Acct 7 Flashcards

Terms Definitions
journalizing
Recording transactions in a journal
receipt
A business form giving written acknowledgment for cash received
journal
A form for recording transactions in chronological order
source document
A business paper from which information is obtained for a journal entry
double-entry accounting
The recording of debit and credit parts of a transaction
proving cash
Determining that the amount of cash agrees with the accounting records
memorandum
A form on which a brief message is written describing a transaction
general amount column
A journal amount column that is not headed with an account title
ERP
Enterprise resources planning
fields
records are com,posed of :
Matching
when revenue is recorded, this requires associated expenses to be created in the same period
Liability
An economic obligation (a debt) payable to an individual or an organization outside the business.
account title
the name given to an account
D) $70,000
A client's previous two years of financial statements understated estimated warranty payable by $15,000 and $25,000 respectively, immaterial amounts. This year the auditors estimate that the accrual is understated by an additional $30,000. In this year's audit $50,000 represents a material amount. Assuming that the entire understatement is to be recorded, following SEC SAB 108 the decrease in this year's income due to these understatements is A) $0 B) $30,000 C) $55,000 D) $70,000
Revenue Cycle (2 subsystems)
physical component: Sales order processing system
financial component: cash reciepts system
Infrmation System Models

manual process usually paper based performed by people,facilitates understanding internatl controls 
flat file associated with legacy systems, indiviual own their data files rather than share
business cycles
a group of related business processes; the cycles are sales, purchasing, production, human resource and payroll, and financing
How often must public companies prepare and issue FS's to shareholders and SEC?
every 3 months
Adverse Opinion
Expression of an opinion in an auditor's report which states that financial statements do not fairly present the financial position, results of operations and cash flows in conformity with GAAP
Net income
Excess of total revenues over total expenses. Also called net earnings or net profit.
COGS =
unit cost x # of units sold
What is the most likely cost behavior for direct material?
Variable
Accumulated Depreciation (Contra Account)
Total depreciation pertaining to an asset or group of assets from the time the assets were placed in service until the date of the financial statement or tax return.
verifys accuracy and completeness of checks against remittance list,records checks in cash journal,prepares bank deposit slip(bank vaildates/return to company for reconcilation)summarizes the journal entries and sends journals to G/L
Computer- Based Accounting Systems
Margin of Safety
The excess of budgeted (or actual) sales over the break-even volume of sales. Margin of Safety = Total sales - Break-even sales
Redemption Value
Price to be paid by an entity to retire its bonds or preferred stock
What are the subdivisions under Liabilities?
Current Liabilities & Long-term Liabilities
Fixed cost per Unit
Goes down as activity level goes up.
B. Unqualified opinion and an explanatory paragraph.
The management of Stanley Corporation has decided not to account for a material transaction in accordance with the provisions of a recent statement of the FASB. They have set forth their reasons in note "B" of the financial statements, which clearly demonstrates that due to unusual circumstances the financial statements would otherwise have been misleading. The auditors' report on the financial statements will probably contain a(an): A. Qualified opinion and an explanatory paragraph with a reference to note "B".B. Unqualified opinion and an explanatory paragraph.C. Adverse opinion and an explanatory paragraph.D. "Except for" opinion and an explanatory paragraph.
What are some examples of long-term liabilities?
Mortgages Payable, long-term notes, bonds payable, employee pension, & long-term lease liabilities
Equivalent units of production
The product of the number of partially completed units and the percentage completeion of those units.
C. Based on audit procedures performed, assess whether there is substantial doubt about the entity's ability to continue as a going concern.
Which of the following is most accurate with respect to a CPA's responsibility in considering a going concern question on financial statement audits? A. Perform analytical procedures aimed particularly at assessing whether bankruptcy is probable.B. Issue a report with a "going concern" modification when failure is at least reasonably probable.C. Based on audit procedures performed, assess whether there is substantial doubt about the entity's ability to continue as a going concern.D. Determine that related uncertainties are properly disclosed and make no mention in the audit report.
A) Are financial reporting operations controlled by and limited to one location?
Which of the following is least likely to be included in an auditor's inquiry of management while obtaining information to identify the risks of material misstatement due to fraud?A) Are financial reporting operations controlled by and limited to one location?B) Does it have knowledge of fraud or suspect fraud?C) Does it have programs to mitigate fraud risks?D) Has it reported to the audit committee the nature of the company's internal control?
In the high-low method, which data points should be used?
the highest and lowest level of activity. these points define the relevant range of the cost function
 
C) Omitting tests of controls for several major accounts
Which of the following is least likely when an auditor performs an integrated audit of a public company's financial statements?A) Issuing an audit report on internal control over financial reporting.B) Issuing an audit report on the financial statements.C) Omitting tests of controls for several major accounts.D) Performing tests of internal control design effectiveness.
What are three signs that a company might need a refined cost system?
 
1. Increase in product diversity
2. Increase in indirect costs
3. Competition

 
A. That the audit was performed in accordance with GAAS.
Dexter and Co., CPAs, issued an unqualified opinion on the 20X3 financial statements of Bart Corp. Late in 20X4, Bart determined that its treasurer had embezzled over $1,000,000. Dexter was unaware of the embezzlement. Bart has decided to sue Dexter to recover the $1,000,000. Bart's suit is based upon Dexter's failure to discover the missing money while performing the audit. Which of the following is Dexter's best defense? A. That the audit was performed in accordance with GAAS.B. Dexter had no knowledge of the embezzlement.C. The financial statements were presented in conformity with GAAP.D. The treasurer was Bart's agent and as such had designed the controls which facilitated the embezzlement.
C. The CPA probably is liable to any person who suffered a loss as a result of the fraud.
Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements? A. The CPA is liable only to third parties in privity of contract with the CPA.B. The CPA is liable only to known users of the financial statements.C. The CPA probably is liable to any person who suffered a loss as a result of the fraud.D. The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion.
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