cpa review ch 7 review 5

The flashcards below were created by user Joens1313 on FreezingBlue Flashcards.

  1. An administrative tool that aids in the control of the financial management function is a cash budget. The principal aim of a cash budget is to
    Ensure that sufficient funds are available at all times to satisfy maturing liabilities.

    Cash budgets are plans to have sufficient funds available to satisfy maturing liabilities. The CFO is usually responsible for this planning tool.
  2. Companies must purchase their own software to translate their data to a national standard protocol for EDI purposes, either ANSI X.12 in the U.S. or EDIFACT in Europe and most of the rest of the world. Once the data are in the standard format, the VAN handles all aspects of the communication. VANs are privately owned telecommunications carriers that sell capacity to outside users. Among other things, a VAN provides a ----------------------------------------------------------------------------------------------------------------- in the recipient’s computer system.
    mailbox service permitting EDI messages to be sent, sorted, and held until needed
  3. An auditor notes year-to-year increases of over $200,000 for small tool expense at a manufacturing facility that has produced the same amount of identical product for the last 3 years. Production inventory is kept in a controlled staging area adjacent to the receiving dock, but the supply of small tools is kept in an unsupervised area near the exit to the plant employees’ parking lot. After determining that all of the following alternatives are equal in cost and are also feasible for local management, the auditor can best address the security issue by recommending that plant management
    Move the small tools inventory to the custody of the production inventory staging superintendent and implement the use of a special requisition to issue small tools.

    Physical control of assets is a preventive control that reduces the likelihood of theft or other loss. Giving responsibility for custody of small tools to one individual establishes accountability. Requiring that requisitions be submitted ensures that tool use is properly authorized.
  4. Effective controls relevant to the efficiency of purchases will result in proper evaluation of the time for ordering merchandise. When making this evaluation, the purchasing company should give primary consideration to
    The trade-off between the cost of owning and storing excess merchandise and the risk of loss by not having merchandise on hand.

    Effective purchasing departments should use the basic economic order quantity (EOQ) calculation that minimizes both the cost of owning and storing excess merchandise and the cost of ordering merchandise (and thus the timing of ordering). This model assumes the demand is constant and does not consider the cost of stockouts. Probabilistic models have been developed to incorporate the risk of loss (cost) by not having merchandise on hand.
  5. When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the
    Debit memo.

    A debit memo indicates a reduction in the amount owed to a vendor because goods have been returned. The debit memo authorizes the accounting department to debit the appropriate payable
Card Set:
cpa review ch 7 review 5
2014-06-08 04:38:53
cpa review

cpa review ch 7 review 5
Show Answers: