ACCT 21 Flashcards

Terms Definitions
accounting
planning, recording, and interpreting financial information
Asset
anything of value that is owned
FIFO
Accounting method of valuing inventory under which the costs of the first goods acquired are the first costs charged to expense
period cost
incurred in office facility
*expensed when incurred
receiving report
document that records details about each delivery, including the date received, shipper, vendor, and purchase order number
Bond
One type of long-term promissory note, frequently issued to the public as a security regulated under federal securities laws
Income statement
A financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period. Also called the statement of operations.
material misstatements
sales to fictitious customers and recording revenue when goods have not bee shipped or no services have been performed
double-entry accounting
the recording of debit and credit parts of a transaction
D) Expand substantive procedures.
What is ordinarily the preferable course of action when an auditor finds a higher than expected deviation rate when sampling controls?A) Triple the size of the sample to further analyze potential problems.B) Project the level of deviation to the entire sample, and if material qualify the audit opinion.C) Continue to selection items from the population until the error rate diminishes to a tolerable level.D) Expand substantive procedures.
If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of goods sold under a periodic system?
(a) $390,000.
manufacturing statement:1. direct materials used in production2. direct labor 3. beginning goods in process inventory4. ending goods in process inventory (define; where in the financial statement)
1. direct materials: (raw materials)
beginning inventory + purchases - ending inventory

2. direct labor - include all direct labor costs incurred during the current period

3. beginning goods in process inventory - carried over from the prior period

4. ending goods in process inventory - contains costs of unfinished goods; reported in the current assets section of the balance sheet
withdrawals
assets taken out of a business for the owner's personal use
C) Substantive procedures
Which of the following is a basic procedure used in an audit?A) Tests of cycles.B) Risk analytic testing.C) Substantive procedures.D) Test of evidential directionality.
c. Proportionate liability
Under securities and Exchange act of 1934 auditors and other defendants are faced with:a. Joint liabilityb. Joint and several liabilityc. Proportionate liabilityd. Limited liability
internal control of revenue
used to ensure all revenue transactions are valid
C) Confirmations to advertising agencies confirming payments.
What audit procedure is not ordinarily used to examine selling, general and administrative expenses? A) Analytical procedures. B) Use of budgets to identify unexpected differences. C) Confirmations to advertising agencies confirming payments. D) Detailed tests of balances.
B. Existence of scienter.
Under Section 10 of the 1934 Securities Exchange Act auditors are liable to security purchasers for:A. Lack of due diligence.B. Existence of scienter.C. Ordinary negligence.D. Auditors have no liability to security purchasers under this act.
The annual operating budget may be divided into __________or ________ budgets.
quarterly or monthly budgets
What is an opportunity cost?
Foregone contribution to operating income by not using a resource in its next best alternative use. 
Sarbanes Oxley Act Sections 404 Auditors
Companies are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting, also assess the effectiveness of such internal controls and procedures.
attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting.
 
ATTESTATION
3. Review of Historical Financial Statements
Mgmt. asserts that the statements are fairly stated in accordance with GAAP, the same as for audits.
c) Individual who signs the checks
To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the:a) Authorized members of the audit committeeb) Accounting departmentc) Individual who signs the checksd) Chief executive officer
A) Conclude the book value is materially misstated and the projected misstatement is $150,000
In the course of auditing accounts receivable, the auditors calculated the estimated total audited value ($3,100,000), the allowance for sampling risk ($100,000), and the tolerable misstatement ($175,000). If the book value of accounts receivable is $3,250,000, what is the audit conclusion and projected misstatement?A) Conclude the book value is materially misstated and the projected misstatement is $150,000.B) Conclude the book value is materially misstated and the projected misstatement is $50,000.C) Conclude the book value is not materially misstated and the projected misstatement is $150,000.D) Conclude the book value is not materially misstated and the projected misstatement is $50,000.
Contribution Margin Ratio
CM Ratio = Total CM / Total sales (x) $80,000/ $200,000 = 40%. Each $1 increase in sales results ina total contribtuion margin increase of $0.40
A. The shareholders of the corporation whose financial statements were examined.
Which of the following would be most likely to be an appropriate addressee for an audit report? A. The shareholders of the corporation whose financial statements were examined.B. A third party who requested that a copy of the audit report be sent to her.C. The president of the corporation whose financial statements were examined.D. The chief financial officer.
A/R receives the ledger copy of the sales order, updates the A/R subsidiary ledger, every customer has an account record in the account A/R subsidiary ledger, periodically the individual account balances are summarized and sent to G/L
Revenue cycle activity: sales order procedure: updating iventory records
A. It applies equally to a complete set of financial statements and to each individual financial statement.
Which of the following best describes the reference to the expression "taken as a whole" in the fourth generally accepted auditing standard of reporting?A. It applies equally to a complete set of financial statements and to each individual financial statement.B. It applies only to a complete set of financial statements.C. It applies equally to each item in each financial statement.D. It applies equally to each material item in each financial statement.
What the impact of increasing taxes on the breakeven point?
 
Since income is 0 at breakeven, the taxe rate has no effect on the breakeven point

 
b) Auditors, as a result of the specialist's findings, give a qualified opinion on the financial statements
In using the work of a specialist, the auditors referred to the specialist's findings in their report. This would be an appropriate reporting practice if the:a) Client is not familiar with the professional certification, personal reputation, or particular competence of the specialistb) Auditors, as a result of the specialist's findings, give a qualified opinion on the financial statementsc) Client understands the auditors' corroborative use of the specialist's findings in relation to the representations in the financial statementsd) Auditors, as a result of the specialist's findings, decide to indicate a division of responsibility with the specialist
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