Accounting Test 2

stlwalk's version from 2016-12-12 04:38

Chapter 5

Question Answer
FraudFraud is generally defined as an attempt to deceive others for personal gain.
Fraud triangleRationalization, incentive, opportunity
Sarbanes Oxley Actworks to reduce fraud - counteractive incentives (threats), reduce opportunities, and encourage honesty (incentives)
Principles of Control Activitiesestablish responsibility, segregate duties, restrict access, document procedures, independently verify
Bank reconciliationUpdates to bank: deposit in transit (add), outstanding checks (less) ; Updates to book: interest (add), EFT transfer (add), NSF check (less), bank service charges (less) - at _________ Date
Cash and cash equivalentsconsidered cash or cash equivalent when it is present cash or will be turned into cash within three months
Bank recon (add to bank)deposit in transit
Bank recon (deduct from bank)outstanding checks
Bank recon (add to book)interest revenue, EFT(electronic funds transfer)
Bank recon (deduct from book)NSF check, bank service charges
Loan covenantcovenant requiring the debtor to do something or refrain from doing something to protect the lendor
Internal ControlInternal control consists of the actions taken by people at every level of an organization to achieve its objectives.

Chapter 6

Question Answer
Service vs Merchandising companiesservice (sell service, collect cash) ; merchandising (buy/sell inventory, collect cash)
Gross profitsales revenue minus cost of goods sold
Inventorythe merchandiser's total cost of goods that it has not yet sold
COGSequals Beginning Inventory plus Purchases minus Ending Inventory
Goods Available for SaleBeginning Inventory plus Purchases
Periodic inventoryupdates inventory records at the end of period
Perpetual inventoryinventory is update every time something is bought or sold (more common); use with bar codes and scanners
Transportation costs count as inventory (costs)purchase returns and allowances also count towards or against inventory
FOB shipping pointseller is responsible until goods are shipped
FOB destinationseller is responsible until goods reach the destination
contra revenue accountsales returns and allowances (COGS is a positive SE account)
Multi step income statement!!!net sales, cost of goods sold, Gross Profit, selling expenses, Income from Operations, other revenues/expenses, Income before Tax, tax expense, Net Income
Gross profit percentagegross profit (sales revenue minus COGS) divided by net sales times 100%
Calculating shrinkageBEG INV plus PURCHASES minus COGS equals ENDING BAL minus actual INV equals Shrinkage
Voucher systemdesigned to avoid fraudulent withdrawals - basically prenumbered checks, etc

Chapter 7

Question Answer
Inventory types (merchandiser vs manufacturer)merchandiser buys/sells goods; manufacturer buys materials and produces goods to sell
Rising costs mean that:FIFO produces higher inventory, lower cogs, and high gross profit (LIFO is opposite and WA is in middle)
Declining costs mean that:FIFO produces lower inventory, higher cogs, and low gross profit (LIFO opposite and WA middle)
LCM Rulewrite down inventory for its lowest market value when it falls below its recorded cost
Total Lower Cost of Marketequals LCM times quantity
Inventory turnover ratioCOGS divided by AVG INVENTORY: tells you the number of times inventory turns over during the period; higher ratio means faster turnover
Days to Sell365 divided by Inventory Turnover Ratio

Chapter 12

Question Answer
Cash Flow Statementfor Year Ended _________ Date
Operatingcash received in day to day activities
Investingcash paid and received from buying and selling long term assets
Financingcash flow from stock and lenders
Receiving Dividendsinflow to Operating
Financing outflowpaying off loans or stocks or bonds or dividends
Operating inflowscash from customers, receiving dividends, receiving interest
Operating outflowspaying services, salaries/wages, income taxes, and interest
Investing inflowscash provided by sale of equipment or sale or maturities of investments
Investing outflowspurchase equipment or stock
Financing inflowsborrowing from lenders
Financing outflowsrepaying debt, repurchasing stock from owners, paying dividends
Indirect cash flow method - OperatingNet Income plus non-cash expenses (depreciation/amortization), changes in non cash current assets and liabilities, plus losses, minus gains
Operatingnet cash flow provided by (used in) operating activities
Investingsubtract purchase of equipment or stock plus sale of equipment equals Net Cash provided by (used in) operating activities
Financingadd long term debts minus payments on debts plus proceeds from issuing stock equals Net Cash provided by (used in) financing activities
Cash flow statementshows investors where money is going and how much money is actually generated from revenue