AC 506-920 Ch 3 & 4

FOB Destination

FOB Destination- Seller is responsible for shipping costs Designates who (buyer or seller) is responsible for transportation costs Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.

ERM and Internal control integrated frameworks help organizations create, preserve, and realize value while improving their approach to ___________________

managing risk

what does 'cash' generally include for financial reporting purposes?

what does 'cash' generally include for financial reporting purposes? Includes currency and other items that are payable on demand, such as checks, money orders, bank drafts, and certain savings accounts.

which accounting system is more practicle for recording inventory transactions in a low-tech, high volume environment?

which accounting system is more practicle for recording inventory transactions in a low-tech, high volume environment? Periodic inventory system

Perpetual inventory system vs Periodic Inventory system

* the info should be the same periodic inventory system, shrinkage is automatically included in the cost of goods sold. because goods are not included in the year -end physical count they are treated as sold regardless of the reason of their absence. shrinkage unknown.

To encourage buyers to pay prompty, sellers sometimes offer what?

Cash Discounts To encourage buyers to pay prompty, sellers sometimes offer what? Discount offered on merchandise sold. Offered by sellers of merchandise account: purchase discounts

Confidentiality rules prohibit accountants from voluntarily disclosing information they have discovered in a financial audit ______. Multiple select question. __to competitors __to newspaper reporters __to the general public __in a court of law

Confidentiality rules prohibit accountants from voluntarily disclosing information they have discovered in a financial audit ______. Multiple select question. __to competitors __to newspaper reporters __to the general public __in a court of law

Best protection for cash?

Don't have it on hand. Don't use it- use checks. Checks allow you to separate duties.

Errors made by the depositor require adjustments to the what? to arrive at the true cash balance?

Errors made by the depositor require adjustments to the BOOK BALANCE to arrive at the true cash balance?

FOB shipping point

FOB Shipping point - Buyer is responsible for shipping costs Designates who (buyer or seller) is responsible for transportation costs Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.

Gain in terms of revenue refers to what?

Gain in terms of revenue refers to what? That the profits resulting from a transaction that are not likely to regularly happen

this type of authority applies across different levels of managment. for ex, employees at all levels may be required to make purchases from specific vendors

General authority this type of authority applies across different levels of managment. for ex, employees at all levels may be required to make purchases from specific vendors

Insurance that protects a company from losses caused by employee dishonesty is provided by a(n) ____________________ bond.

Insurance that protects a company from losses caused by employee dishonesty is provided by a(n) Fidelity bond.

Opposite of gain is

Opposite of gain is loss rather than expense

Keeping a record of the serial number on a computer and the name of the individual who is responsible for the equipment is an example of a(n) ______ control.

Physical control

This type of authority apply to specific positions within the organization.

Specific authorizations This type of authority apply to specific positions within the organization.

The bank statement is reconciled when the ______. Multiple select question. true cash balance is the same when determined from two different perspectives unadjusted book balance is equal to the unadjusted bank balance unadjusted bank balance is adjusted to equal the true cash balance unadjusted book balance is equal to the true cash balance

The bank statement is reconciled when the ______. Multiple select question. true cash balance is the same when determined from two different perspectives unadjusted book balance is equal to the unadjusted bank balance unadjusted bank balance is adjusted to equal the true cash balance unadjusted book balance is equal to the true cash balance

The final total after the bank reconciliation form has been completed is called ______________ ______________ _______________

True cash balance

a bank reconciliation normally begins with the cash balance reported by the bank, which is called ?

Unadjusted bank balance

Companies that sell to other businesses

companies that sell to other businesses: Wholesale companies

each deposit of cash or checks is accompanied by what?

deposite ticket

Common size statements provide insight into the company's what?

Common size statements provide insight into the company's what? Operating strategy. If a company moved, their operating exp would rise, but they gained more rev as a percentage of their revenue

If an error is found on the bank statement, an adjustment for it is made to the what? to determine cash balance

If an error is found on the bank statement, an adjustment for it is made to the UNADJUSTED BANK BALANCE to determine cash balance

To limit losses, companies should establish adequate what? over valuable assets. for example, inventory should be kept in a storeroom and not released w/o proper auth.

Physical control

A reduction in the cost of purchases resulting from dissatisfaction with merchandise purchased

Purchase returns A reduction in the cost of purchases resulting from dissatisfaction with merchandise purchased

Retail and wholesale companies are what type of businesses?

Retail and wholesale companies are what type of businesses? Merchandising Businesses

Shrinkage is normally an immaterial amount so instead of being an expense, they are usually added to what account?

Shrinkage is normally an immaterial amount so instead of being an expense, they are usually added to what account? costs of goods sold

The true cash balance is independently reached a second time by making adjustments to the ________________

Unadjusted book balance

What is section 404 of Sarbanes-Oxley?

What is section 404 of Sarbanes-Oxley? -Requires a statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting by public companies. This section includes an assessment of the controls and the identification of the framework used for the assessment: Internal Control-Integrated Framework created by COSO

When performing a bank reconciliation, if an error is found on the bank statement, ______. Multiple select question. an adjustment must be made to the book balance an adjustment must be made to the bank balance the bank should be notified immediately

When performing a bank reconciliation, if an error is found on the bank statement, ______. Multiple select question. an adjustment must be made to the book balance an adjustment must be made to the bank balance the bank should be notified immediately

When the Seller is responsible for shipping costs it is called? What is the cost account called?

When the Seller is responsible for shipping costs it is called? What is the cost account called? FOB destination Transportation OUT

Which of the following items are added to the unadjusted book balance to determine the true cash balance? Multiple select question. NSF checks Deposits in transit Earned interest Bank service charges Accounts receivable collections

Which of the following items are added to the unadjusted book balance to determine the true cash balance? Multiple select question. NSF checks Deposits in transit Earned interest Bank service charges Accounts receivable collections

a term that reflects decreases in inventory for reasons other than sales to customers (stolen, damaged)

a term that reflects decreases in inventory for reasons other than sales to customers (stolen, damaged) Shrinkage

A bank failed to give a customer credit for a $350 deposit. To calculate the true cash balance, the $350 must be ______ balance.

added to the unadjusted bank

When performing a bank reconciliation, the adjustments that must be recorded in a company's financial records, ______ effect the statement of cash flows.

always Reason: Every adjustment impacts cash, so every adjustment effects the statement of cash flows.

are price reductions offered by sellers to encourage buyers to pay promple

are price reductions offered by sellers to encourage buyers to pay promple sales discounts

A policy that "employees at all levels are required to fly coach" is an example of ______________authority.

general authority. A policy that "employees at all levels are required to fly coach" is an example of

Generate revenue by selling goods

generate rev for selling goods Merchandising Business ie: sears, jcpenny, target, sam's club

Savings accounts with substantial withdrawal penalties should be classified as ______________ rather than cash.

investments

is the amount of income that is generated from the normal recurring operations of a business

is the amount of income that is generated from the normal recurring operations of a business Operating income

Because fraud could not exist without it, ________________ __is shown at the head of the fraud triangle.

opportunity

Prenumbered forms are used for ______. Multiple select question. purchase orders checks the income statement invoices

purchase orders receiving reports invoices checks to avoid the unauthorized use of them. Reduce errors.

"Don't blame me, everybody does it." is an example of the ______ component of the fraud triangle.

rationalization

Three types of audit opinions

unqualified adverse qualified opinion these are conclusions in a report that comes with an internal audit

What does 2/10, n/30 mean?

What does 2/10, n/30 mean? Seller will allow the purchaser an additional 2% cash discount if paid with 10 days of the invoice date; net amount (Full Amount) is due in 30.

A bank recorded a $2,300 deposit as a $3,200 deposit. To determine the true cash balance, $900 must be ______ balance. Multiple choice question. a. added to unadjusted bank b. subtracted from the unadjusted bank c. added to the unadjusted book d. subtracted from the unadjusted book

b. subtracted from the unadjusted bank

Jane Company had an unadjusted book balance of $900. There were $200 of accounts receivable collections and a $100 NSF check. The bank erroneously charged Jane a $100 service charge. Based on this information, the Jane's true cash balance is ______.

$1,000 Reason: $900 unadjusted book balance + $200 receivable collection - $100 NSF check = $1,000 true cash balance. The bank error did not affect the unadjusted book balance and, therefore, is not relevant to the computation.

Karen Company had an unadjusted bank balance of $1,200. There were $200 of deposits in transit and $400 outstanding checks. The bank erroneously charged Karen a $100 service charge. Based on this information, the Karen's true cash balance is ______.

$1,100. Reason: $1,200 unadjusted bank balance + $200 deposits in transit - $400 outstanding checks + $100 bank error = $1,100.

A company failed to record a $1,000 check that was cleared by the bank. To calculate the true cash balance, the $1,000 must be ______ balance Multiple choice question. a. added to the unadjusted book b. added to the unadjusted bank c. subtracted from the unadjusted book d. subtracted from the unadjusted bank A company failed to record a $1,000 check that was cleared by the bank. To calculate the true cash balance, the $1,000 must be ______ balance Multiple choice question c. subtracted from the unadjusted book

A company failed to record a $1,000 check that was cleared by the bank. To calculate the true cash balance, the $1,000 must be ______ balance Multiple choice question c. subtracted from the unadjusted book

A policy that states "investment decisions are authorized at the division level, while hiring decisions are authorized at the departmental level" is an example of ___________________ authority.

A policy that states "investment decisions are authorized at the division level, while hiring decisions are authorized at the departmental level" is an example of Specific authority.

Accountant-client confidentiality is ______. Multiple choice question. a. recognized by federal, but not state laws b. recognized by all states, but not by federal law c. is recognized by all federal and state laws d. governed by diverse legal positions

Accountant-client confidentiality is ______. Multiple choice question. d. governed by diverse legal positions Reason: This is why auditors should seek legal counsel prior to disclosing information.

An adverse opinion ______. Multiple select question. ___is the most negative report an auditor can issue ___may be issued when the auditor is unable to determine whether the financial statements are in compliance with GAAP ___is issued when financial statements do not present a fair picture of the company's status ___is rarely issued by auditors because public companies are required by law to follow GAAP

An adverse opinion ______. Multiple select question. ___is the most negative report an auditor can issue ___may be issued when the auditor is unable to determine whether the financial statements are in compliance with GAAP ___is issued when financial statements do not present a fair picture of the company's status ___is rarely issued by auditors because public companies are required by law to follow GAAP

An error is material when?

An error is material when knowing about it would influence the decisions of an average prudent investor

An examples of separation of duties is ______. a. having two pilots complete the same check list b. requiring pass code entry of two individuals to authorize the launch of a nuclear weapon c. using one person to approve a sales return and a different person to issue credit to the customer d. having a personnel manager who is also in charge of payroll

An examples of separation of duties is ______. c. using one person to approve a sales return and a different person to issue credit to the customer

advertising, administrative salaries, sale commissions, insurance, and interest are all examples of what?

advertising, administrative salaries, sale commissions, insurance, and interest are all examples of what? Selling and administrative costs which are NOT included in inventory and these are called PERIOD COSTS

a ______________________ is used to explain the differences between the cash balance reported on the bank statement and the cash balance recorded in the depositor's accounting records

bank reconciliation

because sizes of companies are different how do accountant enable meaningful comparisons between companies? How?

because sizes of companies are different how do accountant enable meaningful comparisons between companies? Analysts use Common Size Financial Statements by dispalying information in percentages and absolute dollar amounts

Costs that are not included in inventory are usually called

costs that are not included in inventory are usually called selling and administrative costs

In determining the unadjusted bank balance, certified checks ______ been deducted.

have certified checks are deducted both from bank and depositor records immediately, they don't cause differences betweent he depositor and bank balances. they aren't included in bank reconciliation because they are deducted at the time they are printed

checking accounts are considered what to banks? what type of account?

libailities, but they are obligated to pay back the money that customers have deposited. thus it is a CREDIT balance

Income statement format that matches particular revenue items with related expense itemms and distinguishes between recurring operating activities and non operating items such as gains and losses

multistep income statement Income statement format that matches particular revenue items with related expense items and distinguishes between recurring operating activities and non operating items such as gains and losses *the income statements that we showed in chapter 1 were single step income statement

The high ethical standards required by the accounting profession state "a CPA assumes an obligation of ______ above and beyond requirements of laws and regulations."

self-discipline

shows the bank account number and the signatures of the people authorized to sign checks

signature card

what is +/- from unadjusted bank balance to find true cash balance? What is +/- from unadjusted book balance?

what is +/- from unadjusted bank balance to find true cash balance? What is +/- from unadjusted book balance? bank balance- just deals wiwth cash the depositor deals with (+ deposits in transit; - outstanding checks) Book balance- other adjustments (+ accts rec; +interest earned ; - bank service charges; - NSF checks)

statement issued by a bank (usuyally monthly that denotes all activity in the bank account for that period). it is presented from the bank's point of view

Bank statement

When performing a bank reconciliation, if an error made by the depositor is found, an adjustment must be made to the _______________ balance to arrive at the true cash balance.

Book

Cash is the easiest of hardest asset to control?

Cash is the easiest of hardest asset to control? Hardest can't prove who actual owner is if someone runs out of company with it.

Cash must be subject to strict internal controls because ______. Multiple select question. _____small quantities of cash can represent significant value ____it is the first asset shown on the balance sheet ____rightful ownership of cash is difficult to prove ____it has universal appeal

Cash must be subject to strict internal controls because ______. Multiple select question. _____small quantities of cash can represent significant value ____it is the first asset shown on the balance sheet ____rightful ownership of cash is difficult to prove ____it has universal appeal

The practice where two or more employees work together to thwart internal controls by covering for each other is called

Collusion

Companies may decide to look to the ERM framework both to satisfy their __________________ control needs and to move toward a fuller ___________________ management process.

Companies may decide to look to the ERM framework both to satisfy their internal control needs and to move toward a fuller risk management process.

Companies that sell goods to the final consumer

Companies that sell goods to the final consumer Retail companies

In the COSO Framework, what activties segregate duties, account reconciliations, and other practices that are designed to safeguard assets and enable an organization to prepare reliable financial statements are identified as

Control Activities In the COSO Framework, what activties segregate duties, account reconciliations, and other practices that are designed to safeguard assets and enable an organization to prepare reliable financial statements are identified as are the control activies in place working?

The integrity and ethical values of the company, including its code of conduct, involvement of the board of directions and other actions that set the tone for the organization

Control Environment The integrity and ethical values of the company, including its code of conduct, involvement of the board of directions and other actions that set the tone for the organization

Features of a strong internal control system include ______. Multiple select question, check all that apply: __compliance with applicable laws and regulations __reliable financial reporting __federal government loan guarantees __safeguarding assets

Features of a strong internal control system include ______. Multiple select question, check all that apply: __compliance with applicable laws and regulations __reliable financial reporting __federal government loan guarantees __safeguarding assets

Goods purchased for resale

Goods purchased for resale Merchandising Inventory

Gross Margin

Gross margin aka gross profit the amount of money the retailer makes as a percentage of sales after the cost of goods sold is subtracted difference between sales rev and costs of goods sold

How is inventory adjusted throughout the period using the perpetual inventory system?

How is inventory adjusted throughout the period using the perpetual inventory system? inventory is adjusted perpetually (continually) throughout the accounting period. Each time merchandise is purchased, the inventory account is increased; each time it is sold, the inventory account is decreased.

IOU's and Postdated checks are examples of what?

IOU's and Postdated checks are examples of what? Receivables

If a firm sell land for more than it costs the difference between sales price and cost of the land is called what?

If a firm sell land for more than it costs the difference between sales price and cost of the land is called what? a gain

In addition to the Internal Control Integrated Framework, _________ framework introduces enterprise wide approach to risk management as well as concepts such as risk appetite, risk tolerance, and portfolio view.

In addition to the Internal Control Integrated Framework, ERM framework introduces enterprise wide approach to risk management as well as concepts such as risk appetite, risk tolerance, and portfolio view. *applies only to US Cos, but there is international use

The part of COSO's framework that: The internal and external reporting process, and includes an assessment of the tech environment

Information and Communication The part of COSO's framework that: The internal and external reporting process, and includes an assessment of the tech environment How is info being gathered internally and reported externally? are the controls in this process working correctly?

is the process designed to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorized use, acquisition, or disposal.

Internal Control is the process designed to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorized use, acquisition, or disposal.

Internal control is a process designed to do what 4 things?

Internal control is a process designed to do what 4 things? 1. ensure reliable financial reporting 2. effective and efficient opperations 3. compliance with applicable laws and regulations 4. safeguarding assets against theft, unauth use, acquisition, or disposal

Merchandise inventory (product) include inventory costs , ie: price of goods, shipping and handling costs, transit insurance and storage costs. These included expenses are called

Merchandise inventory (product) include inventory costs , ie: price of goods, shipping and handling costs, transit insurance and storage costs. These included expenses are called Product costs

Merchandising businesses usually maintain their inventory records using what system?

Merchandising businesses usually maintain their inventory records using what system? Perpetual inventory system

The part of COSO's framework that: Assess the quality of a company's internal control over time and taking actions as necessary to ensure it continues to address the risks of the organization.

Monitoring The part of COSO's framework that: Assess the quality of a company's internal control over time and taking actions as necessary to ensure it continues to address the risks of the organization. is there a system to continuously monitor internal control

Advantages and disadvantages of the periodic system verse the perpetual system

Periodic method advantage: recording efficiency. Recording inventory transactions occasionally requires less effort than perpetually. good for fast-food restaurants or grocery stores. volume of transactions. Periodic doesn't account for shrinkage. its included in cost. Perpetual inventory records provide significant control advantages. management can easily see inventory stock at any given time and can determine the amount of shrinkage. More timely and accurate reorder decisions for profitability. *perpetual is expanding because of barcode technology

Appropriate accounting processes should be documented in a(n) Blank 1Blank 1 prcedures , Correct Unavailable Blank 2Blank 2 manual , Correct Unavailable that is routinely updated. (Enter only one word per blank.)

Procedures Manual

The accounting records for Butler Company showed an unadjusted book balance of $1,500. There were $400 of accounts receivable collections, $300 of outstanding checks, $200 NSF check, and a bank service charges of $100. Based on this information, the company's true cash balance is ______.

Reason: $1,500 unadjusted book balance + $400 receivable collection - $200 NSF check - $100 service charge = $1,600 true cash balance. The outstanding checks did not affect the unadjusted book balance and, therefore, is not relevant to the computation.

This part of COSO's framework is Management's process of identifying protential risks that could result in misstated financial statements and developing actions to address those risks

Risk Assessment The part of COSO's framework that is: Management's process of identifying protential risks that could result in misstated financial statements and developing actions to address those risks management must identify potential risks

Requires public companies to evaluate their internal control and to publish those findings with their SEC filings

Sarbanes-Oxley Act of 2002, caused by the WorldCom and Enron 2001 scandles Requires public companies to evaluate their internal control and to publish those findings with their SEC filings

Section 404 of SOX requires an assessment of control by using a frame work. This framework was establisted by whom?

Section 404 of SOX requires an assessment of control by using a frame work. This framework was establisted by whom? The Committee of Sponsoring Organizations of Tread-way Commission (COSO)

Selling and admin costs are usually recognized what? when?

Selling and admin costs are usually recognized what? when? As expenses recognized in the period which they are incurred and are called Period Costs

Is frequently used as a deterrent to corruption. This is to deter fraud or theft if collusion is required to accomplish it

Separation of duties is frequently used as a deterrent to corruption. This is to deter fraud or theft if collusion is required to accomplish it

What are the control activities in COSO's framework?

Separation of duties quality of employees bonded employees required absences pocedures manual authority and responsibility renumbered documents physical control performance evaluations limitation

Sometimes dissatisfied buyers will agree to keep goods instead of returning them if the sell offers to reduce the price. What is this called?

Sometimes dissatisfied buyers will agree to keep goods instead of returning them if the sell offers to reduce the price. What is this called? Purchase allowances

The three elements typically present when fraud occurs are the availability of a(n) _________________________; the existence of some form of ________________leading to an incentive; and the capacity to ________________________

The three elements typically present when fraud occurs are the availability of a(n) opportunity_; the existence of some form of pressure leading to an incentive; and the capacity to rationalize

True or false: The ERM framework replaces the internal control framework.

True or false: The ERM framework replaces the internal control framework. False- the ERM framework does not replace, it incorporates the internal control framework within ERM framework

Examples of physical controls include ______. Multiple select question. requiring all employees to fly coach developing a procedures manual for employees to follow Unannounced random counts to verify the presence of company-owned equipment keeping accounting records in a fireproof vault

Unannounced random counts to verify the presence of company-owned equipment keeping accounting records in a fireproof vault

Is the most favorable opinion of an audit after it is complete

Unqualified opinion

What are the 5 components of the standard by which SOX compliance is judged? VIA the COSO framework (Internal Control- Integrated Framework)

What are the 5 components of the standard by which SOX compliance is judged? 1. control environment 2. risk assessment 3. control activities 4. information and communication 5. monitoring

What type of check is guaranteed for payment by a bank? This type of check is deducted from the customer's account when the bank sees that it is good.

What type of check is guaranteed for payment by a bank? This type of check is deducted from the customer's account when the bank sees that it is good. Certified Check

When the Buyer is responsible for shipping costs it is called? What is the cost account called?

When the Buyer is responsible for shipping costs it is called? What is the cost account called? FOB shipping point Transportation IN

Which of the following are internal control procedures specifically designed for the safekeeping of cash receipts? Multiple select question. ___Cash collected late in the day should be deposited in a night depository. ___Deposit cash receipts in a bank in a timely manner. ___Minimize the amount of cash held on the business premises. ___Assign all functions associated with cash receipts and payments to one employee.

Which of the following are internal control procedures specifically designed for the safekeeping of cash receipts? Multiple select question. ___Cash collected late in the day should be deposited in a night depository. ___Deposit cash receipts in a bank in a timely manner. ___Minimize the amount of cash held on the business premises. ___Assign all functions associated with cash receipts and payments to one employee.

Which of the following provides the regulartory authority for internal control requirements? a. American Accounting Association b. Institute of Certified Public Accountants c. The Treadway Commission d. The Sarbanes-Oxley Act

Which of the following provides the regulartory authority for internal control requirements? d. The Sarbanes-Oxley Act