BEC Accounting Cycle Flashcards
The accounting cycle begins by recording _____________ in the form of journal entries.
Business transactions (economic agreement between two entities to exchange goods or services or any other event that can be measured in economic terms)
Accounting cycles:
- Revenue cycle—Interactions with customers (give goods; get cash)
- Expenditure cycle—Interactions with suppliers (give cash; get goods)
- Production cycle—Give labor and raw materials; get finished product.
- Human resources/payroll cycle—Hire, use, and develop labor; give cash and benefits.
- General ledger, reporting, financing cycle—Give cash; get cash; report financial outcomes. Gets data from all cycles.
Accounting cycle as set of accounting procedures:
- Analyze transactions and business documents.
- Journalize transactions.
- Post journal entries to accounts.
- Determine account balances and prepare a trial balance.
- Journalize and post adjusting entries.
- Prepare financial statements and reports.
- Journalize and post closing entries.
- Balance the accounts and prepare a post-closing trial balance.
The most important document in the billing process is the
Sales invoice
Hildegard works at Amazon in the warehouse. What is the screen called that she most likely uses to assemble the goods for customers’ orders for shipping?
Picking ticket, tells you items to be pulled from warehouse and then packing list tells you which items to ship and bill of lading is authorization to ship.
____ is a legal contract that defines responsibility for goods that are in transit.
Bill of lading
Core activities of revenue cycle:
- Sales- Receive customer orders, Approve customer credit
- Custody of Products/Services-Fill the order and prepare for shipping, Ship or deliver the product.
- Accounts Receivables-Bill, Manage receivables (e.g., returns and allowances)
- Cash- Collection and receipt of payments.
Inherent risks of revenue cycle:
- Revenue recognition- is it real? must be realized/realizable and earned
- Are those receivables collectible?- estimating collectability is subjective
- Customer returns and allowances- subjective
Revenue cycle stakeholders:
- Customers
2. Outbound logistics providers (ex. FedEx)
Sales issues in revenue cycle:
- Customer abandons order before completion
- High payment processing fees
- Incomplete/inaccurate customer orders- automate data entry, perform data entry checks
- Fake sales or sales inconsistent with policy- appropriate authorization (receipt of signed purchase order), evidence of existing customer
Receivables and account issues in revenue cycle:
- Grand credit to undeserving customers-segregation of sales from credit checking
- Failure to bill customers- need segregation of duties
- Receivables inappropriately written off- segregation of sales and cash receipts from authorization to write-off
- Billing and customer account errors
Customer order/sales order
Documents order, including items, prices and stock numbers
Customer invoice
Client’s bill
Reggie is the purchasing agent for a wholesale paint store (Ye Ol’ Paint Pots) that sells only to large chains. Reggie’s cousin, Earl the Earl, owns a small paint store. Reggie arranged for paint to be delivered from paint manufacturers to Earl the Earl’s store, thereby allowing Earl the Earl to get the paint at a wholesale (cheaper) price, which violates a policy of Ye Ol’ Paint Pots. The control that is most likely to have prevented this violation of policy is:
Segregation of the receiving function from the purchasing function
Core activities of expenditure cycle:
- Request and Authorize Purchase
- Acquire Goods
- Take Custody and Pay for Goods
- Return Needed? If so, return it and document the return.
Stakeholders in expenditure cycle:
- Suppliers
2. Inbound logistics providers
Accounting/Business Risks and Controls in expenditure cycle:
- Request and authorize purchase- controls to prevent fake vendors or unauthorized purchases
- Acquire goods- only from approved suppliers
- Take custody- segregation of receiving from other expenditure cycle activities
- Pay for goods
Purchase order (requisition)
Specify items ordered, freight terms, shipping address and other vendor information.
Receiving report
Were goods received and in good condition?
Voucher or voucher package
PO and receiving report
Bill of materials
Specifies part number, description and quantity of each component used in making product.
Master production schedule (MPS)
Plan indicating how much of each product to produce and when to produce it.
Materials requisition
Authorize moving raw materials from storeroom to production.
Move tickets
Identify parts to be transferred, their destination and time of transfer. Often part of scanning or RFID system.
Operations list
Sequence of steps in making a product, which equip to use and how long each step requires.
Requiring direct deposits instead of paying employees by checks improves accounting controls by:
Reducing the likelihood of the theft of payroll payments.
Core activities of HR/Payroll cycle:
- Recruiting and Hiring Employees- follow laws when hiring
- Training and Developing Employees’ Skills-retaining high performers
- Supervision and Job Assignments
- Salaries and Benefits- compensation, benefits and taxes on wages and benefits
- Monitoring and Evaluation
- Transitions
Cumulative earnings register
Accumulates YTD gross and net pay, and deductions by EE
Workforce inventory
List of EEs by department
Position control report
Lists each position, job qualifications, salary and status (filled or unfilled)
Skills inventory report
List of EEs and current skills
US Form 941
Employer’s quarterly federal tax return (wages subject to tax and amounts withheld for income tax and FICA)
US Form W-2
Report of wages and withholdings for each EE
US Form W-3
Summary of all W-2 forms
US Form 1-99 Misc
Report of income paid to indep contractors
Reconciling the accounts receivable control and subsidiary accounts is useful in ensuring that:
All credit sales transactions are recorded. Because credit sales should appear in the subsidiary ledger (and obviously, in aggregate, in the control account), this activity will be useful in determining that all credit sales are recorded.
In the accounting cycle, closing journal entries:
Transfer balances in temporary accounts to retained earnings.
Adjusting journal entries are of additional concern when they are
Unusual and manually posted.
General journal
Journal for recording non-routine (closing and reversal entries), very important to review for fraud
Control and subsidiary accounts
Subsidiary accounts maintain the details and sum to control account balance.
At what phase in the systems development process is a report generated that describes the content, processing flows, resource requirements, and procedures of a preliminary system design?
Conceptual systems design since it talks about a preliminary design.
Purpose of the Systems Development Life Cycle (SDLC) method
Provides a structured approach to the systems development process by identifying key roles/responsibilities, establishing critical activities to measure progress and requires project review/approval at critical points.
Roles in the SDLC method
- IT Steering Committee— principal duty is to approve and prioritize systems proposals for development.
- Lead Systems Analyst— responsible for all direct contact with the end user, developing the overall programming logic and functionality
- Application Programmers— under direction of the lead analyst, responsible for writing/designing/creatingtesting program.
- End Users- identify problems and propose initial solutions
Stages of SDLC method:
Stage 1—Planning and Feasibility Study- includes critical success factors, scope, milestones and responsibilities
Stage 2- Analysis- systems analysts work with end users to understand the business process and document the requirements (requirements definition document signed at this stage); collaboration of IT and end users to define the system is joint application development (JAD).
Stage 3—Design—the technical specifications of the system are established
Stage 4—Development—programmers use the systems design specifications to develop the program and data files
Stage 5—Testing
Stage 6- Implementation- includes moving data to new system and training EEs
Stage 7-Maintenance
Types of system implementation:
- Parallel
- Direct cutover, cold turkey
- Phased- system divided up to implement
- Pilot- EEs dividing into groups to implement
Which of the following techniques would be used to verify that a program was free of unauthorized changes?
Source code comparison program, used to compare an archived version of the program to the program actually in use.
An audit trail is considered what type of control?
Processing
What is the primary objective of data security controls?
To ensure that storage media are subject to authorization prior to access, change or destruction.
