ACCT Quiz 2 Flashcards

Terms Definitions
Permanent Accounts
Common Stock 
Retained Earnings
Not Closed- Balances carry to next period. 

žSimilar to proprietorship, except has two or more owners

žBusiness income is divided among partners

—Partners are taxed on share of income on their personal tax returns
(a.k.a. "non-operating" assets) Assets not used directly in operations or for which company does not have majority ownership.
13th Amendment
No slavery or involuntary servitude
retained earnings
capital earned through profitable operation of the business
define assets
resources owned by a business
Accounting Cycle
1) Analyze transactions2) Prepare journal entries and post to ledger arrounct3) Prepare trial balance4) Prepare adjusting entries, record in journal and post to ledger5) Prepare adjusted trial balance6) Prepare financial statements7) Prepare closing entries and post to ledger8) Prepare post-closing trial balance
D. Sample size
122. A principal advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide a scientific basis for planning theA. Risk of assessing control risk too lowB. Expected population deviation rateC. Tolerable rateD. Sample size
falsely making or altering a document with the intent to defraud another
An amount recorded on the left side
How much is Social Security tax?
15.3 percent
Are the characters from Walt Disney still protected by copyright?
which technique is the most efficient way to process customer payments and update accounts receivable?
B. Individual invoices
109. In confirming a client's accounts receivable in prior years, an auditor found that there were many differences between the recorded account balances and the confirmation replies. These differences, which were not misstatements, required substantial time to resolve. In defining the sampling unit for the current year's audit, the auditor most likely would chooseA. Individual overdue balancesB. Individual invoicesC. Small account balancesD. Large account balances
Supporting Schedules
detailed schedules prepared by the client or the auditor in support of specific amounts on the FS
any persons or groups who will be affected by an action
changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period
Matching Concept
The concept that states that expenses should be matched against the revenues they help to generate.
non sampling risk
error in judgment or execution. incorrect conclusion is reached but the sample was representative of the population
deals with the transfer of funds; does not include remittance information necessary to update A/R
c) Opinion
18. When the auditor of a nonpublic company issues an adverse opinion an explanatory paragraph is added. In addition, which, if any, paragraphs to the report are modified? a) Introductory; Opinionb) Scope; Opinionc) Opiniond) None of the above
Auditor is unable to form an opinion as to whether the financial statements are fairly presented, or he is not independent.
the mental state
mental criminal state of the criminal i.e the "intent
What are the two branches of FICA?
OASDI and Medicare
What are two examples of Personal Property?
Furniture or Automobile
employ proper segregation of duties
control procedure for misappropriating cash, checks, efts
C. Materiality and audit risk
12. Which of the following elements underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting?A. Internal controlB. Corroborating evidenceC. Materiality and audit riskD. Quality control
Accounting Period Reporting Time frames

žReporting time frame

- Month, quarter or year
Related Party Transaction
any transaction between the client and a related party
Define common stock
the total amount paid by stock holders for the shares they purchase.
if refund is made for an expenditure deducted in a previous year, the refund is included in gross income to the extent that the prior deduction produced a tax benefit
tax benefit rule
D. The audit evidence gathered supports the auditor's conclusions
13. Audit programs should be designed so thatA. Most of the required procedures can be performed as interim work.B. Inherent risk is assessed at a sufficiently low level.C. The auditor can make constructive suggestions to management.D. The audit evidence gathered supports the auditor's conclusions.

žEvery transaction impacts at least two accounts

—Each account has two sides
Account Name
Debit on left side Credit Right
What are the two types of Interest Rates?
Simple Intrest. Compound Interest.
1) when receive an economic benefit2) they realize the income3) no tax provision allows them to exclude or defer the income from gross income for that year
when to recognize gorss income
income/LT debt
look at the amt of lt debt and when payments are due. does the company have sufficient yearly earnings to pay off all its debt within a few years? what ratio used for this?
C. All inventory owned by the client is on hand at the time of the count
49. When auditing inventories, an auditor would least likely verify that?A. The financial statement presentation of inventories is appropriate.B. Damaged goods and obsolete items have been properly accounted for.C. All inventory owned by the client is on hand at the time of the count.D. The client has used proper inventory pricing
B. The auditor's responsibility for ensuring that the audit committee is aware of any significant deficiencies that come to the auditor's attention
5. An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. This understanding generally includes:A. Management's responsibility for errors and the illegal activities of employees that may cause material misstatementB. The auditor's responsibility for ensuring that the audit committee is aware of any significant deficiencies that come to the auditor's attentionC. Management's responsibility for providing the auditor with an assessment of the risk of material misstatement due to fraudD. The auditor's responsibility for determining preliminary judgments about materiality and audit risk factors
In a classified balance sheet, assets are usually classified using the following categories:
a. current assets; long-term assets; property, plant & equiptment; intangible assets
b. current assets; long-term investments; property, plant & equiptment;
d. current assets; long-term investments; property, plant & equiptment; intangible assets
Capital Surplus or Additional Paid-in Capital
Represents money owners paid for stock in excess of the par value.
maintaining a list of approved suppliers and requiring all purchases to be made from suppliers on that list
control to minimize the risk of purchasing inferior goods at inflated prices or violating regulations
B. Whether the results of their client's operating decisions are fairly presented in the financial statements
30. When the auditors express an opinion on financial statements their responsibilities extend to: A. The underlying wisdom of their client's management decisions.B. Whether the results of their client's operating decisions are fairly presented in the financial statements.C. Active participation in the implementation of the advice given to their client.D. An ongoing responsibility for their client's solvency.
Which is INCORRECT concerning the adjusted trial balance:
a. An adjusted trial balance proves the equality of the total debit balances & total credit balances in the ledger after all adjustments are made
b. The adjusted trial balance provides the pr
c. The adjusted trial balance lists the account balances segregated by assets and liabilities
The amount remaining from sales after variable expenses have been deducted
What is the contribution margin? What does it tell you?
A. A statement that the auditor believes that his or her audit provides a reasonable basis for expressing negative assurance
16. Which of the following is not explicitly included in an audit report for a nonpublic company? A. A statement that the auditor believes that his or her audit provides a reasonable basis for expressing negative assurance.B. A statement that the auditor's responsibility is to express an opinion on the financial statements.C. A statement that the financial statements in the report are the responsibility of management.D. A title with the word "independent."
When we purchase supplies we pay cash therefore 
supplies account is debited and cash is credited
what is the adjustment as the supplies are used?
It is called the supplies expense account which will be debited as we use the products. we will offset this by crediting the supplies account.
1. reason for the loan 2. are CFs sufficient to repay the loan? 3. value of the collateral 4. Margin of safety for new debt 5. Contingencies whose outcomes may be negative 6. Character of management 7. Covenants
7 Factors for analyzing credit risk
Pros: easy
Cons: uses only two pieces of data, not as accurate.
What are the pros and cons of the high-low method?
If we have paid cash for prepaid rent then: 
Prepaid rent is debited and cash is credited
what is the adjustment at the end of the month?
We will debit rent expense and credit prepaid rent 
but remember to evenly split the rent over the time period. ex; if u pay 600 for 3 months rent than it will be 200 per month
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