounting records were wrong and the bank recorded the deposit correctly. Which of the following is true about the January bank reconciliation?

a) The bank balance must be increased by $900 b) The book balance must be reduced by $900 c) The bank balance must be reduced by $900 d) The book balance must be increased by $900 B

The owner of a dry cleaning business maintains separate checkbooks for his business and his personal affairs. This best describes an application of the:

a) business entity concept b) going concern concept c) monetary unit concept d) periodicity concept A

All the checks used by Graphics, Inc. to pay its bills are prenumbered. This is an application of which of the following internal controls:

a) maintaining adequate documents and records b) physically controlling assets and documents c) requiring proper authorization d) separating incompatible duties a

Throughout history, business transactions have become more complex over time. As a result, accounting has:

a) not changed since inception. b) changed to make it easier for companies to do accounting. c) evolved over time to meet user needs. d) Both B and C. c

3 characteristics of faithful representation

complete- all info is there neutral- not biased free from error- info is accurate

4 parts of conversion cycle

creating production schedule, get raw materials (obtained in expenditure cycle), making products, storing finished goods

4 parts of the expenditure cycle

decide businesses need for goods/services, picking vendor, receiving, securing, and storing goods, paying for goods and services

6 parts of the revenue cycle

determine marketing and distribution channels to generate (credit or cash)?, receive and accept orders, shipping, billing credit customers and collecting payment, collecting from customers, provide support

The goal of a bank reconciliation is to prevent fraud. t or f

f

bank service charge

fee the bank charges, book need to be subtracted

business entity

financial information is recorded and reported separately from the owner's personal financial information

materiality

how the size of something affects the decision

monetary unit

money is the measurement tool

two types of businesses

profit, not for profit

To be useful financial information must be ________________ and _______________

relevant- has the capability of making a difference faithfully represented- accurate

What are the 5 control procedures?

requiring proper authorization, separating incompatible duties, maintaining adequate documents and records, physically controlling assets and documents, providing independent checks on performance

What 4 objectives should internal controls satisfy?

safeguard assets- protect our stuff with policies provide accurate and reliable information promote operational efficiency-consistency encourage adherence to prescribed managerial policies

3 types of businesses

service, merchandising, manufacturing

3 ways a business can be organized

sole proprietorship, partnership, corporation

4 Enhancing Qualitative Characteristics

understandability- complete and clearly presented timeliness- info must be available and recent verifiability- more than one person could look at it and confirm its true comparability- requires at least 2 items to compare