Untitled Flashcards Set

Flashcard 1: Fraud Triangle

Q: What are the three elements of the fraud triangle?
A: Pressure, Opportunity, Rationalization

Flashcard 2: Sarbanes-Oxley Act Requirements

Q: What does the Sarbanes-Oxley Act require regarding internal controls?
A: It requires companies to establish, maintain, and evaluate the effectiveness of internal controls over financial reporting.

Flashcard 3: Internal Control Activities

Q: What are some internal control activities?
A: Segregation of duties, authorization of transactions, documentation procedures, physical controls, independent verification, and monitoring.

Flashcard 4: Bonding an Employee

Q: What is the purpose of bonding an employee?
A: It protects the company against losses caused by employee fraud or dishonesty.

Flashcard 5: Collusion Effect on Internal Controls

Q: How does collusion affect internal controls?
A: Collusion between employees can bypass internal controls, making fraud or errors more difficult to detect.

Flashcard 6: Supporting Documents

Q: What are some examples of supporting documents used in recording transactions?
A: Invoices, purchase orders, receipts, contracts, and checks.

Flashcard 7: Receivables

Q: What is a receivable, and why is it important to companies?
A: A receivable is an amount owed to a company by customers. It's important because it represents a future inflow of cash, critical for liquidity.

Flashcard 8: Notes Receivable

Q: What are the features of notes receivable?
A: Written promises to pay a specified amount, with interest, by a certain date.

Flashcard 9: Sales Discount

Q: How do you calculate the cash received when a customer takes a sales discount?
A: Cash Received = Sales Amount - Sales Discount

Flashcard 10: Accounting Issues with Accounts Receivable

Q: What are the three accounting issues related to accounts receivable?
A: Recognition, valuation, and write-offs of uncollectible accounts.

Flashcard 11: Valuation of Accounts Receivable

Q: How is accounts receivable valued on the balance sheet?
A: It is valued at its net realizable value (NRV), the amount expected to be collected.

Flashcard 12: Estimating Uncollectible Accounts

Q: Why do companies estimate uncollectible accounts?
A: To match bad debt expense with revenues in the same period, using the allowance method.

Flashcard 13: Allowance Method - Expense Recognition

Q: When does a company recognize an expense using the allowance method?
A: The expense is recognized in the period when the revenue is earned, not when accounts become uncollectible.

Flashcard 14: Journal Entry for Allowance for Doubtful Accounts

Q: What is the journal entry when adjusting the allowance for doubtful accounts?
A:

• Debit: Bad Debt Expense

• Credit: Allowance for Doubtful Accounts

Flashcard 15: Capitalizing Costs of Plant Assets

Q: What types of costs must be capitalized when acquiring plant assets?
A: Purchase price, installation, legal fees, transportation, and any costs directly related to bringing the asset into operation.

Flashcard 16: Plant Asset Not Depreciated

Q: Which plant asset is not subject to depreciation?
A: Land, because it does not wear out or become obsolete.

Flashcard 17: Loss or Gain on Disposal of Plant Asset

Q: How do you determine the gain or loss on the disposal of a plant asset?
A:

• Gain/Loss = Sale Price - Book Value

Flashcard 18: Expensing vs. Capitalizing Expenditures

Q: When should expenditures be expensed immediately vs. capitalized?
A:

• Expensed immediately: Routine repairs and maintenance.

• Capitalized: Major improvements or additions that extend the asset’s useful life.

Flashcard 19: Depreciation Methods

Q: What are the three methods of calculating depreciation?
A:

• Straight-line: Depreciation=Cost−Salvage ValueUseful Life\text{Depreciation} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}}Depreciation=Useful LifeCost−Salvage Value​

• Declining Balance: Depreciation=Book Value×Depreciation Rate\text{Depreciation} = \text{Book Value} \times \text{Depreciation Rate}Depreciation=Book Value×Depreciation Rate

• Units of Production: Depreciation=(Cost−Salvage ValueTotal Estimated Units)×Units Produced\text{Depreciation} = \left(\frac{\text{Cost} - \text{Salvage Value}}{\text{Total Estimated Units}}\right) \times \text{Units Produced}Depreciation=(Total Estimated UnitsCost−Salvage Value​)×Units Produced