Second Exam

What are the 9 steps in the accounting cycle?

1. Transactions occur

2. Prepare documents

3. Record in journals

4. Post to ledgers

5. Prepare unadjusted general ledger trial balance

6. Prepare and post adjusting entries

7. Prepare adjusted trial balance

8. Prepare financial statements

9. Prepare closing entries

The ____________________ is the structured set of general ledger accounts defined for an organization.

Chart of accounts

_________________: Illustrates the enterprise’s internal business processes and the resource flows between them.

value chain

Each cycle in the value chain has 2 characteristics:

Duality: For each event that the company gives something, we expect a related event in which the company receives something.

Stockflow: Each event has at least one inflow and one outflow of a resource.

What are the cycles in the value chain?

Financing Cycle, Sales & Cash Receipts Cycle, Conversion Cycle, Purchases & Cash Disbursements Cycle, Payroll Cycle

What is an inflow to the sales and cash receipts cycle?

Inventory or services

Transactions are recorded using ______________ from the chart of accounts. _______________ allow for consistent classification and tracking of financial activity.

account numbers

The _____________ forms the foundation for storing, accessing, and reporting all financial information.

chart of accounts

What is this flowchart symbol?

Documents - Paper documents and reports of all types. Examples: sales invoices, receiving reports, and timecards.

What is this flowchart symbol?

Manual Operation or Process - Action taken by a human or computer that causes a change in the value, form, or location of information. Example: Prepare prenumbered bill of lading

What is this flowchart symbol?

Terminal: Beginning, ending, or interruption of flowchart: used to indicate information entering or leaving the system. Example: receive customer purchase order

What is this flowchart symbol?

Off-line storage: Off-line storage of documents and records. Example: a duplicate sales invoice is filed in numerical order. Order methods: N (Numerical), A (Alphabetical), D (Date), T (Temporary)

What is this flowchart symbol?

Journal/Ledger symbol - Recording of processed information in journals/ledgers. Example: Entry in sales journal

What is this flowchart symbol?

Decision - Used to indicate a decision requiring actions for a yes or no answer. For example: is the customer’s credit satisfactory?

What is this flowchart symbol?

Annotation: The addition of descriptive comments or explanatory notes as clarification. Usually, a sign of an internal control that needs to be performed.

What is this flowchart symbol?

On-Page connector: Exit to, or entry from, another part of the flowchart on the same page; keyed by using numbers. Example: a document transfer from one department to another.

What is this flowchart symbol?

Off-page connector: exit to, or entry from, another part of the flowchart on a different page; keyed by using page numbers and key letters. Example: the flowchart jumps to page 4, key letter B.

What is the difference between these 2 lines?

These are directional flowlines: Direction of processing or data flow.

Dotted line indicates only information flow, not document flow.

How does credit approval work for both a new customer and existing customers? What happens if the customer is declined?

New customer: A credit check is done to establish the terms of sale to the customer (i.e. credit terms)

Existing customers: Determine whether the customer is in good standing (i.e., no late/missed payments). Verify whether the total amount of the order (plus any previous unpaid orders) does not exceed the customer’s credit limit.

If the customer is declined, a letter/phone call/email is typically sent to the customer stating that the order has been suspended until proper payment is received.

Once an order has been approved and is ready for processing, what’s next?

A picking slip or picking ticket, a packing slip, and a bill of lading are generated.

Picking slip/ticket: authorizes the warehouse employee to “pick” the goods out of the warehouse. Lists the quantity and description of each item that is included in the shipment, as well as the location in the warehouse.

Packing slip: a document that identifies the goods that have been shipped to a customer.

Bill of lading: indicates the transfer of custody of goods from the company to a common carrier.

What are the 2 methods for invoicing a customer?

Open-invoice method: customers pay according to each invoice (each sale has its own invoice)

Balance-forward method: customers are sent a monthly statement listing all transactions (sales and payments) during the month and their current account balance (the customer receives one invoice that lists all sales for the month).

What is the A/R subsidiary ledger?

A record of each customer’s sales, cash receipts, returns, and allowances.

The total of all customers’ individual account balances equals the accounts receivable on the balance sheet.

What are the objectives of the purchases and cash disbursements cycle?

• Obtain commitments from suppliers to provide desired goods and services

• Receive desired goods and services from suppliers

• Render payment to suppliers for goods and services

• Return unacceptable goods to suppliers

What is the purchasing process?

• Requirement determination

• Selection of supplier

• Issue purchase order

• Receipt of goods

• Record purchase

What is the cash disbursement transaction process?

• Issue check or ACH

• Update records

Once the check has been issued, the company needs to update the cash disbursements journal and the A/P subs. ledger.

In the cash disbursement journal, cash and purchase discounts are credited and the A/P account is debited.

The ____________________ is used to record individual purchases, cash disbursements, purchase returns, and allowances for each vendor.

A/P subs. ledger

What is the primary purpose of the cash receipts prelist?

To segregate custody of cash from bookkeeping

A write-off of an account as uncollectible will involve a debit to allowance for uncollectible accounts. True or false?

true

What is the correct sequence of documents in a company’s sales return process?

Sales return request, receiving report, credit memo, sales journal, and A/R subledger

What are the federal laws that significantly changed how companies account for payrolls?

• Sixteenth Amendment (1913): Established the federal income tax

• Current Tax Payment Act (1943): Introduced payroll tax withholding

• Social Security Act (1935): Created Social Security taxes

• Medicare and Medicaid Act (1965): Established Medicare taxes

How do you calculate net pay in the payroll cycle?

CHATGPT/VIDEOS

What documents and records are required when preparing a bank reconciliation?

A bank statement including either the items clearing list or all cancelled checks and deposit slips for the period.

The cash receipts journal

The cash disbursements journal

The cash general ledger account

The prior month’s bank reconciliation

What are the steps of performing a bank reconciliation?

1. Write the ending balance from the bank statement and cash balance from the general ledger.

2. Add deposits in transit (Any amounts not found on the items clearing list; For example, a deposit made on April 29 that does not appear on the bank statement as of April 30.)

3. Subtract outstanding checks (checks written by the company that have been recorded in the firm’s cash disbursements journal but have not yet cleared the bank account as of the bank reconciliation date.

4. Record errors and all other items listed on the bank statement.

Examples of errors on bank reconciliations

Examples of adjustments for the bank reconciliation?