they only hold it, they do not do anything to transform it
What do Manufacturers have as inventory?
Work-Process, uncompleted units
what is consigned inventory?
Inventory owned but held and sold by another who acts as the company's sales representative.
What is the relationship of a cosigned inventory?
It is an agency relationship
What are goods in transit?
Inventory owned but being transported from the company's supplier
What are the acceptable methods of inventory costing methods?
Specific identification, LIFO, FIFO, and Weighted average cost
What does physical flow have to do with inventory costing methods?
How is replacement cost calculated?
By knowing the current cost of an item
What is Inventory Valuation?
For balance sheet presentation, GAAP, a company reports inventory at the lower of cost or market.
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.
What are Contra Purchase accounts?
On the Periodic system, purchase returns and allowances and purchase discounts
How are the Inventory turnover Ratio calculated?
Inventory turnover ratio = Cost of goods sold / average inventory
how are days to sell calculated?
Days to sell = 365 / Inventory Turnover Ratio
Define Days to sell.
How fast inventory is moved
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.
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.
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.
What are the common principles of internal control?
Establish clear lines of responsibility and authority
restrict access, or physical control
Document policy, expected behavior, and procedures
Independently verify that controls are functioning
Why is there a need for cash receipts?
Control depends upon how cash is received
How can cash be received?
Directly from the customer, through cash registers
Using a lock box system, PO box system, or gathered receipts in bank
Electronic transfer (EFT)
How should credit cards be handled?
same as cash and deposited daily
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
What is the Proof of Cash balance?
Timely reconciliation of the bank statement
What account does every expenditure go through?
What are the expenditures listed as in a 2 step operation.
What must be seen and approved before writing a check?
A purchase order
What is a Fixed balance account used for?
Small bills, ie cakes, emergency supplies, used also to limit theft, aka petty cash
Where are the receipts reconciled for a petty cash account?
If company has alot of cash flow what should a company do?
Bond and insure the employees
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