Term
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Definition
Intentional misrepresentation of facts
Causes injury or damage to another party
Large problem that increases each year |
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Term
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Definition
| Federal law requiring public companies to have system of internal controls |
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Term
| Components of Internal Control |
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Definition
■ Control environment
■ Risk assessment
■ Information system
■ Control procedures
■ Monitoring of controls |
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Term
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Definition
Symbolized by the roof over the house
Tone at the top:
-Starts with owner(s) and top managers acting ethically
Key ingredient:
-Corporate code of ethics |
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Term
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Definition
- Symbolized by the smoke rising from the chimney
- Identify business risks
- Establish procedures to deal with risks |
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Term
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Definition
- Symbolized by the door of the building
- How accounting information enters and exits company
- System must capture, process and report transactions accurately |
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Term
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Definition
- Symbolized by the door of the building
- Built in control environment and information system
- How companies meet five objectives of internal control |
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Term
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Definition
- Symbolized by the windows of the building
- Prohibit one employee from process transaction completely
- Program controls into computerized system
- Hired auditors to monitor controls |
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Term
| Internal Control Procedures |
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Definition
- Smart Hiring Practices
- Separation of Duties
- Comparison and Compliance Monitoring
- Adequate Records
- Limited Access
- Proper Approvals |
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Term
SCALP
(an easy way to remember the basic control procedures) |
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Definition
- Smart hiring practices and segregation of duties
- Comparisons and compliance monitoring
- Adequate records
- Limited access
- Proper approvals |
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Term
| The documents used to control a bank account: |
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Definition
■ Signature card
■ Bank statement
■ Deposit ticket
■ Bank reconciliation
■ Check |
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Term
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Definition
| The difference between the bank balance & the book balance |
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Term
| Bank Side (bank reconciliation) |
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Definition
ADD:
- Deposits in transit
- Certain bank errors
SUBTRACT:
- Outstanding checks
- Certain bank errors |
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Term
| Book Side (bank reconciliation) |
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Definition
ADD:
- Bank collections
- Interest revenue
- EFT receipts
- Certain book errors
SUBTRACT:
- Service charges
- NSF checks
- EFT payments
- Certain book errors |
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Term
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Definition
| Non-sufficient fund checks (bounced checks) |
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Term
| Summary of Reconciling Items |
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Definition
BANK BALANCE - ALWAYS:
- Add deposits in transit
- Subtract outstanding checks
- Add or subtract correction of bank errors
BOOK BALANCE - ALWAYS:
- Add bank collections, interest revenue and EFT receipts
- Subtract services charges, NSF checks, EFT payments
- Add or subtract correction of book errors |
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Term
| Journalizing Bank Reconciliation Items |
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Definition
- All items on the book side of the bank reconciliation require journal entries
- If the item is added to book side
-Debit Cash
- If the items is subtracted from the book side
-Credit Cash |
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Term
| Bank Reconciliation example |
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Definition
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Term
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Definition
- Also called marketable securities
- Easily convertible into cash
- Expected to be held one year or less |
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Term
| Short-Term Investment Categories: |
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Definition
- Trading securities
- Available- for-sale securities
- Held-to-maturity securities (Treated the same as notes receivable) |
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Term
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Definition
- Held for a short time and then sold
- Can be debt or equity securities of another company
- Earn interest or dividend revenue |
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Term
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Definition
| Trading securities are reported on the balance sheet at their current market value. It is “unrealized” because the company has not actually sold the investment. |
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Term
| Adjusting Trading Securities to Market |
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Definition
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Term
| Balance & Income sheets for Short term investments |
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Definition
- On the Balance Sheet, short-term investments are current assets. They appear on the balance sheet immediately after cash.
- These items are reported on the income statement as Other revenue, gains, and (losses). |
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Term
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Definition
- Third most liquid asset
- Monetary claims against others
- Acquired mainly by:
-selling goods and services (accounts receivable)
-lending money (notes receivable) |
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Term
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Definition
- More formal than accounts receivable
- Written promise to pay a sum at the maturity date
- Also called promissory notes |
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Term
| Methods to Estimate Uncollectibles |
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Definition
Percent-of-sales
Income statement approach
Aging-of-receivables
Balance sheet approach |
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Term
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Definition
- Employs the matching concept to estimate the amount of cost that has been incurred in order to earn a certain amount of revenue
- The entry to record the uncollectible accounts estimate DEBITS the expense account and CREDITS the Allowance.
-Equation:
Estimated % uncollectible x Revenue = Uncollectible Accounts Expense |
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Term
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Definition
- Balance sheet approach
- Individual customer balances analyzed based on time outstanding |
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Term
| Aging of Receivables example |
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Definition
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Term
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Definition
Waits until a specific account is uncollectible to record the expense
Inferior to Allowance method |
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Term
| Gross Profit of Inventory |
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Definition
| sales revenue - cost of goods sold = gross profit |
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Term
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Definition
| Asset on the Balance Sheet |
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Term
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Definition
| Expense on the Income Statement |
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Term
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Definition
1.Specific unit
2.Average cost
3.First-in, first-out
4.Last-in, first-out |
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Term
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Definition
- used for businesses with unique inventory items, such as automobiles, antique furniture, jewels, and real estate
- Inventory costed at specific price of the particular unit
- Too expensive for inventories with common characteristics |
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Term
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Definition
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Term
| First-in, First-out (FIFO) |
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Definition
- Oldest items assumed to be sold first
- provides a more up-to-date inventory cost
- FIFO income is less realistic than LIFO income.
*- better for balance sheet |
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Term
| Last-in, First-out (LIFO) |
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Definition
- Most recent items purchased are assumed to be sold first
- provides a better matching of expense to revenue
- can value inventory at very old costs
- Allows manipulation of net income
- Not allowed under International Standards
*- better for income sheet |
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Term
| 3 Principles Related to Inventories |
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Definition
■ Consistency
■ Disclosure
■ Conservatism |
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Term
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Definition
- Use the same accounting methods from year-to-year
- Allows investors to compare financial statements from one period to the next |
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Term
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Definition
Financial statement should disclose enough information for users to make informed decisions
- Examples:
Accounting methods used
Substance of material transactions |
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Term
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Definition
Accountants use caution and care in financial reporting.
- If in doubt, record an asset at the lowest reasonable amount and a liability at the highest reasonable amount |
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Term
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Definition
| Gross Profit (divided by) Net Sales |
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Term
| Effect of Inventory Errors |
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Definition
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Term
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Definition
- Several assets purchased in a group at one price
- Total cost is allocated based on their market values |
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Term
| Lump-Sum Purchases equations |
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Definition
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Term
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Definition
- Increase capacity or extend useful life
- Cost is added to an asset account |
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Term
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Definition
- Do not extend capacity or useful life
- Maintain or restore working order
- Cost is recorded as an expense |
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Term
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Definition
| Depreciable Cost = Asset’s cost − Estimated residual value |
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Term
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Definition
■ Straight-line
■ Units-of-production
■ Double-declining-balance |
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Term
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Definition
- Depreciable cost is divided by useful life in years to determine the annual depreciation expense
- Best for assets that generate revenue evenly
- Best meets matching principle
- Most commonly used |
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Term
| Units-of-Production (UOP) |
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Definition
- Best for assets that wear out because of use
- Least commonly used
Depreciable Cost (divided by) Useful Life in Units = Depreciation per unit
Depreciation per unit x Activity for period (units, miles) |
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Term
| Double-Declining-Balance (DDB) |
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Definition
- Best for assets that generate revenue early in useful life
-2nd most commonly used
DDB rate x Book value
DDB rate = Straight-line rate x 2 (or 2/life in years)
Book Value = Cost minus accumulated depreciation
Final year depreciation = Book value at the beginning final year - residual |
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