Accounting: Chapter 6

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Accounting: Chapter 6
2013-11-05 19:35:20

Chapter 6 - Internal Control and Financial Reporting for Cash and Merchandise Sales
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  1. Operation Cycles have 3 types of business
    Service, merchandise, and manufacturing company
  2. internal control
    methods to protect against theft of assets, enhance the reliability of accounting information, promote efficient and effective operations, and ensure compliance with applicable laws and regulations
  3. Effective internal control
    create an ethical business environment and improving financial performance
  4. Establish responsibility
    Assign each task to only one employee
  5. Segregate duties
    Do not make one employee responsible for all parts of a process
  6. Restrict access
    Do not provide access to assets or information unless it is needed to fulfill assigned responsibilities
  7. Document procedure
    prepare documents to show activities that have occurred
  8. Independently verify
    check others' work
  9. internal control goal for cash receipt
    ensure the business receives the appropriate amount of cash and safety deposits it in the bank
  10. imprest system - EFT to pay employees
    A process that controls the amount paid to others by limiting the total amount of money available for making payments to others
  11. Bank reconciliation
    • 1. Error made by the bank (Addition or Deduction)
    • 2. time lags such as deposits that you made recently or cheque that you wrote recently (Addition)
    • 3. Outstanding Cheque or NSF (Deduction)
  12. Company reconciliation
    • 1. Interest the bank has put into your account (Addition)
    • 2. EFT (Addition)
    • 3. Service charges taken out of your account NSF (Deduction)
    • 4. Cheques you deposited but that bounced (Deduction)
    • 5. Error made by you  (Deduction)
  13. Journal Entries - Interest Received
    • Dr. Cash (+A)
    • Cr. Interest Revenue (+R, +SE)
  14. Journal Entries - EFT received from Customer
    • Dr. Cash (+A)
    • Cr. A/R (-A)
  15. Journal Entries - Cheque rejected as NSF
    • Dr. A/R (+A)
    • Cr. Cash (-A)
  16. Journal Entries - Service Charges
    • Dr. Office Expense (+E, -SE)
    • Cr. Cash (-A)
  17. Journal Entries - Company Error (Understated payment to supplier)
    • Dr. A/P (-L)
    • Cr. Cash (-A)
  18. shrinkage
    for loss of inventory from theft, fraud, and error
  19. FOB shipping point
    a term of sale indicating that goods are owned by the customer the moment they leave the seller's premises
  20. FOB destination
    a term of sale indicating that goods are owned by the seller until they are delivered to the customer
  21. gross profit
    gross profit = net sale - cogs
  22. income from operations
    income from operations = gross profit - selling, general, and administrative expenses
  23. Gross profit percentage
    Formula = net sale - COGS / net sales x 100

    • - % of profit earned on each dollar of sales, after considering the cost of products sold
    • - higher ratio means that greater profit is available to cover operating and other expenses