ACCT Test 2 Flashcards

Terms Definitions
Inventory Account
Begining Balance 
Purchase Discounts
Purchase returns & allowances
Ending Balance
Current Ratio
Current Assets
Current Liabilities
When did Walt Disney Die?
8th Amendment
Prohibits cruel and unusual punishment
stock in the hands of stockholders
Account balance
the amount in an account
business deductions are claimed ______
D. Completeness
17. An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion ofA. OccurrenceB. Rights and obligationsC. Valuation and allocationD. Completeness
2nd Amendment
Guarantees the right to bear arms
a decrease in owner's equity resulting from the operation of a business
Financial Statements
Financial reports that summarize the financial condition and operations of a business
Tax Evasion
The deliberate understatement of tax liability for the purpose of defrauding the government.
an adjusting journal entry to record interest revenue that has been earned but not yet received is an example of what?
D. Sample size
132. In planning a statistical sample for a test of controls, an auditor increased the expected population deviation rate from the prior year's rate because of the results of the prior year's tests of controls and the overall control environment. The auditor most likely would then increase the plannedA. Tolerable rateB. Allowance for sampling riskC. Risk of assessing control risk too lowD. Sample size
Significant Risks
risks the auditor believes require special audit consideration; the auditor is required to test the operating effectiveness of controls that mitigate these risks in the current year audit if control risk is to be assessed below maximum
par value
arbitrary amount assigned to a share of stock
Data store
component of data flow diagram that represents the storage of data within the system
Current Assets
Cash and other assets gained in operations during the normal operating cycle, or within 1 year (whichever is longer). Based on "nearness" to cash: Cash > Receivables > Inventory > Prepaid assets. Companies need to have enough current assets to generate enough cash to pay their bills (but not too much).
needs based
a company that focuses its marketing efforts on a specific subset of the population (e.g. college students) is probably pursuing which type of strategic position
approving vendor invoices
which expenditure cycle activity can be eliminated through the use of IT or reengineering
C. Standards of fieldwork
17. Which of the following categories is included in generally accepted auditing standards?A. Standards of reviewB. Standards of planningC. Standards of fieldworkD. Standards of evidence
States that the auditor followed US GAAS.
Scope paragraph
the party who files the lawsuit in a civil case
What is compound Interest?
Interest computed upon both original principle and previously earned increments of interest.
What is the legal term for Movable Property?
Personal Property
post sales service
a primary activity in the value chain
b. explicitly represented in the opening paragraph of the auditor’s standard report
2. An auditor’s responsibility to express an opinion on the financial statements is a. explicitly represented in the opinion paragraph of the auditor’s standard reportb. explicitly represented in the opening paragraph of the auditor’s standard reportc. explicitly represented in the scope paragraph of the auditor’s standard reportd. implicitly represented in the auditor’s standard report
LiFo Last in First Out

žAssumes most recent inventory costs are assigned to items when sold

žCost flow through accounting records will be nearly opposite of physical flow of goods

Working Trial Balance
a listing of the general ledger accounts and their year-ending balances
Who uses the Perpetual Method?
Merchandisers with high dollar value goods and relatively low sales volume.
included in income and taxable
how are disability insurance payemtns purchased by an employer taxed?
C. Management's compliance with contractual agreements that may affect the financial statements
62. For which of the following matters should an auditor obtain written management representations?A. Management's cost-benefit justifications for not correcting internal control weaknessesB. Management's knowledge of future plans that may affect the price of the entity's stockC. Management's compliance with contractual agreements that may affect the financial statementsD. Management's acknowledgement of its responsibility for employees' violations of laws
Perceived Opportunity for fraud

žEasy access to assets or assets poorly accounted for

žBusinesses have most influence over this element of fraud triangle

žCan be reduced through a good system of internal control
What is Treasury Stock?
It is a company's repurchase of its outstanding common stock.
except as otherwise provided in this subtitle, gross income means all income from whatever source derived
general definition (all inclusive definition) of income (gross income)
(cash + mktable securites such as AFS + cash equiv 3 mo maturity or less + trade AR)/CL
quick (acid test) ratio
D. Select certain items of equipment from the account records and locate them in the plant
55. A weakness of internal control over recording retirements of equipment may cause an auditor toA. Inspect certain items of equipment in the plant and trace those items to the accounting records.B. Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year.C. Trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used.D. Select certain items of equipment from the account records and locate them in the plant.
C. The chief financial officer waived approvals on all checks to one vendor to expedite payment
84. Which of the following events occurring in the year under audit would most likely indicate that internal controls utilized in previous years may be inadequate in the year under audit?A. The entity announced that the internal audit function would be eliminated after the balance sheet date.B. The audit committee chairperson unexpectedly resigned during the year under audit.C. The chief financial officer waived approvals on all checks to one vendor to expedite payment.D. The frequency of accounts payable check runs was changed from biweekly to weekly.
Last step: Post Closing Trial balance

žFinal step of the accounting cycle

žIncludes only assets, liabilities and stockholders’ equity accounts

—All temporary accounts have been closed

žProvides a starting point for next period’s transactions
The number of partially completed units times the percentage completion.
What is the definition of equivalent units?
requiring approval of all purchase orders
control designed to ensure that only goods that are really needed are ordered and that they are ordered from approved vendors
B. Has a significant effect on the entity's financial reporting process
39. An auditor is obligated to communicate a proposed audit adjustment to an entity's audit committee only if the adjustment:A. Has not been recorded before the end of the auditor's field workB. Has a significant effect on the entity's financial reporting processC. Is a recurring matter that was proposed to management the prior yearD. Results from the correction of a prior period's departure from GAAP
Which event is NOT recorded in the accounting records?
a. Equiptment purchased on account
b. An employee is terminated
c. a cash investment is made into the business
d. The owner draws money for personal use.
b. An employee is terminated
They have different cost structures. A firm with more fixed costs has a higher operating ratio.
Why do firms have different operating ratios?
A. Influence the design of internal control
24. In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methodsA. Influence the design of internal controlB. Affect the auditor's preliminary judgment about materiality levelsC. Assist in evaluating the planned audit objectivesD. Determine the auditor's acceptable level of audit risk
5 key control activities and documents used in the process over disbursements and collections
1. info processing 2. physical ctrls over security of assets 3. segregation of duties 4. performance reviews 5. reconciliations
c) The process of filing a form 8-k
38. While performing an audit an audit of a public company, the auditors discovered material illegal acts and resigned due to the client's refusal to disclose them. The auditors' reason for resignation should be disclosed through:a) CPA direct communication with shareholders; The process of filing a form 8-kb) CPA direct communication with shareholdersc) The process of filing a form 8-kd) None of the above
How much Is left to cover fixed costs and profits.
What does the contribution margin tell you?
What is the meaning, purpose and use of: current asset
an asset that is more liquid within a year or the operating cycle
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