Accounting Exam 2: Ch. 5-6

Front 1

Internal Control

Back 1

the system of policies and procedures used in a company to promote efficient and effective operations, reliable financial reporting, and compliance with laws and regulations

Front 2

Internal Control Report

Back 2

Annual report in which management states its responsibility for internal control and provides an assessment of its internal control

Front 3

Control Environment

Back 3

The atmosphere in which the members of an organization conduct their activities and carry out their responsibilities

Front 4

Risk Assessment

Back 4

the identification and analysis of the risks that threaten the achievement of organization objectives

Front 5

Control Activities

Back 5

The policies and procedures established to address the risks that threaten the achievement of organization objectives

Front 6

Information and Communication

Back 6

Required for the open flow of relevant information throughout an organization

Front 7

Monitoring

Back 7

The assessment of the quality of an organization's internal control

Front 8

Bank Reconciliation

Back 8

The process of reconciling the differences between the cash balance on a bank statement and the cash balance in a company's records

Front 9

Deposit Transit

Back 9

A deposit that has been made by the company but has not cleared the bank as of the statement date

Add to bank balance

Front 10

Outstanding Check

Back 10

A check that has been distributed by the company but has not cleared the bank as of the statement date

Subtract from bank balance

Front 11

Credit Memorandum

Back 11

An addition to the cash balance on the bank statement for items such as the collection of interest

Front 12

Debit Memorandum

Back 12

A subtraction from the cash balance on the bank statement for items such as service charges

Front 13

Petty Cash Fund

Back 13

An amount of cash kept on hand to pay for minor expenditures

Front 14

Cash

Back 14

A medium of exchange

Front 15

Cash Equivalent

Back 15

Any investment that is readily convertible into cash and has original maturity of three months or less

Front 16

Restricted Cash

Back 16

Cash a company has restricted for a specific purpose

Front 17

Free Cash Flow

Back 17

The excess cash a company generates beyond what it needs to invest in productive capacity and pay dividends to stockholders

Front 18

Account Receivable

Back 18

An account owed by a customer who has purchased the company's product or service

Front 19

Net Realizable Value

Back 19

The amount of cash that a company expects to collect from its total accounts receivable

Front 20

Bad Debt Expense

Back 20

The expense resulting from the inability to collect accounts receivable

Front 21

Direct Write Off Method

Back 21

Method in which bad debt expense is recorded when a company determines that a receivable is uncollectible and removes it from its records

Not allowed under GAAP because it violates matching principle

Front 22

Allowance Method

Back 22

Method in which companies use two entries to account for bad debt expense - one to estimate the expense and a second to write off receivables

Front 23

Allowance for Bad Debt

Back 23

The dollar amount of receivables that a company believes will ultimately be uncollectible

Front 24

% of Sales Approach

Back 24

Method that estimates bad debt expense as a percentage of sales

Front 25

% of Receivables Approach

Back 25

Method that estimates bad debt expenses as a percentage of receivables

Front 26

Aging Schedule

Back 26

A listing of accounts receivable by their ages

Front 27

Receivables Turnover Ratio

Back 27

A comparison of credit sales to receivables that measures a company's ability to generate and collect receivables

Front 28

Days in Receivables Ratio

Back 28

A conversion of the receivables turnover ratio that expresses a company's ability to generate and collect receivables in days

Front 29

Allowance Ratio

Back 29

A comparison of the allowance account to receivables that measures the percentage of receivables that are expected to be uncollectible in future

Front 30

Promissory Note

Back 30

A written promise to pay a specific sum of money on demand or at some specific date in the future

Front 31

Note Receivable

Back 31

An asset created when a company accepts a promissory note

Front 32

Receivables Turnover Ratio Equation

Back 32

Credit Sales / Average Receivables

Front 33

Days in Ratio Equation

Back 33

365 / Receivables Turnover Ratio

Front 34

Journal entry to create petty cash

Back 34

Debit petty cash amount

Credit cash amount

Front 35

Journal entry to create petty cash

Back 35

Debit petty cash amount

Credit cash amount

Front 36

Journal entry to record receipts for petty cash

Back 36

Debit all expense amounts

Debit cash over/short if under

Credit cash over/short if over

Credit cash

Front 37

For back reconciliation journal entry for collecting receivable

Back 37

Debt cash amount

Credit accounts receivable amount

Front 38

For back reconciliation journal entry for collecting receivable

Back 38

Debt cash amount

Credit accounts receivable amount

Front 39

Bank reconciliation journal entry for correction of check

Back 39

Debit whatever type of check expense amount error

Credit cash in error amount

Front 40

For back reconciliation journal entry for collecting receivable

Back 40

Debt cash amount

Credit accounts receivable amount

Front 41

Bank reconciliation journal entry for correction of check

Back 41

Debit whatever type of check expense amount error

Credit cash in error amount

Front 42

Journal entry for bank reconciliation for recording service charge

Back 42

Debit service expense amount

Credit cash amount

Front 43

Journal entry for bank reconciliation on recording NSF checks

Back 43

Debit accounts receivable amount

Credit cash amount

Front 44

Journal entry for bank reconciliation on recording NSF checks

Back 44

Debit accounts receivable amount

Credit cash amount

Front 45

Journal entry for bank reconciliation for recording interest collected by bank

Back 45

Debit cash amount

Credit interest revenue amount

Front 46

"Tone at the top" describes what in internal systems

Back 46

Control environment

Front 47

"Tone at the top" describes what in internal systems

Back 47

Control environment

Front 48

Examples of good control activity

Back 48

Establishing responsibility for the performance of task, using computer passwords and encryption, using sequentially numbered sales invoices

Front 49

"Tone at the top" describes what in internal systems

Back 49

Control environment

Front 50

Examples of good control activity

Back 50

Establishing responsibility for the performance of task, using computer passwords and encryption, using sequentially numbered sales invoices

Front 51

Internal control system limitations

Back 51

Human element and cost benefit analysis

Front 52

"Tone at the top" describes what in internal systems

Back 52

Control environment

Front 53

Examples of good control activity

Back 53

Establishing responsibility for the performance of task, using computer passwords and encryption, using sequentially numbered sales invoices

Front 54

Internal control system limitations

Back 54

Human element and cost benefit analysis

Front 55

Journal entry for account receivable for recording bad debt expense

Back 55

Debit bad debt expense amount

Credit allowance for bad debt

Front 56

"Tone at the top" describes what in internal systems

Back 56

Control environment

Front 57

Examples of good control activity

Back 57

Establishing responsibility for the performance of task, using computer passwords and encryption, using sequentially numbered sales invoices

Front 58

Internal control system limitations

Back 58

Human element and cost benefit analysis

Front 59

Journal entry for account receivable for recording bad debt expense

Back 59

Debit bad debt expense amount

Credit allowance for bad debt

Front 60

Journal entry for accounts receivable recording payment of written off account

Back 60

1. Debit accounts receivable amount

Credit allowance for bad debt

2. Debit cash

Credit accounts receivable

Front 61

Journal entry for account receivable for recording write off using allowance method

Back 61

Debit allowance for bad debt

Credit accounts receivable

Front 62

Journal entry for account receivable for recording write off using allowance method

Back 62

Debit allowance for bad debt

Credit accounts receivable

Front 63

Journal entry for accounts receivable for recording collection of credit sales

Back 63

Debt cash

Credit accounts receivable

Front 64

Journal entry for accounts receivable for recording sale

Back 64

Debit accounts receivable

Credit sales

Front 65

Journal entry for notes receivable for recording acceptance of note

Back 65

Debit cash

Debit notes receivable

Credit accounts receivable

Front 66

Journal entry for notes receivable for recording acceptance of note

Back 66

Debit cash

Debit notes receivable

Credit accounts receivable

Front 67

Journal entry for notes receivable for recording interest receivable on note

Back 67

Debit interest receivable

Credit interest revenue

Front 68

Journal entry for notes receivable for recording acceptance of note

Back 68

Debit cash

Debit notes receivable

Credit accounts receivable

Front 69

Journal entry for notes receivable for recording interest receivable on note

Back 69

Debit interest receivable

Credit interest revenue

Front 70

Journal entry for notes receivable for recording payment of note

Back 70

Debit cash

Credit interest receivable

Credit note receivable

Credit interest revenue

Front 71

Journal entry for notes receivable for recording acceptance of note

Back 71

Debit cash

Debit notes receivable

Credit accounts receivable

Front 72

Journal entry for notes receivable for recording interest receivable on note

Back 72

Debit interest receivable

Credit interest revenue

Front 73

Journal entry for notes receivable for recording payment of note

Back 73

Debit cash

Credit interest receivable

Credit note receivable

Credit interest revenue

Front 74

Journal entry for aging schedule of accounts receivable for recording allowance for bad debt

Back 74

Debit bad debt expense

Credit allowance for bad debt

Front 75

Journal entry for accounts receivable for recording sales return

Back 75

Debit sales returns allowance

Credit accounts receivable

Front 76

Journal entry for accounts receivable for recording sales return

Back 76

Debit sales returns allowance

Credit accounts receivable

Front 77

Journal entry for accounts receivable for recording sales payment with sales discount

Back 77

Debit cash

Debit sales discount

Credit accounts receivable

Front 78

Journal entry for notes receivables for accepting note

Back 78

Debit cash

Debit notes receivable

Credit service revenue

Front 79

Journal entry for notes receivables for accepting note

Back 79

Debit cash

Debit notes receivable

Credit service revenue

Front 80

Journal entry for direct write off method

Back 80

Debit bad debt expense

Credit accounts receivables

Front 81

Gross account receivable

Back 81

Net account receivable + allowance for bad debts

Front 82

How is accounts receivable reported on balance sheet?

Back 82

Net realizable value

Front 83

How is accounts receivable reported on balance sheet?

Back 83

Net realizable value

Front 84

Sales Returns and Allowances account

Back 84

Contra revenue account

Increased when sales are returned

Temporary account that is zeroed out when a receivable is deemed uncollectible

Front 85

Net realizable value equation

Back 85

Total account receivable -

Allowance for bad debt

Front 86

Cash Over Short

Back 86

If cash is over you credit

If cash is short you debit

Front 87

Allowance Ratio

Back 87

Allowance for bad debts /

Gross accounts receivable

Gross = ending account receivable + allowance for bad debt