SI Review: Chapters 5-9

  1. Who are the internal users of the financial statements? External users?

Internal: Managers, Board of Directors

External: Creditors, Investors, Government

  1. What three things are needed in order for someone to commit fraud?

Incentive, Opportunity, Character

  1. How did the SOX Act impact financial accounting?

It called for more internal controls and greater penalties if caught.

  1. Explain the difference between a 10K, 8K, and a 10Q.

10K: Annual Report

8K: Special events

10Q: Quarterly reports

  1. What does IFRS stand for? What is it?

IFRS: International Financial Reporting Standards

Accounting rules that all other countries other than the US follow for financial reporting.

  1. Explain the difference between comparability and consistency. Relevance vs. Reliability.

Comparability: compare two different companies in the same time period

Consistency: use the same company accounting procedures year after year

Relevance: Information is timely and it has predictive value

Reliability: Information is verifiable and unbiased

  1. Give an example for the following types of businesses: service, merchandising, & manufacturing.

Service: Geek Squad

Merchandising: Best Buy

Manufacturing: Dell

  1. State examples of how companies manage internal controls.

Segregation of duties, establish responsibilities, restrict access, document procedures

  1. True or False: Cash equivalents are highly liquid investments with one year or less to maturity?
  2. Calculate COGS if Beginning Inventory is $2394, Ending Inventory is $1087, and Purchases are $4570.

COGS= $5877

  1. Explain what happened when a physical count of inventory was $3234 but the Ending Inventory on the books was $3236.

Theft, spoilage, breaks- shrinkage

  1. Give the journal entries for the following items.
  2. Sold cooking merchandise on account on March 1 to Aunt B’s Bakery for $175 with terms 2/10, n/30.

Accounts Receivable175

Sales Revenue175

  • Sold baking merchandise on account on March 7 to Page’s Bakery for $210 with terms 3/15, n/45.

Accounts Receivable210

Sales Revenue210

  • Page’s Bakery paid the full amount owed on March 19.

Cash203.70

Sales Discount6.30

Accounts Receivable210

  • Aunt B’s Bakery returned $20 of items back on March 20.

Sales Returns/Allowance20

Accounts Receivable20

  • Aunt B’s Bakery paid the full amount owed on March 25.

Cash155

Accounts Receivable155

  1. What is the difference between FOB Shipping and FOB Destination?

FOB Shipping: Buyer pays for the transportation costs- Buyer retains ownership when the item leaves the factory

FOB Destination: Seller pays for the transportation costs- Buyer retains ownership when the item gets to the destination

  1. What is the primary objective of financial reporting?

Provide useful information for investing and credit decisions, in assessing future cash flows, and about enterprise resources, claims to resources, and changes in them.

  1. Find COGS using LIFO

Jan 1. / Beg. Inventory / $2000 / 4 units
Jan. 30 / Purchase / 3000 / 5 units bought
March 14 / Sale / 1400 / 7 units sold
May 1 / Purchase / 1700 / 10 units

COGS = $4000

  1. True or False: Auditors read all the financial material and make sure the accounting report is followed by US GAAP?