Review for Exam II
Review for Exam II acc 203
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This 5 page Study Guide was uploaded by Dominique Marinelli on Monday November 2, 2015. The Study Guide belongs to acc 203 at Pace University taught by Reidenbach in Fall 2015. Since its upload, it has received 30 views. For similar materials see Financial Accounting in Accounting at Pace University.
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Date Created: 11/02/15
Accounting Review 4-7 Chapter 4: Cash and Internal Controls Internal controls • Association of Certified Fraud Examiners (ACFE) defines occupational fraud as the use of one’s occupation for personal enrichment through deliberate misuse or misapplication of the employees resources • 2 sources of occupational fraud 1. misuse of company resources 2. financial statement manipulation • Sarbanes-Oxley Act (The Public Company Accounting Reform and Investor Act of 2002) o Established a variety of guidelines related to auditor-client relations and internal control procedures o Requirements for corporate accountability § Corporate executives may be criminally liable for fraudulent financial statements § Corporate executives must personally certify the financial statements § Corporate management is responsible for the financial statements and internal controls o Key provisions of the SOX Act: § Restricting activities of auditors to prevent conflicts of interest § Requiring that corporate executives certify financial statements § Requiring documentation and assessing effectiveness of internal controls • Internal control procedures include formal policies and procedures related to safeguarding the company’s assets and improving the accuracy and reliability of accounting information • 5 components of internal controls 1. monitoring: includes formal procedures for reporting control deficiencies 2. control activities: policies and procedures that help ensure that management’s directives are being carried out Preventative Controls: try to stop fraud before it happens Examples: Separation of Duties and E-commerce controls Detective Controls: try to catch fraud after it happens Examples: Performance reviews, reconciliations and audits 3. risk assessment: identifies and analyzes internal and external risk factors 4. control environment: sets the overall ethical tone of the company 5. Information and Communication: method for collection of relevant information and communication enabling people to carry out their responsibilities Maintain Control of Cash: • Petty Cash: miscellaneous cash used for small expenses/simplified record keeping o Establish the fund o Recognize spending from the fund o Replenish the fund as the cash balance becomes sufficiently low • Bank reconciliation: matches the balance of cash in the bank account with the balance of cash in the company’s own records o Bank statement not equal to company’s record § Bank statements refer to an increase (deposit) in cash as a credit and a decrease (withdrawal) as a debit o Adjust bank’s cash and company’s cash balances o Ending balance must equal (that amount goes on balance sheet) o Make journal entries § Journal entries fix our records based on reconciliation • NFS: checks written to the company 11/2/15 5:33 PM Chapter 5: Receivables and Sales 2 types of Discount: • trade discounts: reduction in the listed price of a product or service • sales discounts: reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time contra revenue account: an account with a balance that is opposite or “contra” that that of its related revenue account • Represent reductions of revenues • Sales discounts, returns, and allowances are contra revenue accounts Allowance Method: estimates future uncollectible accounts • Companies are required to estimate future uncollectible accounts and record those estimates in the current year Adjusting for estimates of future uncollectable accounts matches expenses (bad debts) in the same period as the revenues (credit sales) they help to generate Allowance for doubtful accounts 11/2/15 5:33 PM Chapter 6: Inventory and Cost of Goods Sold 4 methods for inventory costing • specific identification: when a product is unique o Example: diamond rings (luxury items) • First-in, first-out (FIFO) – most common • Last in first-out (LIFO) – most common o Last units purchased are the first ones sold • Weighted-Average Cost Method: used for goods that are similar in nature o Example: markers o Weighted average unit cost = cost of goods ava. for sale Number of units ava. for sale 11/2/15 5:33 PM Chapter 7: Long Lined Assets Liquidity: how quickly an asset can be turned into cash Tangible assets: land, building, equipment, natural resources Intangible assets: copyright, trademarks, patents, royalties, goodwill Depreciation: property, plant, and equipment Amortization: intangible assets Goodwill: difference between cost and fair value
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