Unit 3 Accounting Technique based

What are internal controls?

Systems and procedures that safeguard assets, ensure accurate accounting, promote efficiency, and enforce company policies.

Why are internal controls important?

They prevent fraud and errors, protect company assets, and ensure reliable financial reporting.

Main principles of internal control?

Segregation of duties, authorization, documentation, physical safeguards, and independent verification, qualities of employees, performance evaluations

What is segregation of duties?

Separate authorization, record keeping, and custody of assets to prevent fraud

What is bonding?

Insurance that protects the company from employee dishonesty.

Why are required absences important?

They help detect fraud or irregularities that might go unnoticed otherwise.

What is Accounts Receivable?

Money owed by customers for credit sales.

What is the Allowance for Doubtful Accounts (ADA)?

A contra-asset estimating uncollectible receivables.

What is Bad Debt Expense?

Estimated cost of uncollectible accounts in a period.

Adjusting Entry for Estimated Uncollectibles

Bad Debt Expense ▪ Dr

Allowance for Doubtful Accounts ▪ Cr

Write-off Entry

Allowance for Doubtful Accounts ▪ Dr
Accounts Receivable ▪ Cr

Recovery of a Write-off

Accounts Receivable ▪ Dr
Allowance for Doubtful Accounts ▪ Cr

Cash ▪ Dr
Accounts Receivable ▪ Cr

Net Realizable Value (NRV)

A/R – ADA

A/R Turnover Ratio

Net Credit Sales ÷ Average A/R

Higher turnover = faster collections and better efficiency.

FIFO

First goods purchased = first sold. Ending inventory = recent costs.

LIFO

Last goods purchased = first sold. Ending inventory = older costs

Weighted Average

Uses average cost per unit for all goods available.

Under inflation:

• Highest income → FIFO

• Highest COGS → LIFO

Inventory Turnover Ratio

COGS ÷ Average Inventory

Higher turnover = faster sales & efficient inventory management.

Lower of Cost or Market (LCM):

Inventory must be reported at the lower of cost or market value.

Classified Balance Sheet

Separates assets and liabilities into current & long-term categories.

Multistep Income Statement

Shows gross profit, operating income, and net income in stages.

Current Ratio:

Current Assets ÷ Current Liabilities

Measures short-term liquidity; higher ratio = stronger ability to pay debts.

Operating Cycle

Time to purchase inventory, sell it, and collect cash. Shorter = more efficient.

Adjusting Entry for Interest

Interest Expense ▪ Dr
Interest Payable ▪ Cr

Petty Cash

Small fund for minor expenses; replenished by recording actual expenses.

True Cash Balance

Bank balance adjusted for outstanding checks, deposits in transit, and errors

Markup on Cost

(Gross Margin ÷ Cost of Goods Sold) × 100

Days Ratio (Days in Inventory)

360 ÷ Inventory Turnover

What is the difference between a standard normal distribution and a nonstandard normal distribution?

A standard normal distribution has a mean of 0 and a standard deviation of 1. A nonstandard normal distribution has any other mean and/or standard deviation.

The total area under any density curve is equal to ________.

1

What two requirements must be true for a normal distribution to be a standard normal distribution?

1. The mean must be 0.

2. The standard deviation must be 1.

Birth weights are normally distributed with mean 3152 g and SD 693.4 g. After converting all weights to z-scores, what are the new mean and standard deviation?

• Mean of all z-scores = 0

• Standard deviation of all z-scores = 1

Unbiased estimators:

• Sample mean

• Sample proportion

• Sample variance

Biased estimators:

• Sample standard deviation

• Sample median

• Range