chap 6 financial statement cycles

Question 1

which cycle is the primary focus of most audits?

Answer 1

sales and collection cycle

Question 2

transactions in the acquistion and pyament cycle include what?

Answer 2

purchase of inventory,supplies and other goods and services related to operations

Question 3

what is the only cycle that doesnt recieve inflows directly from general cash or give outflows directly to general cash

Answer 3

I&W

Question 4

Audits are performed by dividing what into smaller segments or components?

Answer 4

the FS

Question 5

what is the most important general ledger account included in and affecting several cycles?

Answer 5

general cash (cash in bank) . this connects most cycles

Question 6

T/F Cycles have no beginning or end excep t at the origin and final disposition of a company

Answer 6

T

Question 7

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?

Answer 7

1. 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.

Question 8

why is inventory included as a separate cycle?(2)

Answer 8

1. 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

Question 9

what is the cycle approach?

Answer 9

divides classes of transactions and account balances that are closely related into segments.

Question 10

what is the logic of using the cycle appraoch?

Answer 10

it ties to the way transactions are recorded in journals and summarized in the GL and FSs

Question 11

What is used to prepare the FSs and is the primary focus of every audit

Answer 11

the trial balance

Question 12

Which two cycles are similar in nature but the function are sufficiently different to justify separate cycles?

Answer 12

A&P and P&P

Question 13

what are the 3 cycles that receive outflow from general cash?

Answer 13

CA&R and A&P and P&P

Question 14

T/F inventory and warehousing cycle is not closely related to all other cycles

Answer 14

F

Question 15

All of what are included in the cycle breakdown for a company? (2)

Answer 15

1. general ledger accounts 2. journals

Question 16

the combined result of the cycles A&P and P&P is what ?

Answer 16

inventory (I&W cycle)

Question 17

what is the primary operating inflow to cash in the bank?

Answer 17

collections on trade A/R in the cash receipts journal

Question 18

transactions in the capital acquisition and repayment cycle are related to what?

Answer 18

financing the business, such as issuing stock or debt, paying dividends, and repaying debt

Question 19

what are the 2 cycles that general cash receives inflows from?

Answer 19

CA&R and S&C

Question 20

which cycle is closely related to the acquisition and payment cyle?

Answer 20

capital acquitsion and repayment cycle

Question 21

T/F Each account in the trail balance has at least one cycle associated with it

Answer 21

T

Question 22

T/F In the audit each segment is audited separately but not on a completely independent basis

Answer 22

T

Question 23

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?

Answer 23

cycle approach

Question 24

Some journals and general ledger accounts are included in more than one cycle? what does this mean

Answer 24

the journal is used to record transactions from more than one cycle and indicates a tie-in between the cycles

Question 25

put what cycle each belongs to related to the cost of inventory 1. raw materials 2. direct labor 3. manufacturing overhead 4. finished goods

Answer 25

1. A&P 2. P&P 3. A&P and P&P 4. S& C

Question 26

what are the only two accounts in the trial balance that are part of two or more cycles

Answer 26

cash and inventory

Question 27

how is the capital acquisition and repayment cycle related to the inventory and warehousing cycle for manufacturing and retail companies?

Answer 27

because inventory is material for most manufacturing and retial compnaies, it is common to borrow money using inventory as security.

Question 28

what are the 5 cycles used in this text?

Answer 28

1. sales and collection 2. acquistion and payment 3. payroll and personnel 4. inventory and warehousing 5. capital acquisition and repayment