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BEC IV > 8-2. Accounting System Cycles > Flashcards

8-2. Accounting System Cycles Flashcards

1
Q

Expenditure cycle: Explain the 3 steps flow.

A
  • Gets $ from financing
  • Provide data to the general ledger and reporting
  • Provide raw materials to production
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2
Q

Expenditure cycle: what are core activities?

A
  • Request and authorize purchase: request goods/services, authorize purchase
  • Acquire goods: purchase goods/services
  • Take custody and pay for goods: receive goods/services, disburse cash
  • Return needed?: if so, do and document
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3
Q

Expenditure cycle: what are inherent risks?

A
  • Inappropriately capitalize or expense

* Unrecorded liabilities

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4
Q

Expenditure cycle: who are relevant stakeholders?

A
  • Suppliers: supply products or services: Establishing that suppliers exist and that bills are legitimate and accurate
  • Inbound logistics providers: Deliver needed goods/services (e.g. FedEx etc)
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5
Q

Expenditure cycle: what are important forms (in electronic systems), documents (in paper systems) and files?

A
  • Check or e-check
  • EFT (electronic funds transfer)
  • Purchase order or requisition
  • Vendor invoices
  • Voucher or voucher package
  • Open purchase orders
  • Receiving report
  • Accounts (vouchers) payable balances
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6
Q

Expenditure cycle: check or e-check: purpose and comments/controls?

A

P: Pay vendor for what we bought
C: Often automated for small amounts. Larger amounts require more authorization

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7
Q

Expenditure cycle: EFT: purpose and comments/controls?

A

P: Documented through pmt system
C: Only authorized EFTs are processed

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8
Q

Expenditure cycle: Purchase order or requisition: purpose and comments/controls?

A

P: Specify items ordered, freight terms, shipping address etc
C: Formally requests supplier to sell and deliver products

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9
Q

Expenditure cycle: vendor invoices: purpose and comments/controls?

A

P: Request pmt from customers

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10
Q

Expenditure cycle: Voucher or voucher package: purpose and comments/controls?

A

P: Purchase order and receiving report
C: Indicates accounts debited and credited, who authorized

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11
Q

Expenditure cycle: open purchase orders: purpose and comments/controls?

A

P: Purchases not yet received (and therefore not yet recorded)
C: Useful in testing for liabilities, recorded and unrecorded

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12
Q

Expenditure cycle: receiving report: purpose and comments/controls?

A

P: Were goods received and in good condition? An inspection report
C: Document receipt and condition of goods received

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13
Q

Expenditure cycle: Accounts (voucher) payable balance: purpose and comments/controls?

A

P: Who do we owe? What doe we owe them?
C: Useful in testing for liabilities, recorded and unrecorded

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14
Q

Expenditure cycle: in what areas are accounting and business risks?

A
  • Request and authorize purchase
  • Acquire goods
  • Take custody
  • Pay for goods
  • Return of goods when needed
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15
Q

Expenditure cycle: Request and authorize purchase: what are risks and controls?

A

*Cash through vendor frauds (usually) perpetrated within the organization.
Controls: Request and authorize purchase - control vendor creation

*Ordering unneeded or unauthorized goods/services
C: Require formal process for purchasing, ERP (integrated system) should track all orders and receipts

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16
Q

Expenditure cycle: Acquire goods: what are risks and controls?

A

Purchasing goods at inflated price/of inferior quality/from unauthorized suppliers/ that include kickbacks (gifts from suppliers to purchasing agents)
C:
*Require purchasing agents to disclose relationships
*Use only approved suppliers
*Control system specifies acceptable relationships to and gifts from suppliers
*Periodic review (monitoring) of purchase and purchase orders

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17
Q

Expenditure cycle: Take custody: what are risks and controls?

A

*Receiving unordered or defective goods
*Errors and omissions in counting goods received
*Receiving invoices for goods never ordered or received
C:
*Separation of duties in receipt of goods
*Automated receiving system (bar code or RFID scans) *Automated matching and monitoring of purchase order to goods received

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18
Q

Expenditure cycle: Pay for goods: what are risks and controls?

A

*Errors in vendor invoices (usually in their not your favor)
*Paying the same invoice multiple times
*Paying for goods not received
*Recording and posting errors in accounts payable
C:
*Matching of received items to vendor invoices/budgetary controls and monitoring of costs compared to expected costs
*Using voucher system to authorize pmt of invoices that are tracked through inspection process

*Failing to take available purchase discounts
C: automate pmts processes/monitor discounts taken and foregone

*Misappropriating checks, e-checks, cash or EFTs
C: Segregation of duties for pmts preparation and approvals/vendor creation controls/processing controls over EFTs

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19
Q

Expenditure cycle: Return of goods: what are risks and controls?

A

*Purchasing goods and return them, in collusion with employees, to both get a refund and the goods.

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20
Q

Expenditure cycle: what is procurement?

A

The act of obtaining or buying goods and services. The process includes preparation and processing of a demand as well as the end receipt and approval pmt.

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21
Q

Expenditure cycle: what is capitalize?

A

An accounting method used to delay the recognition of expenses by recording the expense as a long term asset.

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22
Q

Expenditure cycle: what is kickbacks?

A

Illegal pmt to a recipient as compensation or reward for providing favorable treatment.

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23
Q

Production cycle: what is concerned with?

A

With manufacturing physical products.

Some aspects also apply to virtual (digital) products.

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24
Q

Production cycle: what are 5 steps?

A
  1. Gets labor from HR/payroll
  2. Gets $ from finance
  3. Gets raw materials from expenditure
  4. Provides data to general ledger and reporting
  5. Provides finished goods to revenue
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25
Q

Production cycle: what are core activities?

A
  • Forecast sales
  • Plan production
  • Product design
  • Authorize production
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26
Q

Production cycle: forecast sales: what are systems that could help?

A

Manufacturing resource planning (MRP)

Just-in-time (JIT) manufacturing systems

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27
Q

Production cycle: forecast sales: what is MPS?

A
  • Master production schedule: specifies how much and when to produce.
  • Use computer-integrated manufacturing to define
  • Use of IT to fully or partially automate the production process
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28
Q

Production cycle: forecast sales: what is production order?

A

Authorize manufacturing.

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29
Q

Production cycle: what is materials requisition?

A

Authorize moving materials from storeroom to production.

30
Q

Production cycle: what is production process?

A
  • Receive raw materials into production
  • Vary greatly by product and level of technology:
  • computer-integrated manufacturing (CIM) use IT to automate production process
  • many production processes are partially or fully integrated with robotics (i.e. the use of robots to execute production tasks)
31
Q

Production cycle: what are inherent risks?

A
  • Inventory manipulations: frauds built on inflated or falsified inventory value
  • Inventory mark-downs: e.g. has obsolete inventory been written down to its true (reduced) value? Do we have monitoring processes for periodic reviews?
32
Q

Production cycle: who are relevant stakeholders?

A
  • Production workers - make the stuff to sell

* Raw materials suppliers: does suppliers exist? Are billed legitimate and accurate?

33
Q

Production cycle: what are important files, forms, documents?

A
  • Bill of materials
  • Master production schedule
  • Materials requisition or materials transfer ticket
  • Move tickets
  • Operation list
  • Inventory report
34
Q

Production cycle: Bill of materials: what are purpose and comments/controls?

A

P: Specifies part number, description and qty of each components
C: Match goods produced to detect over or under use of materials

35
Q

Production cycle: Master production schedule: what are purpose and comments/controls?

A

P: Plan indicating how and when to produce
C: Result from sales forecasts, and production design and planning

36
Q

Production cycle: Materials requisition or materials transfer ticket: what are purpose and comments/controls?

A

P: Authorize moving raw materials from storeroom to production
C: Match to physical materials received

37
Q

Production cycle: Move tickets: what are purpose and comments/controls?

A

P: Identify parts to be transferred, their destination, and the time of transfer
C: May be a part of a scanning or RFID system

38
Q

Production cycle: Operation list: what are purpose and comments/controls?

A

P: Sequence of steps in making a product
C: Used in complex production processes

39
Q

Production cycle: Inventory report: what are purpose and comments/controls?

A

P: For raw materials, goods in process, finished goods
C: May be online or (less often now) on paper

40
Q

Production cycle: Accounting and business risks and controls for inventory?

A
  • Managing inventory levels to avoid stock outs (lost sales) and too much inventory (carrying costs)
  • Inventory theft or destruction
41
Q

Production cycle: Accounting and business risks and controls for inventory: managing inventory level?

A
  • increasing use of Just-in-Time methods
  • Inventory control and sales forecasting systems: online, real-time inventory systems; periodic physical counts of inventory
  • regular review of sales forecasts and adjustment
42
Q

Production cycle: Accounting and business risks and controls for inventory: inventory theft?

A
  • physically securing inventory and restricting access
  • documenting inventory transfers
  • releasing inventory for shipping only with approved sales order
  • accountability: employees handling inventory should sign the documents or enter their codes online to ensure accountability
  • wireless communication and RFID tags provide real-time tracking
  • periodic counts of inventory, increasingly by RFID tags (a near continuous control)
  • insurance (self-ins or third party)
43
Q

Production cycle: Accounting and business risks and controls for fixed assets?

A
  • Major asset acquisitions are approved and supplied by approved vendors
  • Existence, proper valuation, theft or abuse
  • Capitalization vs expenditure
  • Under or over-investment
  • Theft or destruction
44
Q

Production cycle: Accounting and business risks and controls for inventory: major assets acquisition?

A

*Approved by board (or top management) and properly controlled through capital budgeting techniques

45
Q

Production cycle: Accounting and business risks and controls for inventory: Existence, proper valuation, theft or abuse?

A
  • Detailed records document assets and accumulated depreciation
  • Depreciation properly calculated and posted
  • Retirements approved by appropriate management
  • Property disposition follows approved procedures
  • Physical control and security over assets
  • Periodic physical inspection of plant and equipment by individuals independent of property, plant, and equipment (e.g. internal auditors)
46
Q

Production cycle: Accounting and business risks and controls for inventory: Capitalization vs expenditure?

A

*Written policies for capitalization vs expensing decisions exist, and are followed and monitored.

47
Q

Production cycle: Accounting and business risks and controls for inventory: Under or over-investment?

A
  • System for monitoring fixed asset ownership, warranties, repairs that links to production planning
  • Budgetary system integrates with fixed asset system
48
Q

Production cycle: Accounting and business risks and controls for inventory: Theft or destruction?

A

*Control list related to theft or destruction of inventory

49
Q

Production cycle: what is MRP?

A

Manufacturing resource planning.
An integrated information system used by businesses. Manufacturing resource planning evolved from early materials requirement planning system by including the integration of additional data, such as employee and financial needs.

50
Q

Production cycle: Define JIT.

A

A manufacturing system in which materials or components are delivered immediately before they are required in order to minimize inventory costs.

51
Q

HR/Payroll cycle: what are 3 steps?

A
  • Gets funds from the financial cycle
  • Provides data to general ledger and reporting system
  • Provides labor to production
52
Q

HR/Payroll cycle: what are core activities?

A
  • Recruiting and hiring employees
  • Training and developing employees’ skills
  • Supervision and job assignments: time keeping
  • Salaries and benefits: compensation (payroll), employee benefits (e.g. medical, health, life ins, parking, fitness etc), taxes and wages and benefits, vacations/time off
  • Monitoring and evaluation: performance evaluation
  • Transitions: discharging employees due to voluntary and involuntary termination, facilitate employee retirement
53
Q

HR/Payroll cycle: what are inherent risks?

A

*Ghost employees
Hiring people who don’t exist.
Terminated employees’ checks received by “mountebanks” (i.e. someone who tricks others out of their money)

54
Q

HR/Payroll cycle: Relevant stakeholders?

A

Employees:

  • establishing that employees exist and that their bills are legitimate and accurate
  • HR service providers, including HMOs, financial services companies, retirement companies, banks, credit unions, life ins companies
  • Federal, State, and other governments: wage-related taxes
55
Q

HR/Payroll cycle: important files, forms and documents?

A

*Cumulative earnings register
*Workforce inventory
*Position control report
Skills inventory report
*US Form 941
*US Form W-2

56
Q

HR/Payroll cycle: Cumulative earnings register: purpose and comments/controls?

A

P: Accumulates year-to-date pay and deductions
C: Review to match to pay rates and by supervisors to confirm hours

57
Q

HR/Payroll cycle: Workforce inventory: purpose and comments/controls?

A

P: List of employees by deptmt
C: Trace to payroll records and identifying real humans. Review to ensure terminations are posted

58
Q

HR/Payroll cycle: Position control report: purpose and comments/controls?

A

P: List of each position, job qualification, budgeted salary, and position status
C: Similar function to workforce inventory

59
Q

HR/Payroll cycle: Skills inventory report: purpose and comments/controls?

A

P: List of employees and current skills

60
Q

HR/Payroll cycle: US Form 941: purpose and comments/controls?

A

Employer’s quarterly federal tax return (shows wages subject to tac and amounts withheld)

61
Q

HR/Payroll cycle: US Form W-2: purpose and comments/controls?

A

P: Report of wages and withholdings for each employee
C: Often now posted to website

62
Q

HR/Payroll cycle: accounting and business risks?

A
  • Recruiting and hiring employees: hiring unqualified or illegal employees
  • Training and developing employees’ skills
  • Supervision and job assignments
  • Salaries and benefits
  • Segregation of duties
  • Monitoring and evaluation
  • Transitions
63
Q

HR/Payroll cycle: accounting and business risks and controls: Recruiting/hiring?

A
  • Follow law, regulation, and organizational procedures for hiring
  • Distinguish (according to law) employees from independent contractors
64
Q

HR/Payroll cycle: accounting and business risks and controls: training and developing employees’ skills?

A

*Retaining high-performing employees is critical to most organizations’ success

65
Q

HR/Payroll cycle: accounting and business risks and controls: supervision/job assignments?

A

*Timekeeping: increasingly automated (e.g. scanned badge readers). Automating this function generally improves controls by reducing segregation duties concerns.

66
Q

HR/Payroll cycle: accounting and business risks and controls: Salaries/benefits?

A
  • Compensation -payroll activities: may be based on hours, self-reports, commissions, fixed salaries, or bonuses
  • Payroll accounting activities: often outsourced, pay by direct deposit, payroll dept validates and monitors employee records
  • Goals: proper authorization, validity, recording, accuracy
67
Q

HR/Payroll cycle: accounting and business risks and controls: Segregation of duties?

A

*If low automation, segregate: timekeeping, payroll preparation, personnel management, paycheck distribution

68
Q

HR/Payroll cycle: accounting and business risks and controls: Monitoring and evaluation?

A

*Performance evaluation: should be regular, systematic, unbiased, and follow organizations’ policies

69
Q

HR/Payroll cycle: accounting and business risks and controls: Transition?

A

*Facilitate employee retirement: follow policies and procedures

70
Q

HR/Payroll cycle: define human resource management.

A

The function within an organization that focuses on the recruitment of, management of, and providing direction for the people who work in an organization.

71
Q

HR/Payroll cycle: define ghost employees.

A

Someone in the payroll system, who does not work for the organization.

72
Q

HR/Payroll cycle: define workforce inventory.

A

List of employees by dept, useful in tracing to payroll records and identifying that these are real humans. Important to review and monitor to ensure terminations are posted in a timely manner.

BEC IV (12 decks)

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