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FA_Test3_Ch7-9
Financial Accounting; Test 3; Chapter 7-9
| Question | Answer |
|---|---|
| A ____ is a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer. | fraud |
| Facts that contribute to fraud are (3): | Opportunity, Financial Pressure, & Rationalization |
| ____ is the most important element of the fraud triangle. When workplace environments lack sufficient controls to deter & detect fraud, employees can take advantage of the company. | Opportunity |
| __ ___ is when employees commit fraud due to too much debt, need to lead a lifestyle beyond their current salary, etc. | Financial Pressure |
| ___ is when employees try to justify fraud because they believe they deserve to be paid more. | Rationalization |
| The Sarbanes Oxley-Act internal control requirements are (5): three are listed here | Companies pay attention to internal control; Corporate executives & Board of directors ensure that internal controls are reliable & effective; Sound principles of control over financial reporting... |
| The Sarbanes Oxley-Act internal control requirements are (5): two are listed here | Continual assessment to ensure that controls are working; In addition, independent, outside auditors must asset to the level of internal control. |
| The Internal Control components are (5): | A control environment, Risk assessment, Control activities, Information & communication, & Monitoring. |
| _ __ __ means that top management must make it clear that the organization values integrity & unethical activity will not be tolerated. | A control environment |
| __ ___ means that the company must identify & analyze the factors that create risk & determine how to manage these risks. | Risk assessment |
| ___ ___ means that management must design policies & procedures to address risks. | Control activities |
| __ __ ___ means that the system must capture & communicate all pertinent information to appropriate parties. | Information & communication |
| ___ means that they system must be monitored periodically to asset its adequacy. | Monitoring |
| The principles of control activities are (6): | Establishment of responsibility, Segregation of duties, Documentation procedures, Physical controls, Independent internal verification, & Human resource controls. |
| The __ __ __ is an essential characteristic of internal control. It's most effect when only 1 person is responsible for a given task & often requires limiting access only to authorized personnel, & identify those personnel. Only treasurer can sign checks. | Establishment of responsibility |
| __ __ __ means that the responsibility for related activities should be assigned to different individuals to reduce errors/irregularities. Different individuals approve disbursements, make payments, etc. Check signers are not allowed to record cash. | Segregation of duties |
| __ __ provide evidence that transactions & events have occurred. Require the use of pre-numbered checks & account for them in sequence; each check must have approved invoice; requires employees to use corporate credit cards for reimbursable expenses. | Documentation procedures |
| The use of __ __ is essential & relate to the safeguarding of assets such as: safes, vaults, & safety deposit boxes; locked warehouses & storage cabinets; computer facilities; alarms; tv monitors & garment sensor; time clocks; indelible ink. | Physical controls |
| Most systems of internal control provide for __ __ __. This principle involves the review, comparison, & reconciliation of data prepared by employees. It is often assigned to internal auditors. Daily cash counts are made by department supervisors. | Independent internal verification |
| __ __ __ include: bonding employees that handle cash, rotating employees' duties, requiring employees to take vacations, & conducting thorough background checks. All cashiers are bonded. | Human resource controls |
| Know the steps to bank reconciliation, what to deduct/add per bank/book balance. | look at study guide!* |
| __ is recorded in both the balance sheet & statement of cash flow. The balance sheet reports this amount available at a given point in time: on hand, in bank, & petty. The statement of cash flow shows the source & use of it during a period of time. | Cash |
| __ __ are highly liquid investments that can be converted into specific amounts & typically have matures of three months/less when purchased. | Cash equivalents |
| Three parties to a check are: | Marker, Bank (payer), & Payee. |
| The ___ is the drawer who issues the check. | Marker |
| The __ (payer) is on which the check is drawn. | Bank |
| The __ is to whom the check is payable. | Payee |
| __ __ __ (EFT system) is a disbursement system that uses wire, telephone, telegraph, or computer to transfer cash from one location to another. | Electronic Funds Transfer |
| The different types of receivables are (3): | Accounts Receivable, Notes Receivable, & Other Receivables. |
| __ __ is amounts owed by customers on account. | Accounts receivable |
| Three primary accounting issues that are associated with accounts receivable are: | Recognizing, Valuing, & Disposing of accounts receivable. |
| __ __ are claims for which formal instruments of credit are issued. | Notes receivable. |
| __ __ are non-traded. Examples are interest receivable & advances to employees. | Other receivables |
| Under the __ __-__ __, bad debt losses are not anticipated, & no allowance account is used; Bad Debt Expense will show only actual losses from uncollectible; & unless bad debt losses are insignificant, this method is not acceptable for reporting purposes. | Direct Write-off Method |
| __ __ __ are credit losses as debits to it/Uncollectible Accounts Expense. Such losses are a normal & necessary risk of doing business on a credit base. | Bad Dept Expense |
| The __ __ is required for financial reporting purposes by the GAAP when bad debts are deemed to be material in amount & involves estimating uncollectible accounts at the end of each period. | Allowance Method |
| The __ __ excludes amounts that the company estimates it will not collect. Thus, this method reduces receivables in the balance sheet by the amount of estimated uncollectible receivables. | Allowance Method |
| Companies sell receivables for two major reasons: | 1.) They may be the only reasonable source of cash. 2.) Billing & collection are often time-consuming & costly. |
| When the life of a note is expressed in terms of months, you find the __ __ by counting the months from the date of issue. | Maturity date |
| The __ __ specified in a note is an annual rate of interest. | Interest rate |
| To find interest, you must follow this formula: | Face Value of Note X Annual Interest Rate X Time in Terms of One Yr = Interest |
| __ __ is a negotiable instrument that can be transferred to another party by endorsement. | Notes receivable |
| In the balance sheet, short-term receivables are reported in the __ __ section below short-term investments (report both the gross amount of receivables & the allowance for doubtful accounts). | current assets |
| __ ___ are computed to value the liquidity of a company's accounts receivable. | Financial ratios |
| The __ __ __ __ is used to assess the liquidity of the receivables. | accounts receivable turnover ratio |
| Companies use one of two methods in the estimation of uncollectible: | Percentage of Sales & Percentage of Receivables |
| __ __ __ matches Sales to Bad Debt Expense on the Income Statement & this approach better matches expenses with revenues. | Percentage of Sales |
| __ __ __ emphasizes the cash realizable value between Accounts Receivable & Allowance for Doubtful Accounts on the Balance Sheet. | Percentage of Receivables |
| Actual uncollectible are debited to __ __ __ __ & credited to __ __. | Allowance for Doubtful Accounts; Accounts Receivable |
| Estimated uncollectible are debit to __ __ __ & credited to __ __ __ __. | Bad Debts Expense; Allowance for Doubtful Accounts |
| __ is the only plant asset that is not deprecated. | Land |
| __ __ includes: cash purchase price, closing costs such as title & attorney's fees, real estate brokers' commissions, & accused property taxes & other liens on the land assumed by the purchaser. | Land cost |
| __ __ __ includes: parking lots, fencing, lighting, & landscaping. | Land improvement cost |
| __ __ includes: cash purchase price, certain related cost, sales tax, freight charges, & insurance paid by the purchaser during transit. | Equipment cost |
| To computer the annual rate of deprecation, follow this formula: | 100% / years = annual rate of deprecation |
| To compute the double declining balance rate, follow this formula: | 100% / years * 2 = double declining rate |
| Under the __ __ __, depreciation is the same for each year of the asset's useful life & is measured solely by the passage of time. | Straight-line method |
| Follow this formula to compute straight-line method: | Cost - Salvage Value = Depreciable cost / Useful Life (years) = Annual Deprecation Expense |
| Under the __-__-__ __, useful life is expressed in terms of the total units of production/the expected use from the asset. It is often difficult to make a reasonable estimate of total activity & used when productivity varies significantly. | Units-of-activity method |
| Follow this formula to compute the units-of-activity method: | Depreciable costs / Total Units of Activity = Depreciable Cost per Unit X Units of Activity during the Year = Annual Deprecation Expense |
| The __-__ __ produces a decreasing annual deprecation expense over the asset's useful life & is compatible with the matching principle because the higher deprecation in early years is matched with the higher benefits received in these years. | Declining-balance method |
| Follow this formula to compute the declining-balance method: | Book Value at Beginning of Year X Declining-Balance Rate = Annual Depreciation Expense |
| Companies dispose of __ __ that are no longer useful to them. Whether it is sold or retired, the company must determine the book value of it at the time of disposal. | plant assets |
| __ __ are rights, privileges, & competitive advantages that result from the ownership of long-lived assets that do not possess physical substance. They may arise from government grants, acquisition of another business, & private monopolistic arrangements. | Intangible assets |
| Intangible assets include (5): | Patents, Copyrights, Trademarks, Franchise, & Goodwill |
| A __ is an exclusive right issued by the office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of grant. | Patent |
| A __ are grants from the federal government, giving the owner the exclusive right to reproduce & sell an artistic or published work. | Copyrights |
| A __ or __ __, is a word, phrase, jingle, or symbol that identifies a particular enterprise or product. | Trademark, or trade name |
| A ___ is a contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, render specific services, or use certain trademarks or trade names, usually restricted to a designated geographical area. | Franchise |
| __ is the value of all favorable attributes that relate to a business enterprise, includes: exceptional management, desirable location, good customer relations,&skilled employees. It cannot be sold individually & is not amortized. Largest intangible asset | Goodwill |
| ___ is the process of allocating the cost of a plant asset to expense in a rational & systematic manner. | Deprecation |
| ___ is the process of allocating the cost of a natural resource to expense in a rational & systematic manner. | Depletion |
| The formula to compute depletion is as follows: | Total Cost minus Salvage Value / Toal Estimated Units = Depletion Cost per Unit X Number of Units Extracted & Sold = Annual Depletion Expense |
| __ is the process of allocating the cost of intangible asset to expense in a rational & systematic manner. | Amortization |
| Know how Land, Land Improvements, Equipment, Natural Resources, & Intangible assets are presented on the Balance Sheet. | look at notes! |
Created by:
ibenoit95
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