ACC 303 ch1, ch4, and ch5

Be able to calculate interest on notes receivable in years 1 and 2.

Be able to calculate interest on notes receivable in years 1 and 2.

What are the two elements of stockholders' equity?

Commitments made to investors = COMMON STOCK increases to stockholder's equity from earnings = RETAINED EARNINGS Distribution of earnings = dividends

Which of the following is not considered a common control activity? Requiring employees to take vacations Duplication of duties Bonding of employees Use of prenumbered documents

Duplication of duties

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

Ensuring that the company is using the most effective marketing plan

Resources a business uses to make money are called [____________________].

assets

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

balance sheet

Obligations a business has to its creditors are known as [__________________].

liabilities

A net [______________] occurs when expenses exceed revenues.

loss

Cash received from operations is known as [________________________].

revenue

What are the key features of internal controls?

-Control Environment (integrity and ethical value @ company) -Risk assessment (managements way of identifying risks -Control activities (internal controls: safeguard assets and enable timely make of financial statements) -Information and communication (internal/external reporting process) -Monitoring (assessing quality of company's internal control over time)

What is the net realizable value of accounts receivable? Where is it shown on the financial statements?

-It represents the amount of Account receivable a company estimates it will actually collect. Formula: Face Value - Allowance for doubtful accounts = NVR -It is shown on the Balance sheet

What is the allowance method of accounting for uncollectible accounts?

-Reporting accounts receivable at net realizable value -Requires accountants to estimate the amount of uncollectible account -One way is to base the estimate on a percentage of revenue

What are the inventory cost flow methods we studied and how are they applied?

-Specific Identification: charge the actual cost of the specific item sold to cost of goods sold - First In, First Out: (FIFO) the cost of the first item purchased to be assigned to cost of goods -Last in, First Out: (LIFO) the cost of the last item purchased to be assigned to cost of goods

Who are the parties of a promissory note?

-The MAKER (borrower/debitor) is the person who borrowed money, responsible for making payment on due date. - The PAYEE (creditor or lender) is the person who loans out the money to maker, except maker has to pay with interest added to principle.

Which of the following statements concerning internal controls is true? Strong internal controls cannot be circumvented. A system of internal controls is designed to prevent or detect errors and fraud. Internal controls are limited to the policies and procedures used to protect the company from fraud. The control procedure, separation of duties, prohibits the employment of a husband and wife or other closely related parties within the same company.

A system of internal controls is designed to prevent or detect errors and fraud.

Which of the following statements concerning internal controls is true? Multiple Choice Strong internal controls cannot be circumvented. A system of internal controls is designed to prevent or detect errors and fraud. Internal controls are limited to the policies and procedures used to protect the company from fraud.

A system of internal controls is designed to prevent or detect errors and fraud.

What are the advantages/disadvantages of accepting credit card sales? How are they accounted for?

Advantage: Easier, Convenient, efficient, avoid risks of uncollectible avoid bad debts, no need to maintain customer credit files Disadvantage: CC company charge merchant fee (2-8%) on gross sales, - add to assets and retained earnings, Revenues - expenses is net income

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Which of the following is NOT a common internal control activity (or procedure)? Establishment of clear lines of authority Having employees covered by a fidelity bond Requiring regular vacations for certain employees Customer service comment cards

Customer service comment cards Correct

What are the four financial statements and in what order are they prepared? Which are prepared for a period of time and which are prepared at a point in time?

Income Statement period of time Statement of changes In stockholder's equity period balance sheet point in time The statement of cash flows period

Policies and procedures designed to reduce the opportunities for fraud are often called: Internal controls. Asset source transactions. Accounting standards. Financial systems.

Internal controls.

What type of transaction triggers an entry on the Statement of Cash Flows, and which section would it go in?

Receipt of cash are cash inflow Payments are called cash outflows Operating: cash receipt (inflow) from customer cash payment (outflow) to supplier Investing: cash receipt (inflow) from sale of long term asset cash payment (outflow) from purchase of long term asset Financing: cash receipt (inflow) from borrowing funds cash receipt (inflow) from issuing common stock cash payment (outflow) repaying borrowed money cash payment (outflow) for dividends

Which of the following is not a component of the fraud triangle? Reliance Rationalization Opportunity Pressure

Reliance

What is the historical cost concept?

Requires that most assets be reported at the amount paid for them (historical cost ) regardless of increases in market value

What determines net income/loss?

Revenues exceeds > Expenses is Net INCOME Revenues < Expenses is Net LOSS

Which internal control procedure addresses the idea that the likelihood of employee fraud or theft is reduced if collusion is required to accomplish it? Separation of duties Physical controls Fidelity bonding Use of prenumbered documents

Separation of duties

What are the types of internal controls?

Separations of Duties Quality of employees Bonded Employees Required absences Procedures Manual ----------------------- Authority and Responsibility Prenumbered Documentations Physical Control Performance Evaluations

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

True

chp 1 1. Which financial statement are assets, liabilities, stockholders' equity, revenues, expenses, and dividends shown on? What exactly are these accounts?

assets: balance sheet liabilities: Balance sheet stockholders' equity: Statement of changes in Stockholder's equity revenues: income statement expenses: Income statement dividends: Statement of Cash flows ?????????

Which of the following is not one of the elements that are typically present when fraud occurs? a. the capacity to rationalize b. The existence of pressure leading to an incentive c. The assistance of others d. The presence of an opportunity

c. The assistance of others

Stockholders' Equity is comprised of two elements:

common stock and retained earnings

Distribution of earnings to stockholders are called [________________________].

dividends

Costs incurred to earn revenues are known as [________________________].

expenses

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

false

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

financing activities

List the four financial statements in their order of preparation.

income statement Statement of Changes in Stockholders' Equity Balance sheet Statement of cash flows

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

true

What is the uncollectible accounts expense? Where is it shown? How is it estimated?

-UAE is reporting accounts receivable in the financial statements at net realizable value -Financial statements -By taking previous year percentage or industry averages