Accounting Exam 3
Which asset is considered the most liquid?
Cash
The operating cycle is the elapsed time between the:
Receipt of cash and payment of cash
Give an example of a generally recognized internal control activity?
Segregation of duties, authorized responsibility, documentation, physical controls, spot checks
Don't Tread On Me Flooring The company received a promissory note from a customer on March 1, 2013. The principal amount of the note is $25,000; the terms are 3 months and 9% annual interest. Refer to the information for Accent Flooring. What is the total amount of interest the company will receive when the note is collected?
25000 X .09 X 3/12 = 562.50
Define the Allowance for Doubtful Accounts.
A contra asset and an estimate of uncollectible accts. Rec.
How are cash equivalents reported or disclosed in the financial statements?
As a current asset
Refer to Dance Town Academy. How will the customer's bounced checks be handled on a bank reconciliation?
As a subtraction from the company's books.
Strategic risk assessment is primarily concerned with what?
Assessing the risks from outside the company such as from competition, changing customer tastes,
What items are included in Cash and Cash Equivalents on a company's balance sheet?
Currency, checks, bank cards
The control activity "segregation of duties" is most effective in doing what?
Helping to prevent the possibility of embezzlement.
Cash collected and recorded by a company but not yet reflected in a bank statement are known as:
Intransit deposits
Which internal control activity is followed when inventory storage areas are secured with limited access?
Physical control
What are some specific internal control procedures for cash.
Segregation, audits, safes, cash deposits, paying with checks after documentation is approved
What is meant by a company's the tone at the top?
Top management sets the example for internal control, so if they are not on the up and up, so goes the rest of the company.
Crappy Appliances The company sold merchandise to a customer on December 1, 2013, for $120,000. The company accepted a promissory note as payment. The note has a term of three months and an annual interest rate of 6%. The company's accounting period ends on December 31. Refer to Absolute Appliances. What amount should the company recognize as interest revenue in 2013?
120000 X .06 X 1/12 = 600
A company needs to record 6 months of accrued interest on a 4-year, 12%, $15,000 promissory note payable. How much interest expense should be accrued?
15000 X .12 X 6/12 = 900
Allowing only certain employees to order goods and services on behalf of the company is an example of what internal control activity?
Assigning responsibility
Alco Roofing Company's beginning accounts receivable were $240,000 and ending accounts receivable were $270,000. During the period, credit sales totaled $570,000, How much cash was collected from customers?
Beg. Bal + credit sales - cash collected = ending balance 240000 +570000 - collections = 270000 Collections = 540000
According to the Sarbanes-Oxley Act of 2002, who is primarily responsible for establishing and maintaining a system of internal control over the company's financial reporting?
CEO & CFO
The account which records differences between amounts of cash deposited and amounts from the cash register tapes is called:
Cash short or over
The principal amount of a note receivable plus the interest due is referred to as the note's
Maturity Value
A check returned by a bank because the issuer's cash account balance could not cover the check is called a(n):
NSF check
On December 15, 2013, the accounts receivable balance was $51,000 and the balance in the allowance for doubtful accounts was $5,200. That morning, a $1,000 uncollected account was written-off. The net realizable value of accounts receivable immediately after the write-off is:
Acct. rec. 51,000 - 1000 = 50,000 Less Allowance 5,200 -1000 = 4200 Net Acct. Rec. 45,800 45,800 So no change!
What are some distinguishing characteristics between accounts receivable and notes receivable?
Accts. Rec. are only amounts from customer sales on account, with no interest. Notes Rec. may come from customers, but also from loaning out cash, with interest.
A company uses the direct write-off method to account for bad debts. What are the effects on the accounting equation of the entry to record the write-off of a customer's account balance?
Increases expense and decreases assets.
What are some features of the direct write-off method of accounting for bad debts,
Not GAAP, but is easy to implement, and only writes off customers' accounts when they are found to be uncollectible.