chap 6 financial statement cycles Flashcards
which cycle is the primary focus of most audits?
sales and collection cycle
transactions in the acquistion and pyament cycle include what?
purchase of inventory,supplies and other goods and services related to operations
what is the only cycle that doesnt recieve inflows directly from general cash or give outflows directly to general cash
I&W
Audits are performed by dividing what into smaller segments or components?
the FS
what is the most important general ledger account included in and affecting several cycles?
general cash (cash in bank) . this connects most cycles
T/F Cycles have no beginning or end excep t at the origin and final disposition of a company
T
although the same journals are used fro transactions in the acquisition and payment and the capital acquisition and repayment cycles, it is usefuld to separate the capital acquistion and repayment transactions into a separate transaction cycle for what 2 reasons?
- capital acquisitions and repyaments relate to financing the business rather than operations 2. most capital acquistiona and repyament cycle accounts involve few transactions, but each is often highly material and therefore should be audited extensively.
why is inventory included as a separate cycle?(2)
- it is related to other cycles 2. for most manufacturing and retail companies, inventory is usually highly material, there are unique systems and controls for it, and it is often complex to audit
what is the cycle approach?
divides classes of transactions and account balances that are closely related into segments.
what is the logic of using the cycle appraoch?
it ties to the way transactions are recorded in journals and summarized in the GL and FSs
What is used to prepare the FSs and is the primary focus of every audit
the trial balance
Which two cycles are similar in nature but the function are sufficiently different to justify separate cycles?
A&P and P&P
what are the 3 cycles that receive outflow from general cash?
CA&R and A&P and P&P
T/F inventory and warehousing cycle is not closely related to all other cycles
F
All of what are included in the cycle breakdown for a company? (2)
- general ledger accounts 2. journals
the combined result of the cycles A&P and P&P is what ?
inventory (I&W cycle)
what is the primary operating inflow to cash in the bank?
collections on trade A/R in the cash receipts journal
transactions in the capital acquisition and repayment cycle are related to what?
financing the business, such as issuing stock or debt, paying dividends, and repaying debt
what are the 2 cycles that general cash receives inflows from?
CA&R and S&C
which cycle is closely related to the acquisition and payment cyle?
capital acquitsion and repayment cycle
T/F Each account in the trail balance has at least one cycle associated with it
T
T/F In the audit each segment is audited separately but not on a completely independent basis
T
A common way to divide an audit it to keep closely related types or classes of transactions and account balances in the same segment. What is this approach called?
cycle approach
Some journals and general ledger accounts are included in more than one cycle? what does this mean
the journal is used to record transactions from more than one cycle and indicates a tie-in between the cycles
put what cycle each belongs to related to the cost of inventory 1. raw materials 2. direct labor 3. manufacturing overhead 4. finished goods
- A&P 2. P&P 3. A&P and P&P 4. S& C
what are the only two accounts in the trial balance that are part of two or more cycles
cash and inventory
how is the capital acquisition and repayment cycle related to the inventory and warehousing cycle for manufacturing and retail companies?
because inventory is material for most manufacturing and retial compnaies, it is common to borrow money using inventory as security.
what are the 5 cycles used in this text?
- sales and collection 2. acquistion and payment 3. payroll and personnel 4. inventory and warehousing 5. capital acquisition and repayment
