ACCOUNTING EXAM 3

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three areas that ICS ensures are being met

operations reporting compliance

Percentage of Credit Sales Method

primarily concerned with appropriately estimating bad debt expense on the income statement

to encourage prompt payment, businesses may offer a

sales discount

recorded by bank not by business

service charges non sufficient funds checks debit and credit memos

bad debt expense is estimated by determining the ending balance desired in the allowance for doubtful accounts

aging method

which method of bad debt expense is GAAP approved

allowance method

an account established to store the estimate of uncollectible accounts

allowance of doubtful accounts

cash over and short should be treated as an —— account and is reported as a part of ——

income statement expenses and other revenues

accounts receivable turnover

net sales/average net accounts receivable

the first stage of the operating cycle is paying for inventory

false

when cash is received a cash account is increased by a credit (t/f)

false

information and communication

An effective internal control system generates and communicates information about activities affecting the organization to support sound decision making.

T/F Accounts Receivable requires a formal written document

False

net relizable value

The amount of accounts receivable a business expects to collect.

Monitoring Activities

The process of tracking potential and actual problems in the internal controls system

pretty cash

an amount of cash kept on hand and used for making small payments

the expense that results from receivables that are not paid

bad debt expense

aging method

bad debt expense is estimated by determining the collectability of the accounts receivable rather than by taking a percentage of total credit sales

where is cash reported

balance sheet and statement of cash flows

to ensure that the accounting records are consistent with the banks accounting records, any differences must be reconciled. this is called

bank reconciliation

which shows the beginning and ending account balance, individual deposits and withdrawals recorded by the bank

bank statement

stages of the operating cycle

buying inventory paying for the inventory selling inventory

when a specific account is ultimately determined to be uncollectible under the allowance method, it is written off _____

by a debit to the allowance account and a credit to the accounts receivable

what is not a component of the internal controls system

cash assessment

records discrepancies between deposited amounts of actual cash received and the total of the cash register tape

cash over and short

what is not one of the areas for which ICS are intended to provide reasonable assurance

certification that the financial statements are without error

cash includes not only currency and coins but also —-

checks and money orders

operating cycle influences

classifications of assets and liabilities on balance sheets//amount of capital a business needs and the policies that govern its sales of goods and services

the five control activities

clearly defined authority and responsibility segregation of duties adequate documents and records safeguards over assets and records checks on recorded amounts

the accounting system

consists of methods and records used to identity measure record and communicate financial information about a business

the politics and procedures top management establishes to help ensure that it's objectives are met

control activities

the collection of environmental factors that influence the effectiveness of control procedures

control environment

the foundation of the internal control system is the

control environment

five components of ICS

control environment control activities information and communication monitoring activities

bad debt expense method that waits until an account is deemed uncollectible before reducing AR and recording the bad debt

direct write off method

what is the primary role of internal controls in managing a business

ensure financial statements present relevant and reliable information

for customers not expected to pay in the discount period, sales revenue should be recorded at the net amount

false

when a customer is not expected to pay within the discount period

gross method

gross profit margin =

gross profit/net sales

which of the following is not an objective of internal controls

management objectives

the internal audit function is part of what element of the internal control system?

monitoring

the process of tracking potential and actual problems in the internal

monitoring

When a customer is expected to pay within the discount period a company should use the

net method

a check issued and recorded by the business that has not been cashed

outstanding checks

recorded by business but not by bank

outstanding checks deposits in transit

when are adjustments necessary in a bank reconciliation?

outstanding checks or deposits in transit NO company errors or items such as bank charges or interest YES

what does the notation 2/10 n/30 mean

payment due in 30 days 2% discount if payment is made within 10 days

a fund used to pay for small dollar amounts

petty cash

strategic risks

possible threats to the organization's success in accomplishing its objectives that are external to the organizations success in accomplishing its objectives and are external to the organization//often classified around industry forces

a reduction in the selling price granted by the seller to a particular class

quantity and trade discount

reduction in selling price granted by seller because selling costs per unit are less when larger quantities are ordered

quantity discount

business process risks

the internal processes of the company specially how the company allocated its resources to meet its objectives

control environment includes the following

the philosophy and operating style of management the personnel policies and practices of the business overall integrity attitude and awareness of actions of everyone in the business concerning the importance of control

estimated bad debt expense

total credit sales x percentage of credit sales estimated to default

percentage of credit sales method

total credit sales x percentage of credit sales estimated to default = estimated bad debt expense

differences between cash account balance and the bank statement balance develop from

transactions recorded by the business but not recorded by the bank in time recorded by bank but not by business errors in recording transactions on either set of records

a cash shortage requires a debit to cash over and short

true

a checking account is a liability for the bank

true

an ics will be unable to help a company achieve its objective unless adequate information is identified and gathered

true

cash includes not only currency and coins but also savings and checking accounts and negotiable instruments

true

for customers expected to take the discount, sales revenue should be recorded at the net amount

true

in the allowance method, bad debt expense is recognized in the period of sale

true

the direct mail rite off method is inconsistent with the GAAP

true


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