INTERNAL CONTROL IS MAINLY CONCERNED WIHT THE AMOUNT OF AUTHORITY A SUPERVISOR EXERCISES OER A SUBORDINATE.
A HIGHLY AUTOMATED COMPUTERIZED SYSTEM OF ACCOUNTING ELIMINATES THE NEED FOR INTERNAL CONTROL.
THE SAFEGUARDING OF ASSETS IS AN OBJECTIVE OF A COMPANY'S SYSTEM OF INTERNAL CONTROL.
MANAGEMENT IS RESPONSIBLE FOR ESTABLISHING A SYSTEM OF INTERNAL CONTROL.
THE RESPONSIBILITY FOR KEEPING THE RECORDS FOR AN ASSET SHOULD BE SEPARATE FROM THE PHYSICAL CUSTODY OF THAT ASSET.
INTERNAL CONTROL IS MOST EFFECTIVE WHEN SEVERAL PEOPLE ARE RESPONSIBLE FOR A GIVEN TASK.
REQUIRING EMPLOYEES TO TAKE VACATIONS IS A WEAKNESS IN THE SYSTEM OF INTERNAL CONTROLS BECAUSE IT DOES NOT PROMOTE OPERATIONAL EFFICIENCY.
THE EXTENT OF INTERNAL CONTROL FEATURES ADOPTED BY A COMPANY MUST BE EVALUATED IN TERMS OF COST-BENEFIT.
AN EFFECTIVE SYSTEM OF INTERNAL CONTROL REQUIRES THAT AT LEAST TWO INDIVIDUALS BE ASSIGNED TO ONE CASH DRAWER SO THAT EACH CAN SERVE AS CHECK ON THE OTHER.
ONLY LARGE COMPANIES NEED TO BE CONCERNED WITH A SYSTEM OF INTERNAL CONTROL.
THE RESPONSIBILITY FOR ORDERING, RECEIVING, AND PAYING FOR MERCHANDISE SHOULD BE ASSIGNED TO DIFFERENT INDIVIDUALS.
IN ORDER TO PREVENT A TRANSACTION FROM BEING RECORDED MORE THAN ONCE, A COMPANY SHOULD MAINTAIN ONLY ONE BOOK OF ORIGINAL ENTRY.
FIRMS USE PHYSICAL CONTROLS PRIMARILY TO SAFEGUARD THEIR ASSETS.
TRANSACTIONS THAT AFFECT INVENTORIES ON HAND HAVE AN EFFECT ON BOTH THE BALANCE SHEET AND THE INCOME STATEMENT.
MANUFACTURERS USUALLY CLASSIFY INVENTORY INTO TWO CATEGORIES: FINISHED GOODS AND WORK IN PROCESS.
RAW MATERIALS INVENTORIES ARE THE GOODS THAT A MANUFACTURER HAS COMPLETED AND ARE READY TO BE SOLD TO CUSTOMERS.
GOODS THAT HAVE BEEN PURCHASED FOB DESTINATION BUT ARE IN TRANSIT, SHOULD BE EXCLUDED FROM A PHYSICAL COUNT OF GOODS.
WORK IN PROCESS IS THAT PORTION OF MANUFACTURED INVENTORY THAT HAS BENE PLACED INTO THE PRODUCTION PROCESS BUT IS NOT YET COMPLETE.
THE SPECIFIC IDENTIFICATION METHOD OF COSTING INVENTORIES TRACKS THE ACTUAL PHYSICAL FLOW OF THE GOODS AVAILABLE FOR SALE.
MANAGEMENT MAY CHOOSE ANY INVENTORY COSTING METHOD IT DESIRES AS LONG AS THE COST FLOW ASSUMPTION CHOSEN IS CONSISTENT WITH THE PHYSICAL MOVEMENT OF GOODS IN THE COMPANY.
THE FIRST IN, FIRST OUT (FIFO) INVENTORY METHOD RESULTS IN AN ENDING INVENTORY VALUED AT THE MOST RECENT COST.
THE EXPENSE RECOGNITION PRINCIPLE REQUIRES THAT THE COST OF GOODS SOLD BE MATCHED AGAINST THE ENDING MERCHANDISE INVENTORY IN ORDER TO DETERMINE INCOME.
THE SPECIFIC IDENTIFICATION METHOD OF INVENTORY VALUATION IS DESIRABLE WHEN A COMPANY SELLS A LARGE NUMBER OF LOW-UNIT COST ITEMS.
IF A COMPANY HAS NO BEGINNING INVENTORY AND THE UNIT COST OF INVENTORY ITEMS DOES NOT CHANGE DURING THE YEAR, THE VALUE ASSIGNED TO THE ENDING INVENTORY WILL BE THE SAME UNDER LIFO AND AVERAGE COST FLOW ASSUMPTIONS.
IF THE UNIT PRICE OF INVENTORY IS INCREASING DURING A PERIOD, A COMPANY USING THE LIFO INVENTORY METHOD WILL SHOW LESS GROSS PROFIT FOR THE PERIOD, THAN IF IT HAD USED THE FIFO INVENTORY METHOD.
IF A COMPANY HAS NO BEGINNING INVENTORY AND THE UNIT PRICE OF INVENTORY IS INCREASING DURING A PERIOD, THE COST OF GOODS AVAILABLE FOR SALE DURING THE PERIOD WILL BE THE SAME UNDER THE LIFO AND FIFO INVENTORY METHODS.
A COMPANY MAY USE MORE THAN ONE INVENTORY COSTING MTHOD CONCURRENTLY.
USE OF THE LIFO INVENTORY VALUATION METHOD ENABLES A COMPANY TO REPORT PAPER OF PHANTOM PROFITS.
IF A COMPANY CHANGES ITS INVENTORY VALUATION METHOD, THE EFFECT OF THE CHANGE ON NET INCOME SHOULD BE DISCLOSED IN THE FINANCIAL STATEMENTS.
UNDER THE LOWER-OF-COST-OR-MARKET BASIS, MARKET IS DEFINED AS CURRENT REPLACEMENT COST.
ACCOUNTANTS BELIEVE THAT THE WRITE DOWN FROM COST TO MARKET SHOULD NOT BE MADE IN THE PERIOD IN WHICH THE PRICE DECLINE OCCURS.
AN ERROR THAT OVERSTATES THE ENDING INVENTORY WILL ALSO CAUSE NET INCOME FOR THE PERIOD TO BE OVERSTATED.
IF INVENTORIES ARE VALUED USING THE LIFO COST ASSUMPTION, THEY SHOULD NOT BE CLASSIFIED AS A CURRENT ASSET ON THE BALANCE SHEET.
A SEGREGATION OF DUTIES AMON EMPLOYEES ELIMINATES THE POSSIBILITY OF COLLUSION.
FOR EFFICIENCY OF OPERATIONS AND BETTER CONTROL OVER CASH, A COMPANY SHOULD MAINTAIN ONLY ONE BANK ACCOUNT.
CASH REGISTERS ARE AN IMPORTANT INTERNAL CONTROL DEVICE USED IN CONTROLLING OVER THE COUNTER RECEIPTS.
CHECKS RECEIVED IN THE MAIL SHOULD BE IMMEDIATELY STAMPED "NSF" TO PREVENT UNAUTHORIZED CASHING OF THE CHECK.
CONTROL OVER CASH DISBURSEMENTS IS IMPROVED IF MAJOR EXPENDITURES ARE PAID BY CHECK.
IN A VOUCHER SYSTEM, VOUCHERS ARE PREPARED IN THE ACCOUNTS RECEIVABLE DEPARTMENT.
ELECTRONIC FUNDS TRANSFER (EFT) IS A DISBURSEMENT SYSTEM THAT USES TELEPHONE OR COMPUTER TO TRANSFER CASH FROM ONE LOCATION TO ANOTHER.
RETAILERS AND WHOLESALERS ARE BOTH CONSIDERED MERCHANDISERS.
THE STEPS IN THE ACCOUNTING CYCLE ARE DIFFERENT FOR A MERCHANDISING COMPANY THAN FOR A SERVICE COMPANY.
SALES MINUS OPERATING EXPENSES EQUALS GROSS PROFIT.
UNDER A PERCEPTUAL INVENTORY SYSTEM, THE COST OF GOODS SOLD IS DETERMINED EACH TIME A SALE OCCURS.
A PERIODIC INVENTORY SYSTEMS REQUIRES A DETAILED INVENTORY RECOD OF INVENTORY ITEMS.
FREIGHT TERMS OF FOB DESTINATION MEANS THAT THE SELLER PAYS THE FREIGHT COSTS.
FREIGHT COSTS INCURRED BY THE SELLER ON OUTGOING MERCHANDISE ARE AN OPERATING EXPENSE TO THE SELLER.
SALES REVENUES ARE EARNED DURING THE PERIOD CASH IS COLLECTED FROM THE BUYER.
THE SALES RETURNS AND ALLOWANCES ACCOUNT AND THE SALES DISCOUNT ACCOUNT ARE BOTH CLASSIFIED AS EXPENSE ACCOUNTS.
THE REVENUE RECOGNITION PRINCIPLE APPLIES TO MERCHANDISERS BY RECOGNIZING SALES REVENUES WHEN THEY ARE EARNED.
SALES ALLOWANCES AND SALES DISCOUNTS ARE BOTH DESIGNED TO ENCOURAGE CUSTOMERS TO PAY THEIR ACCOUNTS PROMPTLY.
TO GRANT A CUSTOMER A SALES RETURN, THE SELLER CREDITS SALES RETURNS AND ALLOWANCES.
A COMPANY'S UNADJUSTED LANACE IN INVENTORY WILL USUALLY NOT AGREE WITH THE ACTUAL AMOUNT OF INVENTORY ON HAND AT YEAR-END.
FOR A MERCHANDISING COMPANY, ALL ACCOUNTS THAT AFFECT THE DETERMINATION OF INCOME ARE CLOSED TO THE INCOME SUMMARY ACCOUNT.
A MERCHANDISING COMPANY HAS DIFFERENT TYPES OF ADJUSTING ENTRIES THAN A SERVICE COMPANY.
NON-OPERATING ACTIVITIES EXCLUDE REVENUES AND EXPENSES AT RESULT FROM SECONDARY OR AUXILIARY OPERATIONS.
OPERATING EXPENSES ARE DIFFERENT FOR MERCHANDISING AND SERVICE ENTERPRISES.
NET SALES APPEARS ON BOTH THE MULTIPLE-STEP AND SINGLE-STEP FORMS OF AN INCOME STATEMENT.
A MULTIPLE-STEP INCOME STATEMENT PROVIDES USERS WITH MORE INFORMATION ABOUT A COMPANY'S INCOME PERFORMANCE.
THE MULTIPLE-STEP FORM OF INCOME STATEMENT IS EASIER TO READ THAN THE SINGLE-STEP FORM.
TRADE RECEIVABLES OCCUR WHEN TWO COMPANIES TRADE OR EXCHANGE NOTES RECEIVABLE.
OTHER RECEIVABLES INCLUDE NON-TRADE RECEIVABLES SUCH AS LOANS TO COMPANY OFFICERS.
BOTH ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE REPRESENT CLAIMS THAT ARE EXPECTED TO BE COLLECTED IN CASH.
RECEIVABLES ARE VALUED AND REPORTED IN THE BALANCE SHEET AT THEIR GROSS AMOUNT LESS ANY SALES RETURNS AND ALLOWANCES AND LESS ANY CASH DISCOUNTS.
THE 3 PRIMARY ACCOUNTING PROBLEMS WITH ACCOUNTS RECEIVABLE ARE: (1) RECOGNIZING, (2) DEPRECIATING, AND (3) DISPOSING.
ACCOUNTS RECEIVABLE ARE THE RESULT OF CASH AND CREDIT SALES.
IF A RETAILER ASSESSES A FINANCE CHARGE ON THE AMOUNT OWED BY A CUSTOMER, ACCOUNTS RECEIVABLE IS DEBITED FOR THE AMOUNT OF INTEREST.
IF A COMPANY USES THE ALLOWANCE METHOD TO ACCOUNT FOR UNCOLLECTIBLE ACCOUNTS, THE ENTRY TO WRITE OFF AN UNCOLLECTIBLE ACCOUNT ONLY INVOLVES BALANCE SHEET ACCOUNTS.
THE PERCENTAGE OF RECEIVABLES BASIS OF ESTIMATING EXPECTED UNCOLLECTIBLE ACCOUNTS EMPHASIZES INCOME STATEMENT RELATIONSHIPS.
UNDER THE DIRECT WRITE-OFF METHOD, NO ATTEMPT IS MADE TO MATCH BAD DEBTS EXPENSE TO SALES REVENUES IN THE SAME ACCOUNTING PERIOD.
ALLOWANCE FOR DOUBTFUL ACCOUNTS IS DEBITED UNDER THE DIRECT WRITE-OFF METHOD WHEN AN ACCOUNT IS DETERMINED TO BE UNCOLLECTIBLE.
ALLOWANCE FOR DOUBTFUL ACCOUNTS IS A CONTRA ASSET ACCOUNT.
CASH REALIZABLE VALUE IS DETERMINED BY SUBTRACTING ALLOWANCE FOR DOUBTFUL ACCOUNTS FROM NET SALES.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES REQUIRE THAT THE DIRECT WRITE-OFF METHOD BE USED FOR FINANCIAL REPORTING PURPOSES IF IT IS ALSO USED FOR TAX PURPOSES.
UNDER THE ALLOWANCE METHOD, BAD DEBTS EXPENSE IS DEBITED WHEN AN ACCOUNT IS DEEMED UNCOLLECTIBLE AND MUST BE WRITTEN OFF.
UNDER THE ALLOWANCE METHOD, THE CASH REALIZABLE VALUE OF RECEIVABLES IS THE SAME BOTH BEFORE AND AFTER AN ACCOUNT HAS BEEN WRITTEN OFF.
THE PERCENTAGE OF SALES BASIS FOR ESTIMATING UNCOLLECTIBLE ACCOUNTS ALWAYS RESULTS IN MORE BAD DEBTS EXPENSE BEING RECOGNIZED THAN THE PERCENTAGE OF RECEIVABLE BASIS.
AN AGING SCHEDULE IS PREPARED ONLY FOR OLD ACCOUNTS RECEIVABLES THAT HAVE BEEN PAST DUE FOR MORE THAN ONE YEAR.
AN AGING OF ACCOUNTS RECEIVABLE SCHEDULE IS BASED ON THE PREMISE THAT THE LONGER THE PERIOD AN ACCOUNT REMAINS UNPAID, THE GREATER THE PROBABILITY THAT IT WILL EVENTUALLY BE COLLECTED.
SALES RESULTING FROM THE USE OF VISA AND MASTERCARD ARE CONSIDERED CREDIT SALES BY THE RETAILER.
