ACT 205 exam 2

2/10, n/30

2% discount if paid in 10 days, otherwise the full amount is due in 30 days

Conflicts of Interest

Audit firms are not allowed to audit public companies whose chief executives worked for the audit firm and participated in that company's audit during the preceding year.

Reports cash balance at the end of the period

Balance sheet

Sign a report each year certifying adequacy of internal controls (leaving them as ultimately responsible)

CEO and CFO responsibilities for Internal control

Reconciliations, performance reviews and audits

Detective Control activites

Longterm Liabilities

Financing Activities

Beginning Inventory + Cost of goods purchased=

Goods available for sale

1. Work-in-process 2. Finished goods

In a manufacturing company, raw materials, direct labor, and overhead flow from one account to the next in what order: Finished goods work-in-process

Longterm Assets

Investing activities

Accounts Rec Service Rev

Journal Entry for Credit sales

Specific Identification...

Matches each unit of inventory with its actual cost (often used when you don't sell a lot of good, but they are expensive and/or unique)

WorldCom

Misclassified expenditures to overstate assets and profitability

Service Rev- Sales Discount - Sales allowance - sales returns=

Net Revenue

Separation of duties, Physical controls, proper authorization, Employee management and E-Commerce controls

Preventative Control activities

indirect manufacturing costs, direct manufacturing and direct labor (A,B and C)

The Work-in-Process inventory accounts typically includes which costs? a. indirect manufacturing costs b. direct manufacturing c. direct labor d. inventory storage costs

Net Realizable Value

The amount of cash we expect to collect

b. a Decrease in NI

The effect of a sales allowance will result in which of the following? a. an increase to NI b. a Decrease in NI c. an increase to accts rec d. an increase to sales rev

Specific Identification, FIFO (First-in, First-out), LIFO (last-in, Last-out), Weighted average cost

What are the Inventory Cost Methods?

a. all companies in the U.S. fall under it's provision.

Which of the following statements is NOT true of the Serbanes-Oxley Act? a. all companies in the U.S. fall under it's provision. b. It helped establish guidelines for internal control procedures. c. It helped establish corporate executive accountability. d. It helped establish guidelines for auditor- client relations

Internal Controls

attempts to eliminate the opportunity element of fraud

Contra Revenues Accounts

have a normal debit balance and represent a reduction in revenues (recorded with total revenues in the income statement but with negative balances)

Rationalization

justification for the deceptive act by the one committing the fraud .

Oversight board

made it so CEO's/CFO's now must sign off, making them responsible

Motivation

someone feels the need to commit fraud, such as the need for money.

Bank Reconciliations

the process of matching the companies books with the banks book of their accounts

Opportunity

the situation that allows fraud to occur

Occupational Fraud

the use of ones occupation for personal enrichment through the deliberate misuse or misapplication of the employers resources

a. net sales revenue minus Cost of goods sold

Gross Profit is: a. net sales revenue minus Cost of goods sold b. beginning inventory plus purchase minus ending inventory c. Revenue minus inventory d. Revenue minus Expenses

Costs of goods available for sale/ Number of units available for sale =

Weighted-average cost

Monitoring, Control Activities, Risk Assessment, Control Environment and Information and communication.

What are the 5 components of Internal Control?

Errors in Financial Statements

accidental errors in recording transactions or applying accounting principles

Auditor Rotation

Auditors should be rotated over 5 years

ENRON

Avoided reporting billions in debt and losses

Recorded to reconcile the Company's cash balance

Cash transactions recorded by bank but not the company Items that will increase the company's cash balance: collections made by the bank on the companies behalf Interest earned Items that will decrease the Company's cash balance NSF checks ( nonsufficient funds ) Debit Card Purchases Electronic Funds Transfers Bank Service Fees

Components of the total Cash Balance

Coins & Currency, Checks received, savings accounts, checking accounts, credit card sales, debit card sales and cash equivalents (Investments that will mature in 3 MONTHS or less)

overhead, direct labor and raw materials (c, d & e)

Costs related to manufacturing products typically include: a. administrative expense b. selling expense c. overhead d. direct labor e. raw materials

What are the levels of profit on a Multiple-Step Income Statement?

Gross Profit, Operating Income, Income Before Income Tax, Net Income

nonoperating

On a multiple step income statement, the category of revenues and expenses reported immediately after operating income is referred to as _______ revenues and expenses.

Current assets and LIabilities

Operating Activties

Auditors Responsibilities

Provide and opinion on Management's assessment of internal controls over financial reporting and their own opinion on the company's internal controls over financial accounting

Nontrade Receivables

Receivables that originate from sources other than our customers (tax refund claims, interest rec, loans by company or other entities, including stockholders and employees)

Statement of Cash Flows

Reports cash receipts and cash payments during the period

Sarbanes-Oxley Act of 2002

Requires all companies to file financial statements with the SEC Established guidelines related to: a. internal control procedure b. Auditor-Client relations

SOX

Sarbanes-Oxley Act of 2002

simple-average & NIFO

Which of the following methods is (are) not used for inventory costing? a. weighted-average b.simple-average c.NIFO d.LIFO e. Specific identification f. FIFO

Opportunity, Motivation and Rationalization

You need ________, __________ and _________ for fraud to occur.

Merchandising

_____ companies purchase inventory that is primarily in finished form and ready for resale to customers.

Fraud

a person intentionally deceives another person for personal gain or to damage that person (Theft, Misreporting and/or not reporting)

Deposits Outstanding(+) and Checks Outstanding(-)

recorded to reconcile the Bank's cash balance

Allowance for Uncollectible Account

Contra Asset Account

Sales Discounts, Sales Returns and Sales Allowances

Contra Revenue Accounts

Goods available for sale - Ending inventory =

Cost of goods sold

b. Finished goods inventory

Which Inventory account consists of items for which the manufacturing process is complete? a. Work-in-process inventory b. finished goods inventory c. Raw materials d. Merchandise inventory

b. Raw materials inventory

Which inventory account includes the cost of components that will become part of the finished product but have not yet been used in production: a. finished goods inventory b. Raw materials inventory c. Work-in-process inventory d. Merchandise inventory

a. Accounts Receivable

Which of the following are sometimes called Trade Receivables? a. Accounts Receivable b. Interest Receivable c. Notes Receivable d. Tax Refund claims

c. Total Rev - Sales Discounts - Sales Allow

Which of the following computations would be used to compute Net Revenue? a. Total Rev + Acts Rec - Sales Discounts - Sales Allow b. Net Rev + Sales Allow - Sales Discounts c. Total Rev - Sales Discounts - Sales Allow d. Net Income - Change in acts Rec