acct final Flashcards

Terms Definitions
VMI
vendor managed inventory
accounting
firm infrastructure support activity
What is EIN?
Employer Identification number
Risk Assessment
management's identification and analysis of risks relevant to the preparation of FS in accordance with GAAP
Joseph Kennedy
First chairman of the SEC.
balance-forward method
method of maintaining accounts receivable in which customers typically pay according to the amount shown on a monthly statement, rather than by individual invoices; remittances are applied against total account balance, rather than against specific invoices
What does Tangible mean?
Has physical substance
journal vouchers
provide information concerning the source of changes to the general ledger accounts
Expenditures
measure of fund liabilities incurred or fund financial resources used
unstructured decisions
nonrecurring and non routine decisions that require considerable judgement and intuition; no framework or model exists to solve such problems
Types of corporations?
S Corp and C Corp
Substantive Procedures
Detail audit and analytical procedures designed to detect material misstatements in account balances and footnote disclosures
payroll
The give-get exchange where we get labor in return for payment is the ___ cycle
C. Unqualified opinion
11. An entity changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year's financial statements, but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial statements, the auditor should issue a report with a(n):A. "Except for" qualified opinionB. Explanatory paragraphC. Unqualified opinionD. Consistency modification
Sales Discounts?
reduction in the amount receivable offered by the seller as an incentive for the customer to pay.
Owners Equity
the amount remaining after the value of all liabilities is subtracted from the value of all assets
What company goes by a Calendar Year?
DOW Chemical
Current Liabilities
Those expected to be satisfied with assets classified as current, or in the course of a normal operating cycle (i.e. = accounts payable; short-term loans and notes payable)
$3000
Limit on FOR AGI deduction of net capital losses
credit memo
used to adjust a customer's account balance for sales returns, allowance, or write offs
A. Quality control
18. A CPA firm evaluates its personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm's adherence to which of the following prescribed standards?A. Quality controlB. Human resourcesC. Acceptance and continuance of client relationships and specific engagementsD. Engagement performance
single-step income statement
Format that groups all revenues together and then lists and deducts all expenses together wihtout drawing any subtotals.
judicial decisions
"case law" - previous cases that were previous decisions of the court/precedent
What is Profit Margin?
Details the profit ability of sales.
Home construction
What types of industries would not use process costing?
blanket PO
allows us to get certain goods at certain range of prices w/out further authroizations/approval for specific period of time
D. Performing analytical procedures designed to disclose differences from expectations
48. An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. The auditor most likely could have detected this misstatement by:A. Tracing a sample of journal entries to the general ledgerB. Evaluating the effectiveness of internal control policies and proceduresC. Investigating the reconciliations between controlling accounts and subsidiary recordsD. Performing analytical procedures designed to disclose differences from expectations
How to close Expenses
debit retained earnings and credit each expense account
Physical Examination
the auditor's inspection or count of a tangible asset
What type of bond can be changed into common stock at a set price?
Convertible Bond
recieve economic benefit; realize the income; no tax provision allows them to exclude fr defer the income from the gross income for that year
criterio to RECOGNIZE gross income
C. Sales billed to customers were actually shipped
9. Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence thatA. Shipments to customers were properly billed.B. Entries in the accounts receivable subsidiary ledger were for sales actually shipped.C. Sales billed to customers were actually shipped.D. No duplicate shipments to customers were made.
Debits:
 
a. increase both assets and liabilities
b. decrease both assets and liabilities
c. increase assets and decrease liabilities
d. decrease assets and increase liabilities
c. increase assets and decrease liabilities
needs-based strategic position
trying to serve most or all the needs of a particular group of customers in a target market; ex. AARP focuses on retirees
Cost of Goods Sold
The cost of the inventory sold during the period. Beginning inventory plus purchases minus the ending inventory equals the cost of goods sold.
When goods are received
From a legal standpoint, when does the obligation to pay a vendor arise?
D. Trace the authorization for the transaction to a vote of the board of directors
70. In performing tests concerning the granting of stock options, an auditor shouldA. Confirm the transaction with the Secretary of State in the state of incorporationB. Verify the existence of option holders in the entity's payroll records or stock ledgersC. Determine that sufficient treasury stock is available to cover any new stock issuedD. Trace the authorization for the transaction to a vote of the board of directors
Net income will result during a time period when:
 
a. assets exceed liabilities
b.assets exceed revenues
c.expenses exceed revenues
d. revenues exceed expenses
D. revenues exceed expenses
How is liability dealt with in Corporations?
Only assets of corporation are attacked, not shareholders
to provide the right product in the right place at the right time for the right price
primary objective of revenue cycle
A. Place limited reliance on the work performed by the internal auditors
53. Miller Retailing, Inc. maintains a staff of three full-time internal auditors who report directly to the controller. In planning to use the internal auditors to provide assistance in performing the audit, the independent auditor most likely willA. Place limited reliance on the work performed by the internal auditorsB. Decrease the extent of the tests of control needed to support the assessed level of detection riskC. Increase the extent of the procedures needed to reduce control risk to an acceptable levelD. Avoid using the work performed by the internal auditors
What are the 3 Big Current Assets?
1. Cash 2. Accounts Receivable 3. Inventory
B. May occur in a systematic pattern, thus destroying the sample randomness
125. An auditor may use a systematic sampling technique with a start at any randomly selected item when performing a test of controls with respect to control over cash receipts. The biggest disadvantage of this type of sampling is that the items in the populationA. Must be systematically replaced in the population after samplingB. May occur in a systematic pattern, thus destroying the sample randomnessC. Must be recorded in a systematic pattern before the sample can be drawnD. May systematically occur more than once in the sample
Which of the following about an account is TRUE?
 
a. in its simplest form, an account consists of 2 parts
 
b. An account is an individual accounting record of increases and decreases in specific asset, liability and owners equity items
 
c. the
b. An account is an individual accounting record of increases and decreases in specific asset, liability and owners equity items
invoices should be paid only when accompanied by a purchase order and receiving report and should cancel all supporting documents when checks are wissue
control procedure for paying the same invocie twice
What is the meaning, purpose and use of: Unadjusted Debit/Credit Columns
Basically the trial balance on a worksheet. It is the values of the accounts before they are adjusted
a credit memo to write off an account
when will a copy of the credit memo not be sent to the customer
occurance rate
see exception rate
Attribute
the characteristic being tested for in the population
earnings management
deliberate actions taken by management to meet earnings objectives.
fraud triangle
represents the three conditions of fraud: incentives/pressures, opportunities, and attitudes/rationalization.
contingent liability
a potential future obligation to an outside party for an unknown amount resulting from activities that have already taken place.
representative sample
a sample with characteristics the same as those of the population.
Block sample selection
a nonprobabilistic method of sample selection in which items are selected in measured sequences.
professional skepticism
an attitude of the auditor that neither assumes management is dishonest nor assumes unquestioned honesty.
subsequent discovery of facts
auditor discovery that the financial statements are materially misstated after they have been issued.
Exception rate
the percent of items in a population that include exceptions in prescribed controls or monetary correctness.
Nonprobabilistic sample selection
a method of sample selection in which the auditor uses professional judgment to select items from the population.
inquiry of the client's attorneys
a letter from the client requesting that legal counsel inform the auditor of pending litigation or any othe rinformatio ninvolving legal counsel that is relevant to financial statement disclosure.
Acceptable risk of assessing control risk too low (ARACR)
the risk that the auditor is willing to take of accepting a control as effective or a rate of monetary misstatements as tolerable when the true population exception rate is greater than the tolerable exception rate.
Discount rate
1/ (1+r)^t
cost behavior
cost reaction to activity
False
Teh balance of Merchandise Inventory in the Trial Balance columns represents the beginning balance plus all purchasess of merchansie made int he fiscal period.
A) Completeness
Tracing from source documents to journals most directly addresses which financial statement assertion?A) Completeness.B) Existence.C) Valuation.D) Rights.
accounting equation
an equation showing the relationship among assets, liabilities, and owner's equity
income smoothing
an earnings management technique to maintain earnings at a specified level or to increase them at a steady pace. this gives the appearance of high earnings quality or earnings persistence, which indicate that core earnings are likely to continue
staff position
position that supports indirect company or organization objective
Computerized Accounting Systems
Accounting software with functional modules such as account payable, receivable etc, computerized accounting systems automate and intergrate accounting with all business operations such as sales, finance, purchase etc keeps information up to date
Contribution Margin
the amount remaining from sales revenue after variable expenses have been deducted
Capital Gain
Portion of the total gain recognized on the sale or exchange of a non-inventory asset which is not taxed as ordinary income
Cost principle
Principle that states that assets and services should be recorded at their actual cost.
remittance advice
usually part of the customers bill that should be return
Contribution Margin Ratio
Unit Contribution Margin / Unit Sales Price
Fair Market Value
Price at which property would change hands between a buyer and a seller without any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts
CBS cash disbursements
scans for vouchers currently due, prints checks for these vochers, records these checks in the check register, batch totals are prepared for the general ledger update procedure
ratios under profitability ratios
profit margin, asset turnover, return on assets, return on common stockholders equity, earnings per share, price-earnings ratio, rayout ratio
A) Control Risk
Which type of risk does the management of a company have the most control over in the short term?A) Control Risk.B) Detection Risk.C) Sufficiency Risk.D) Inherent Risk.
Examples of General and Administrative Costs
General office expenses (accounting, personnel, credit and collections), & General occupancy expenses (rent, utilities, insurance)
change since base period
(current year amount - base year amount) / base year amount
C. Issue an "except for" qualification or an adverse opinion.
When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should: A. Issue an unqualified report with an explanatory paragraph.B. Withdraw from the engagement.C. Issue an "except for" qualification or an adverse opinion.D. Issue an "except for" qualification or a disclaimer of opinion.
A) The systems approach focuses on testing controls to make sure they are effective, while the substantive approach is the detailed testing of specific accounts for accuracy
Which statement best describes the interaction of the systems and substantive approaches in the audit plan?A) The systems approach focuses on testing controls to make sure they are effective, while the substantive approach is the detailed testing of specific accounts for accuracy.B) The systems approach focuses on detailed testing of specific accounts for accuracy, while the substantive approach is the testing controls to make sure they are effective.C) The systems approach focuses on the use of computer systems to aid in the audit while the substantive approach focuses on more manual tests.D) A thoroughly designed systems approach to auditing can eliminate the need for any substantive procedures.
physical control of assets and records
-safeguared all journals and ledgers, including password protection
-safeguard cash
B. Prior to the opinion paragraph.
An explanatory paragraph relating to a scope limitation in the audit of the financial statements of a nonpublic company should be placedA. After the opinion paragraph.B. Prior to the opinion paragraph.C. Either before or after the opinion paragraph.D. An audit report modified for a scope limitation does not include an explanatory paragraph.
C. Material misstatements were contained in the financial statements.
Which of the following must be proven by the plaintiff in a case against a CPA under the Section 11 liability provisions of the Securities Act of 1933? A. The CPA knew of the misstatement.B. The CPA was negligent.C. Material misstatements were contained in the financial statements.D. The unqualified opinion contained in the registration statement was relied upon by the party suing the CPA.
What is a facility-sustaining cost?


Cost of activities that cannot be traced to products but serve the organization as a whole.
Example - Administartive resources
a) Assist management in illustrating that the financial statements are in accordance with GAAP
Which of the following is not a function of audit working papers?a) Assist management in illustrating that the financial statements are in accordance with GAAPb) Assist audit team members responsible for supervision in reviewing the workc) Assist auditors in planning future engagementsd) Assist peer reviewers and inspectors in performing their roles
What problems can occur if products are over-costed?
 
1. Products that are unknowingly over costed might in turn be over-priced resultign in lost sales. 
2. managers may waste valuable resources trying to reduce costs unnecessarily. 
 
A. Must exercise the level of care, skill, and judgment expected of a reasonably prudent CPA under the circumstances.
Under common law, when performing an audit, a CPA: A. Must exercise the level of care, skill, and judgment expected of a reasonably prudent CPA under the circumstances.B. Must strictly adhere to generally accepted accounting principles.C. Is strictly liable for failures to discover client fraud.D. Is not liable unless the CPA commits gross negligence or intentionally disregards generally accepted auditing standards.
To record the sale of goods for cash in a perpetual inventory system:
(c) two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.
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Term:
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