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FA_Test3_Ch7-9

Financial Accounting; Test 3; Chapter 7-9

QuestionAnswer
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