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What do merchandisers do to inventory?
they only hold it, they do not do anything to transform it
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What do Manufacturers have as inventory?
- Raw Materials
- Work-Process, uncompleted units
- Finished Goods
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what is consigned inventory?
Inventory owned but held and sold by another who acts as the company's sales representative.
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What is the relationship of a cosigned inventory?
It is an agency relationship
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What are goods in transit?
Inventory owned but being transported from the company's supplier
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What are the acceptable methods of inventory costing methods?
Specific identification, LIFO, FIFO, and Weighted average cost
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What does physical flow have to do with inventory costing methods?
Nothing
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How is replacement cost calculated?
By knowing the current cost of an item
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What is Inventory Valuation?
For balance sheet presentation, GAAP, a company reports inventory at the lower of cost or market.
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What is the is the Lower of cost or market?
A valuation rule that requires inventory to be written down when its net realizable, market, value or replacement cost falls below its current recorded cost.
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What are Contra Purchase accounts?
On the Periodic system, purchase returns and allowances and purchase discounts
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How are the Inventory turnover Ratio calculated?
Inventory turnover ratio = Cost of goods sold / average inventory
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how are days to sell calculated?
Days to sell = 365 / Inventory Turnover Ratio
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Define Days to sell.
How fast inventory is moved
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Define Internal Control.
Committee of sponsoring organizations (COSO) defined it as a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of the objectives.
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Name the three internal controls, in order.
- 1. Compliance with applicable laws and regulations.
- 2. Effectiveness and efficiency of operations
- 3. Reliability of financial reporting.
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What is the Sarbanes-Ovley Act?
in 2002 it requires public companies to report on and have an independent auditor assess the effectiveness of internal controls over financial reporting.
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What are the common principles of internal control?
- Establish clear lines of responsibility and authority
- segregate duties
- restrict access, or physical control
- Document policy, expected behavior, and procedures
- Independently verify that controls are functioning
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Why is there a need for cash receipts?
Control depends upon how cash is received
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How can cash be received?
- Directly from the customer, through cash registers
- By mail
- Using a lock box system, PO box system, or gathered receipts in bank
- Electronic transfer (EFT)
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How should credit cards be handled?
same as cash and deposited daily
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What are cash disbursements?
The primary goal of internal controls for cash payments is to ensure the business pays only for properly authorized transactions. Most companies use a voucher system that incorporates an imprest cash system to handle small disbursements
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What is the Proof of Cash balance?
Timely reconciliation of the bank statement
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What account does every expenditure go through?
Accounts Payable
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What are the expenditures listed as in a 2 step operation.
- Inventory
- Accounts Payable
- Accounts Payable
- Cash
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What must be seen and approved before writing a check?
A purchase order
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What is a Fixed balance account used for?
Small bills, ie cakes, emergency supplies, used also to limit theft, aka petty cash
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Where are the receipts reconciled for a petty cash account?
Off site
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If company has alot of cash flow what should a company do?
Bond and insure the employees
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How is a bank account reconciled?
Done ASAP, done by someone that does not do accounting and does not handle cash. They are looking for unknown things
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