ACC 221 Exam 2

Control Activities - Preventative

separation of duties, physical controls, authorization, employee management, e-commerce controls

Control Activities - Detective

reconciliations, audits, performance reviews

Three components of the fraud triangle

Pressure/motivation, rationalization, opportunity

Cash

money in checking/savings accounts, cash, checks, coins, debit and credit cards

Cash equivalents

Short-term investments maturing in three months or less

Common Bank Rec Items - Company

outstanding checks, deposits in transit

Common Bank Rec Items -Bank (Cash side)

NSF checks, interest earned, EFTs, bank fees, errors

Revenue recognition principle

we can only record revenue that we are entitled to receive

Net revenue (sales) equation

total sales - sales discounts, sales returns & sales allowances

Adjusting entry for how much of our AR we expect to be uncollectable

Dr Bad Debt Expense, Cr AFDA

Write offs for customers who do not pay their credit

Dr AFDA Cr AR

Collection after write off

Restore AR and reverse the write-off, record transaction as normal

Receivables turnover ratio

net credit sales/average accounts receivable

Average Collection Period

365 days/receivables turnover ratio

Recording note issuance to customer

debit notes receivable, credit revenue,

Recording note issuance to non-customer

Debit notes receivable, credit cash

interest revenue equation

face value x annual interest x fraction of the year

merchandising inventory

the company buys finished goods to then sell at a mark up

Ending inventory balance

beginning balance + purchases = cost of goods available for sale

gross profit

revenue - COGS

operating income

gross profit - operating expenses

Income before income taxes

operating income - non-operating activities

net income

revenues - all expenses

gross profit ratio

gross profit/net sales

specific identification

matches the actual cost with particular unit, high value items

FIFO

assumes that the first units purchased into inventory are the first out

LIFO

assumes last units purchased into inventory are the first out

Weighted Average Cost

assumes a random mixture of timing

Unit cost equation

cost of goods available for sale/# of units available for sale