ACCT - Exam 2 Flashcards

Terms Definitions
cogs/avg inv
Generally Accepted Accounting Principles --- set by the FASB and followed in the U.S. ("rules based").
activities provide post-sale support to customers

žCombines legal protection of corporate form without the double-taxation

žSmall corporations can elect to be taxed as an S-Corporation

—Corporate income reported on owners’ personal tax returns

—Corporate earnings must be distributed based on percentage owned
A record summarizing all the information pertaining to a single item in the accounting equation
anything of value that is owned
Processing Controls
Error-condition check routines written into the computer program
The primary control objective that suggests you audit from the financial statements back to the source documents
a diagrammatic representation of the client's documents and records and the sequence in which they are processed
state's permission to sell shares of stock
vendor managed inventory
when manufacturers and distributors manage a retail customer's inventory using an EDI
Operating Assets
i.e. = Land, buildings, equipment, inventories of unsold products.
o Inbound logisticso Operationso Outbound logisticso Marketing and saleso Service
5 primary activities of value chain:
Which department 2nd part of the revenue cycle
Trial Balance
Based on liquidity of the asset
ABC Company
Trial balance
Dec 31 2011
Account Dr Cr
Cash  100
Accts Rec 300
Equipment 200
Accts. Pay 300
Common Stock 200
Retained Earnings 50
Service Rev 100
Salary Expense 50
Totals should equal
Constitution - Article I
Legislative Powers (senate and House)
T account
An accounting device used to analyze transactions
financial rights to the assets of a business
assignment of income doctrine
prevents taxpayers from arbitrarily transferring the taxation on their income to to thers
needs based
this strategy focuses on serving most of the needs of a particular group of customers in a target market
B. Differences between reconciliations of control accounts and subsidiary records are not investigated
52. Which of the following circumstances most likely would cause an auditor to suspect that material misstatements exist in a client's financial statements?A. The assumptions used in developing the prior year's accounting estimates have changed.B. Differences between reconciliations of control accounts and subsidiary records are not investigated.C. Negative confirmation requests yield fewer responses than in the prior year's audit.D. Management consults with another CPA firm about complex accounting matters.
Benefit From LIFO

Minimizes net income and income taxes; reduces cash paid for taxes
Independent Auditors
CPAs or accounting firms that perform audits of commercial and non-commercial financial entities
Employee Fraud
The use of fraudulent means to take money or other property from an employer. Consists of 3 phases:
1. The fraudulent act
2. Conversion of money or property to the fraudster's use
3. Cover-up
Normal Operating Cycle
Period of time required to acquire services/materials to create a product/service, to sell to a customer, who pays (thus supplying cash), starting the cycle over again.
someone outside the sales department
who should approve all returns?
D. Preparation of system flowcharts
94. Which of the following audit techniques ordinarily would provide an auditor with the least assurance about the operating effectiveness of an internal control activity?A. Inquiry of client personnelB. Inspection of documents and reportsC. Observation of client personnelD. Preparation of system flowcharts
C. Discover expenditures that were expensed but should have been capitalized
57. An auditor's principal objective in analyzing repairs and maintenance expense accounts is to:A. Determine that all obsolete property, plant, and equipment assets were written off before year-endB. Verify that all recorded property, plant, and equipment assets actually existC. Discover expenditures that were expensed but should have been capitalizedD. Identify property, plant and equipment assets that cannot be repaired and should be written off
Internal Document
a document, such as an employee time report, that is prepared and used within the client's organization
post-closing trial balance
A statement that is prepared to prove the equality of total debits and credits after the closing process in completed. Chapter 6 Vocabulary
Who must sign all the checks?
An officer of the company.
1 to A/P2 purchasing3 filed in receiving
copies of receiving report
D. Classification, and Valuation & Allocation
46. An auditor scans a client's investment records for the period just before and just after the year end to determine that any transfers between categories of investments have been properly recorded. The primary purpose of this procedure is to obtain evidence about management's financial statement assertions ofA. Rights & Obligations, and Existence & OccurrenceB. Valuation & Allocation, and Rights & ObligationsC. Existence & Occurrence, and ClassificationD. Classification, and Valuation & Allocation
Control Risk Matrix
a methodology used to help the auditor assess control risk by matching key internal controls and internal control deficiencies with transaction-related audit objectives
Why do companies want to report steadily increasing income for future years?
It increases the stock price.
innovation and learning; internal, customer, financial
Which of the following shows the implied linkages among the portions of the balanced scorecard?
D. Management's refusal to furnish written representations
7. An auditor most likely would issue a disclaimer of opinion because of:A. Inadequate disclosure of material informationB. The omission of the statement of cash flowsC. A material departure from GAAPD. Management's refusal to furnish written representations
What is Current Ratio?
Details the ability of the firm to pay its currently due obligation.
separate check preparation and check signing functions
good control procedure to ensure that payments are valid
B. Issue an unqualified opinion with no reference to this omission but be prepared to defend the action
23. When an auditor of financial statements does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should:A. Issue an unqualified opinion, but disclose elsewhere in the report this departure from a customary procedure.B. Issue an unqualified opinion with no reference to this omission but be prepared to defend the action.C. Issue a qualified opinion or a disclaimer, depending on the materiality of the receivables.D. Issue an adverse opinion.
Expenditures for insurance and similar services extending over more than one accounting period (prepayments) need not be allocated between or among accounting periods but
maybe accounted for as expenditures of the period of acquisiton.
prepare checks only for invoices that have been matched to receiving reports and purchase orders
good control procedure to ensure that organizations pay only for goods ordered and received
A. May accept the engagement because such engagements merely involve limited reporting objectives
70. An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor: A. May accept the engagement because such engagements merely involve limited reporting objectives.B. May accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary.C. Should refuse the engagement because there is a client-imposed scope limitation.D. Should refuse the engagement because of a departure from generally accepted auditing standards.
The process and/or the product design changes
How long can you rely on the relationship between the cost and driver?
Which of the following statements about a journal is FALSE?
a. it is not a book of original entry
b. It provides a chronological record of transactions
c. It helps to locate errors because the debit and credit amounts for each entry can be readily
a. it is not a book of original entry
What is the meaning, purpose and use of: debt ratio
the measure of overall ability to pay debts
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