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70 Cards in this Set
- Front
- Back
- 3rd side (hint)
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What is the fraud triangle? |
Motive (or pressure) Rationalization (feel like they should) Opportunity |
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What is the purpose of internal controls? |
Prevent and detect errors and irregularities from occurring (intentional) |
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What is the Sarbanes-Oxley Act of 2002 (SOX)? |
Applies to all companies that file financial statements, created after embezzlement and fraud (Enron case), putting in place auditors, oversight board, internal control, etc. |
Aka Public Company Acct Reform and Investor Protection Act of 2002 |
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What is the information and communication triangle? |
1. Monitors (report deficinies) 2. Control Activities (policies & procedures to reduce risk) 3. Risk Assesment (identity risk factors) 4. Control environments (overall ethical tone for company) |
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What are the 2 control activities and some examples? |
1. Preventive controls - separation of duties, physical controls, proper authorization, employee management, e commerce controls 2. Detective Controls - reconciliation, performance reviews, audits |
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Limitations to internal controls |
Collusion: 2 or more ppl acting together to circumvent internal controls |
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What is cash? |
- Currency - Coins - Balances in savings and checking accts - Checks |
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What are cash equivalents? |
- Mature within 3 months of date of purchase * money market funds * treasury bills * certificates of deposit (90 Days or less) |
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Bank reconciliation |
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What are possible differences in a bank reconciliation? |
-timing differences -errors |
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What is a petty cash fund? |
Small amount of cash kept on hand to pay for minor purchases. |
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How do you account for a petty fund? |
-establishing the fund -recognizing expenditure from fund -replenishing fund (Petty cash custodian) |
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What are the cash controls? |
-controls over cash receipt -controls over cash disbursement |
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What is a bank reconciliation? |
Matching the balance of cash in the bank account with the balance of cash in the company's own records. |
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Identifying the major inflows and outflows of cash (activities) |
Operating -day to day basis (r+e) Investing -long term assets & invest Financial -borrowing & owner investing |
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What are ways of cash management? |
1. Increase the speed of receivables collection 2. Keep inventory low 3. Monitor payment of liabilities 4. Plan timing of major expenditures 5. Invest idle cash |
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What are credit sales? |
Transfer products & services to a customer today & collecting payment in the future |
Aka sales on account |
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Are credit sales the same as credit card sales? |
No |
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What are notes receivable? |
Formal credit arrangements evidenced by a written debt instrument, or note. |
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What is net revenues? |
A company's total revenues less discounts, returns and allowances |
Referred as net sales |
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Net revenue = ______ - _______ - ______ |
Sales - sales discounts- sales returns & allowances |
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What is a trade discount? |
-Reduced from the list price of a product or service - not recognized directly - provides incentives to large customers |
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What is a sales return? |
-seller issues a full refund -customer returns the product |
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What is a sales allowance? |
-seller partially reduces the customers balance -customer does not return the product |
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What is A/R; accured revenue |
A/R 100 Service rev/ sales 100 |
Recognize now, cash later |
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What is a contra revenue account? |
- sales returns & allowances (contra revenue acct r&a) -opposite balance to that of its related revenue acct (ie. Debt balance) - to keep a separate record of the total revenue earned & reduction due to subsequent sales allowances |
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What is a sales discount? |
Contra revenue acct -reduced from the amount to be paid by a credit customer if payment is paid within a specified period of time |
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What are discount terms? |
2/10, n/30 (discount %/ discount period) |
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Cost of doing business =? |
Bad debts |
Allowance method |
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What is the allowance method? |
-allows for the possibility that some acct will be uncollectable -companies are required to: *estimate future uncollectable acts * record estimates in the current year |
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What are uncollectable accts? |
Customers acts that are no longer considered collectable - reduce assets (a/r) -increase expense (A& R/E go down) |
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What are doubtful accts? |
(Contra assest) Representing the amount of a/R that we do NOT expect to collect -reserve for bad debt -"rainy day fund" increase for future rainy days (future write offs), decrease when it rains (actual writeoffs) |
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Allowance for D/A |
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What is NRV |
(Net realizable Value) = A/R- allowance |
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Estimating uncollectable accts in the following year |
Adjust allowance to amount estimated to be uncollectable -permanent act -do not ignore existing balance |
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What is the direct write off method |
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Gaap doesn't allow |
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What are notes receivable? |
Similar to A/R but more formal, written debt instrument or promissory note, classified as current or noncurrent asset Promissory note-> N/R Service rev |
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What is the interest calculation? |
Interest = principal x rate x time |
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What is th equation to mature value? |
Mv= p+i |
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What is the receivable turnover ratio? |
Net credit sales/ average accounts receivables (beg A/R + Ending A/R) ÷2 (beg A/R + Ending A/R) ÷2 |
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What is the average collection period? |
365 days/ receivables turnover ratio |
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What is the percentage of credit sales method? |
-estimates uncollectable accts based on the percentage of credit sales ( not A/R) -adjusts allowance for doubtful accounts, ignoring existing balance |
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Assets turn into what? |
Expense |
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Supplies turn into what? |
Supplies expense |
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PPD RENT -> EQUIPMENT -> INVENTORY -> |
Rent exp Depreciation exp COGS Exp |
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What does merchandising require? |
2 step (multiple) income statement |
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What does service require? |
Regular 1 step Income statement |
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Inventory wise what do merchandising and manufacturing do? |
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What are cost of goods sold? |
Cost of the inventory that is sold during the period ( benefit received) |
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What is the COGS formula? |
BI (beginning inventory) +NP (Net purchases) =TGAS ( total good avaible for sale) -EI (ending inventory) =COGS (cost of goods sold) |
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What are operating expenses? |
Selling, general & administrative exp |
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What are the multiple levels of profit? |
-gross profit -operating income - income before income taxes -net income |
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What is the multiple step income? |
SALES - SALES R+A - SALES DISCOUNT =NET SALES -COGS =GROSS PROFIT -OPERATING EXP =NET INCOME |
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What are the 4 inventory cost methods? |
1. Specific identification 2. FIFO 3. LIFO 4. Weight Average cost |
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What is the specific identification method? |
-unique, expensive products (Automobiles, jewelry) -most logical, not usually practical |
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For Fifo, ending inventory where do you start & For COGS? |
Bottom, top |
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For Lifo, ending inventory where do you start? & for COGS? |
Top (on hand), bottom (sold) |
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Weighted average cost method |
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From a financial standpoint which is better? & for Tax purposes? |
1. FIFO ( Higher assests) 2. LIFO (Expenses) |
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What is a perpetual inventory system? |
Preferred -maintains a continual track of inventory -helps a company manage inventory levels - COGS determined each time sale occurs |
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What is a periodic inventory system? |
-doesnt maintain a continual track of inventory -periodically adjusts for purchases & sale inventory -reports inventory based on a physical count - COGS determined at end of accounting period |
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What are additional inventory transactions? |
Freight charges, (freight in, freight out), purchase discounts, purchase returns |
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What is FOB shipping point mean? |
Buyer pays (date purchase occurred) Inventory Cash (Pay freight in charge) |
Free on board |
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FOB destination |
Seller pays Freight out (operating exp) Cash |
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Freight in is represented on which financial statement? |
Balance sheet -inv- assets |
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What is the fair market value? |
Cost today |
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What is the inventory turnover ratio? |
= COGS/ AVERAGE INVENTORY (BEG + ENDING/2) Shows the # of times the firm sells it's average inventory balance during a reporting period |
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What is the cross profit ratio? |
=gross profit/ net sales, net sales - COGS = gross profit Indicator of the company's successful management of inventory. Measures the amount by which the sale price of inventory exceeds it's cost per dollar of sales (markup) |
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Net sales |
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What happens when you make an error to affect next period? |
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