ACCT 13 Flashcards

Terms Definitions
prime costs
dm dl costs
transaction
a activity that changes assets, liabilities, or owner's equity
Double-Entry Bookkeeping
Method of recording financial transactions in which each transaction is entered in two or more accounts and involves two-way, self-balancing posting.
Another Word for Principle Amount
Face Value
accounting system
a planned process for providing financial information that will be useful to management
General Partnership
A partnership with no limited partners
B. $200,000
Bran, CPA, audited Frank Corporation. The shareholders sued both Frank and Bran for securities fraud under the Federal Securities Exchange Act of 1934. The court determined that there was securities fraud and that Frank was 80% at fault and Bran was 20% at fault due to her negligence in the audit. Both Frank and Bran are solvent and the damages were determined to be $1 million. What is the maximum liability of Bran? A. $0B. $200,000C. $500,000D. $1,000,000
Typically, top managers initiate the budgeting process by issuing ____ ____
profit targets.
Deferred Revenue
Revenue is recognized after cash is received
transaction cost economics
focuses on the transaction--goods and service transferred across a technologically separate interface--as the basic unit of analysis
Control Activities
Policies and procedures to ensure that the appropriate actions are taken in response to identified risks
Turnaround Document
the product document of one system that becomes the source document for another system
partnership
the state or condition of being a partner; participation; association; joint interest.
a) Confirmation
In an audit, the valuation of year-end accounts payable is most likely addressed by:a) Confirmationb) Examination of cash disbursements immediately prior to year-endc) Examination of cash disbursements immediately subsequent to year-endd) Analytical procedures applied to vouchers payable at year-end
Expenditure cycle (4 subsystems)
Purchase system: acquisition of raw materials and inventory
Cash disbursement system: cash payments
Payroll System: acquisition of labor and paying salaries
Fixed Asset System: acquisition of long-term plant and equipment and (long-term) payments
effect of account write-offs using the Allowance Method
Decreases Contra AssetsIncreases Assets *No Effect*
Break Even Point
sales level at which a company earns neither a profit nor incurs a loss
2 Data flow diagram 
Context diagram - one process and external entities
lowered-level DFD - describes the flow of data within the main process of the system
monitoring and identifying needs as inventory levels decreases, then place order, purchase requistion is prepared and copies sent to A/P and purchasing,which prepares Purchasing Order for venders and sends copy to inventory control, A/P and receiving
Expenditure Cycle Activities Receiving the order
debit income summary; credit Merchandise Inventory
The entry to journalize the adjustment for merchandise inventory at the end of a fiscal period when ending merchandise inventory is smaller then the beginning is
C) The assessment of inherent risk
The results of the consideration of internal control are least likely to affect the auditors' decisions pertaining to:A) The use of analytical procedures.B) The assessment of control risk.C) The assessment of inherent risk.D) Detailed tests of ending balance.
Current liability
A debt due to be paid within one year or within the entity's operating cycle if the cycle is longer than a year.
What 2 assumptions are used in estimating cost functions?
 
Variations in a single activity (cost driver) explains the variations in costs
within the relevant range of activity, cost behavoir is linear
 
a) Misstatement of inventory; inventory obsolescence problem
Which of the following is a potential misstatement when comparing inventory levels for the current year to those of prior years?a) Misstatement of inventory; inventory obsolescence problemb) Misclassification of research and development expensesc) Misstatement of sales or accounts receivable; misstatement of the allowance for uncollectible accountsd) Understatement of liabilities; misstatement of interest expense
COSO five control components: Control Activities
POlicies and procedures to ensure that the appropriate actions are taken in response to identify riks

physical controls 
IT controls
a) A property, plant, and equipment cutoff error near year-end has a more significant effect on net income
Which of the following statements is not typical of property, plant, and equipment as compared to most current asset accounts?a) A property, plant, and equipment cutoff error near year-end has a more significant effect on net incomeb) Relatively few transactions occur in property, plant, and equipment during the yearc) The assets involved with property, plant, and equipment ordinarily have relatively longer livesd) Property, plant, and equipment accounts typically have a higher dollar value
D. Either ordinary or gross negligence.
An auditor knew that the purpose of her audit was to render reasonable assurance on financial statements that were to be used for the application for a loan; the auditor did not know the identity of the bank that would eventually give the loan. Under the foreseeable third party approach the auditor is generally liable to the bank which subsequently grants the loan for: A. Lack of due diligence.B. Lack of good faith.C. Gross negligence, but not ordinary negligence.D. Either ordinary or gross negligence.
a) Detect accounts payable that are substantially past due
An audit of the balance in the accounts payable account is ordinarily not designed to:a) Detect accounts payable that are substantially past dueb) Verify that accounts payable were properly authorizedc) Ascertain the reasonableness of recorded liabilitiesd) Determine that all existing liabilities at the balance sheet date have been recorded
What does cost of goods manufactured represent?
the cost associated with units that were completed in the period
How do we trace direct costs in a job cost system?
Direct material is generally traced with material requisition forms while direct labor is traced with time cards
intercompany comparison
two different companies
Proprietorship
a business owned by one person
Accelerated Depreciation
Method that records greater depreciation than straight-line depreciation in the early years and less depreciation than straight-line in the later years of an asset's holding period
segment
unit that is clearly physically, operationall and for fin reporting purposes
-represent either separate major line of business or line of customers
nonvoucher system
method for processing accounts payable to which each approved invoice is posted to individual vendor records in the accounts payable file and is then stored in an open invoice file; when check is written to pay for an invoice, the invoice is removed form the open invoice file, marked PAID ad stored in paid invoice file
Beta Coefficient
Measure of a stock's relative volatility
Financing activities
Activities that obtain form investors and creditors the cash needed to launch  and sustain the business; a section of the statement of cash flows.
customer statement
mailed to customer and contains details of all sales, cash receipts and credit memorandum transactions
equities
financial rights to the assets of a business
c) 4%
Auditors have assessed risk for a certain assertion as: Inherent risk (50%) and Control risk (40%); Auditors have performed audit procedures that they believe have a 20% risk of failing to detect a material misstatement. Given this situation, how much material misstatement has occurred and escaped both the client's controls and auditors' detection?a) 2%b) 8%c) 4%d) 20%
consolidate
combine and display the data in one sheet; summzarize similar data that exists in different sheets or workbooks
the A/P searches the open vochers payable for items with apyments due, A/P sends the vocher and supporting docs to cash dis., cash dis;prepares the check records the info in the check ledger, returns paid vochers to A/P then check to the supplier
CBS purchases
business Ethics
The use of ethics in making business decisions
C. Adverse opinion.
A scope restriction is least likely to result in a(an): A. Qualified opinion.B. Disclaimer of opinion.C. Adverse opinion.D. Standard unqualified opinion.
D. Proportional liability.
Assume that $500,000 in damages are awarded to a plaintiff, and the CPA's percentage of responsibility established at 10%, while others are responsible for the other 90%. Assume the others have no financial resources. The CPA has been required to pay $50,000. The auditor's liability is most likely based upon which approach to assessing liability? A. Absolute liability.B. Contributory negligence.C. Joint and several liability.D. Proportional liability.
credit memorandum
used to record credits for the return of goods by a customer
3 types of agency costs
1. information asymmetries (limited or misinformed info by one side) 2. adverse selection (such as the market for lemons) 3. moral hazard (such as shirking or ethics violations)
b. The Rosenblum approach
Which of the following approaches to auditors’ liability is least desirable from the CPA’s perspective?a. The Ultramares approachb. The Rosenblum approachc. The Restatement of Torts approachd. The Foreseen User approach
ATTESTATION
4. Attestation Services on Information Technology
Mgmt. makes various assertions about the reliability and security of electronic information.
-WebTrust Svc
-SysTrust Svc
Are all inventoriable cost manufacturing cost? 
No. Merchandinsing firms have inventoriable cost but no manufacturing costs
In TPS, similar types of transactions three transaction cylces
the expenditure cycle: business activities begin with the acquisition of materials, property, and labor
the conversion cycle: manufacturing firms convert raw materials into finished products. This cycle is not observable in service and retailing industries.
the revenue cycle: firms sell finished goods to customers
receives the stock release document from billing, then pdates the sudsidiary ledger accounts, financial value of the reduction in inventory is summarized in a journal vocher and sent to the G/L function
Revenue cycle activity: sales return procedure, receiving dept
c) Transactions that occurred during the year
For the audit of a continuing nonpublic client, the emphasis of the testing for property accounts is on:a) All transactions resulting in the ending balanceb) Tests of controls over disposalsc) Transactions that occurred during the yeard) Performing analytical procedures on beginning balances of the accounts
A) The maximum misstatement that may exist without causing an account to be materially misstated
What is the best description of "tolerable misstatement" for mean-per-unit estimation?A) The maximum misstatement that may exist without causing an account to be materially misstated.B) The "bounds" around the sample mean that we would expect the value to fall within to be correct.C) The "projected" misstatement in the population based upon the sample chosen.D) The upper limit (or lower limit for liabilities) of asset values for which the book value may exceed that sample mean without being materially misstated
Advantages/ disadvantages of a high fixed cost structure
(advantage) Income will be higher in good years compared to companies with lower proportion of fixed costs. (disadvantage) Income will be lower in bad years compared to companies with lower proportion of fixed costs.
D. Inquiring of the entity's legal counsel about litigation, claims, and assessments.
Which of the following procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? A. Performing cutoff tests of sales transactions with customers with long-standing receivable balances.B. Evaluating the entity's procedures for identifying and recording related party transactions.C. Inspecting title documents to verify whether any real property is pledged as collateral.D. Inquiring of the entity's legal counsel about litigation, claims, and assessments.
What series of transactions take place during the operating cycle of a merchandising business?
Purchase, Pay for, Sell, & Collect Payment for: Merchandise Inventory
B. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unqualified opinion on the financial statements.
CPA Firm A has performed most of the audit of Consolidated Company's financial statements and qualifies as the principal auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume full responsibility for Firm B's work. Which of the following statements is correct?A. Such assumption of responsibility violates the profession's standards.B. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unqualified opinion on the financial statements.C. In such circumstances, when appropriate requirements have been met, Firm A should issue an unqualified opinion on the financial statements but should make appropriate reference to Firm B in the audit report.D. CPA firm A should normally qualify its audit report on the basis of the scope limitation involved when another CPA firm is involved.
What are the assumptions of CVP analysis?
 
 Changes in revenue and costs are due to changes in volume
 
 Cost can be separated into fixed and variable costs
 
 Total costs and revenues are linear
 
 Selling price, variable cost pr unit, total fixed cost are constant
and known. 
 
D. Each of the years in the two-year period.
For a continuing audit client, when a complete set of financial statements is presented on a comparative basis for two years, the auditors' opinion would refer to: A. Only the current year under audit.B. Either one or both years at the option of the auditors.C. Each of the two years plus the preceding year.D. Each of the years in the two-year period.
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