Accounting CHP 6 &7

Card Set Information

Accounting CHP 6 &7
2014-04-06 13:10:15
YCP Leinheiser financial
Spring 2014
Prep for financial accounting quiz
Show Answers:

  1. What do merchandisers do to inventory?
    they only hold it, they do not do anything to transform it
  2. What do Manufacturers have as inventory?
    • Raw Materials
    • Work-Process, uncompleted units
    • Finished Goods
  3. what is consigned inventory?
    Inventory owned but held and sold by another who acts as the company's sales representative.
  4. What is the relationship of a cosigned inventory?
    It is an agency relationship
  5. What are goods in transit?
    Inventory owned but being transported from the company's supplier
  6. What are the acceptable methods of inventory costing methods?
    Specific identification, LIFO, FIFO, and Weighted average cost
  7. What does physical flow have to do with inventory costing methods?
  8. How is replacement cost calculated?
    By knowing the current cost of an item
  9. What is Inventory Valuation?
    For balance sheet presentation, GAAP, a company reports inventory at the lower of cost or market.
  10. 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.
  11. What are Contra Purchase accounts?
    On the Periodic system, purchase returns and allowances and purchase discounts
  12. How are the Inventory turnover Ratio calculated?
    Inventory turnover ratio = Cost of goods sold / average inventory
  13. how are days to sell calculated?
    Days to sell = 365 / Inventory Turnover Ratio
  14. Define Days to sell.
    How fast inventory is moved
  15. 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.
  16. 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.
  17. 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.
  18. 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
  19. Why is there a need for cash receipts?
    Control depends upon how cash is received
  20. 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)
  21. How should credit cards be handled?
    same as cash and deposited daily
  22. 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
  23. What is the Proof of Cash balance?
    Timely reconciliation of the bank statement
  24. What account does every expenditure go through?
    Accounts Payable
  25. What are the expenditures listed as in a 2 step operation.
    • Inventory
    •     Accounts Payable
    • Accounts Payable
    •     Cash
  26. What must be seen and approved before writing a check?
    A purchase order
  27. What is a Fixed balance account used for?
    Small bills, ie cakes, emergency supplies, used also to limit theft, aka petty cash
  28. Where are the receipts reconciled for a petty cash account?
    Off site
  29. If company has alot of cash flow what should a company do?
    Bond and insure the employees
  30. 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