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Unformatted text preview: BMGT 220 EXAM #2 Study Guide CH-6 1. FOB Shipping point / FOB Destination, consigned goods 2. Cost flow assumptions (Under inflation) i. FIFO Advantage: Ending inventory cost approximates current cost Higher net income Parallels the actual physical flow of merchandise inventory Disadvantage: Higher income tax Cost of goods sold underestimated Income statement/gross profit overestimated ii. LIFO Advantage: lower income tax Cost of goods sold approximates current cost Accurate income statement/gross profit Disadvantage Ending inventory underestimated Lower net income Does not parallels the actual physical flow of merchandise inventory iii. Average-cost 3. Lower-of-cost-or-market 4. Error in 1 st years ending inventory 1 st year net income/ = 2 nd year net income / Net income (1 st +2 nd ) is correct Correct: 2 nd year ending inventory and stokehold equity Incorrect: Both years cost of goods sold, gross profit, and net income 5. Errors effect (in one year) Beginning inventory ~ Ending inventory ~ COGS ~ Income statement/Equity/Asset / / / / / / CH-7 1. Fraud Opportunity + Financial Pressure + Rationalization Predict how fraud occurs 2. Sarbanes-Oxley Act, to prevent and detect fraud ; appears to be effective 3. Internal control - 5 components, to safeguard assets 4. Internal control activity 6 principles 5. Over the counter receipts-Segregation of responsibility Cash XXX Cash over and short XXX Sales revenue XXX 6. Voucher system control check 7. Pretty cash-cash, small amount a. Establish the found: Pretty cash XXX Cash XXX b. Payment and replenishment (DOES NOT CHANGE BALANCE) : Expense XXX Miscellaneous expense XXX Cash over and short XXX Cash XXX Sum of receipts should equal to replenishment, except cash over and short; cash over and short is reported as miscellaneous expense. c. Increase fund balance (ONLY NEED TO RECORD WHEN TO CHANGE BALANCE) Pretty cash XXX Cash XXX 8. Use of a bank I. Bank account reconciliation a. Per bank: Add: Deposit in transit Less: Outstanding check (Bank errors) b. Per book: Add: Collect notes receivable / interest Less: Various bank service charge; Note collection fee; NSF check (Book errors) Adjusted cash balance per bank = Adjusted cash balance per book II. Journal of cash balance (recorded by depositor only) a. Note receivable collected by bank: Cash XXX Miscellaneous expense XXX (note collection fee) Interests revenue XXX Note receivable...
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This note was uploaded on 09/25/2011 for the course BMGT 220 taught by Professor Bulmash during the Spring '08 term at Maryland.
- Spring '08