FINAL EXAM (notes) Flashcards
Inventory
-what’s usually credited in Accounts Receivable (1 ex)
-what would be debited in Allowance for Doubtful Accts?
Accounts Receivable
-Write-Offs are credited
Allowance for doubtful accounts
-Write-Offs are debited
Inventory
what’s credited and debited ?
Debit
-b____ n___ inventory (____)
Credit
-cost of ____
-pu____ r____
-me____ di___
Debit-
-buying new inventory (purchases)
Credit
-cost of sales
-purchase returns
-merchandise discount
What are the assertions for Inventory ?
1) _____
2) V___
3) ___ and _____
4) ____ and ____ (but not really)
1) Existence
2) Valuation
3) Rights and Obligations
4) Presentation and Disclosure
Inventory Assertions
Existence
-1) o_____ of ending inventory
-2) o___ count and 3) ___ the count
Valuation
-did they do the inventory 4) c___ m___ right? (5) ___, ___)
Rights and Obligations
-did we 6) a___ ____ the inventory
-transit 7) o____
1) overstatement
2) observe
3) test
4) cost method
5) FIFO, LIFO
6) actually own
7) ownership
Overstating ending inventory increases ____
gross profit
Steps for Revenue
- 1) Vi___ the account structure (in 2) p___, s__ of entry)
- Key assertions to 3) ____
- 4) D____/C___ audit test (chose a specific audit test that are 5) r__)
1) Visualize
2) patterns, sources
3) test
4) Design/Choose
5) relevant
What are the assertions for revenue?
1) ____ (_______, worried about ____)
2) ____ (where did the amounts _____)
1) Existence/Occurence (did it actually happen in this year, worried about overstatement)
2) Valuation (where did the amounts come from)
Should there be any debits for Revenue
no
6 steps for testing Revenue
1) **Select 1) ___ transactions/___ of d__ (vouch back to the 2) so___ ____)
2) **3) ____ analytics (can use 4) __-____ [seats, packages] and 5) ____ data [dollars])
3) Scan account for 6) ___ entries
4) Test the 7) “me____/m____l” corrective of account (or sub lists)
5) 8) Se___ p___
6) **9) ___-end ___ ___ testing (to prevent 10) ___ of revenue)
-are they December or January Sales (it’s a risk period because the client is at the end of the year, to see if there’s misstatement of numbers)
1) sales….test of details
2) source documents
3) Substantive
4) non-financial
5) financial
6) unusual
7) “mechanical/mathematical”
8) Seasonal patterns
9) Year-end cut off
1) overstatement
Revenue fraud schemes uncovered by the SEC and PCAOB (diff. examples on how revenue can be overstated)
- Recognition of revenue on shipments that never occurred
- Hidden side letters giving customers an irrevocable right to return the product
- Recording consignment sales as final sales
- Creation of fictious invoices (made up an invoice that never happened)
o Look back a purchase order, shipping document (warehouse document), document from truck loader
o They do this by DR Accts Rec, and CR Sales
o Shipment of more product than customer ordered - Shipment of unfinished product
- Shipment of product before customers wanted/agreed to delivery
- Recording shipments to company’s own warehouse as sales
o your moving stuff around making it look like a sale
o goods have come back and sell it again, but your selling the same item twice because you didn’t record the return
o Bill;Hold - Recording reshipment as a sale of new goods before issuing credit for the returned sale
- Incorrect aging of accts receivable
What are key assertions for accounts receivable?
-
-existence/occurrence
-valuation
-rights
What are the 2 types of confirmations of Accounts Receivable?
Positive and Negative Confirmations
Accounts Receivables Confirmations
Positive Confirmation: requests a 1) r___ from a customer about balance (do they 2) ___/d___)
Negative Confirmation: tells client to reply only if you 3) ____ about the balance (no reply means balance is 4) ____)
-use negative confirmation only
-if customer balance is 5) s___, smaller dues (not as 6) ____)
-small balances = 7) ___ controls
-you expect the customer knows the balance
1) reply
2) agree/disagree
3) disagree
4) correct
5) smaller
6) material
7) good
