Exam 3 Flashcards
Inventory Turnover =
Cost of Goods Sold divided by Average Inventory
Days in Inventory =
365 divided by Inventory Turnover
Gross Profit =
Net Sales minus Cost of Goods Sold
Gross Profit Rate =
Gross Profit divided by Net Sales
Net Income =
Gross Profit minus Operating Expenses
A system that collects and processes transaction data and communicates financial information to decision-makers.
Accounting Information System
A subsidiary ledger that collects transaction data of individual creditors.
Accounts payable (creditors’) subsidiary ledger
A subsidiary ledger that collects transaction data of individual customers
.Accounts receivable (customers’) subsidiary ledger
A special journal that records all disbursements of cash. DR Other Accounts, DR Accounts Payable, CR Inventory, CR Cash.
Cash payments (cash disbursements) journal
A special journal that records all cash received. DR Cash, DR Sales Discounts, CR Accounts Receivable, CR Sales Revenue, CR Other Accounts, DR/CR COGS/Inventory.
Cash receipts journal
An account in the general ledger that summarizes subsidiary ledger data.
Control Account
A crime that involves the Internet, a compuyter system, or computer technology.
Cybercrime
A system in which someone performs each of the steps int he accounting cycle by hand.
Manual accounting system
A special journal that records all purchases of merchandise on accoun. DR/CR Inventory/Accounts Payable.
Purchases journal
A special journal that records all sales of merchandise on account. DR/CR Accounts Receivable/Sales Revenue, DR/CR COGS/Inventory.
Sales Journal
Journals that record similar types of transactions, such as all credit sales.
Special Journals
A group of accounts with a common characteristic.
Subsidiary ledger
Resources that consist of coins, currency, checks, money orders, and money on hand or on deposit in a bank or similar depository.
Cash
Short-term, highly liquid investments that can be converted to a specific amount of cash.
Cash equivalents
A written order signed by a bank depositor, directing the bank to pay a specified sum of money to a designated recipient.
Check
Initiative to provide guidance on enterprise risk management, internal control, and fraud deterrence.
Committee on Sponsoring Organizations (COSO)
Deposits recorded by the depositor but not yet recorded by the bank.
Deposits in transit
A disbursement system that uses wire, telephone, or computers to transfer funds from one location to another.
Electronic funds transfer (EFT)
A dishonest act by an employee that results in personal benefit to teh employee at a cost to the employer.
Fraud
The three factors that contribute to fradulent activity by employees: opportunity, financial pressure, and rationalization.
Fraud Triangle
Company employees who continuously evaluate the effectiveness of the company’s internal control system.
Internal auditors
A process designed to provide reasonable assurances regarding the achievement of company objectives related to operations, reporting, and compliance.
Internal control
A check that is not paid by a bank because of insufficient funds in a customer’s bank account.
NSF check
Checks issued and recorded by a company but not yet paid by the bank.
Outstanding checks
A cash fund used to pay relatively small amounts.
Petty Cash Fund
Cash that must be used for a special purpose.
Restricted cash
Regulations passes by Congress to try to reduce unethical corporate behavior.
Sarbanes-Oxley Act (SOX)
An authorization form prepared for each payment in a voucher system.
Voucher
A network of approvals by authorized individuals acting independently to ensure that all disbursements by check are proper.
Voucher System
Amounts owed by customers on account.
Accounts Receivable
A measure of the liquidity of accounts receivable; computed by dividing net credit sales by average net accounts receivable.
Accounts receivable turnover
The analysis of receivable balances by the length of time they have been unpaid.
Aging the accounts receivable
A GAAP method of accounting for uncollectibles that involves estimating uncollectible accounts at the end of each period.
Allowance method
The average amount of time that a receivable is outstanding; calculated by dividing 365 days by the accounts receivable turnover.
Average collection period
An expense account to record uncollectible receivables.
Bad Debt Expense
The net amount a company expects to receive in cash.
Cash (net) realizable value
A non-GAAP method of accounting for uncollectibles that involves expensing accounts at the time they are determined to be uncollectible.
Direct write-off method
A note that is not paid in full at maturity.
Dishonored (defaulted) note
A finance company or bank that buys receivables from businesses and then collects the payments directly from the customers.
Factor
The party in a promissory note who is making the promise to pay.
Maker
Written promise (as evidence by a formal instrument) for amounts to be received.
Notes receivable
Various forms of nontrade receivables, such as interest receivable and income taxes refundable.
Other Receivables
The party to whom payment of a promissory note is to be made.
Payee
A method by which management estimates what percentage of receivables will result in losses from uncollectible accounts.
Percentage-of-receivables basis
A written promise to pay a specified amount of money on demand or at a definite time.
Promissory note
Amounts due from individuals and other companies.
Receivables
Notes and accounts receivable that result from sales transactions.
Trade receivables
The 6 Principles of Internal Control
- Establishment of Responsibility. 2. Segregation of Duties 3. Documentation Procedures 4. Physical Controls 5. Independent Internal Verifiation. 6. Human Resource Controls.
