Mod 1-3 Review Flashcards
Accounts receivable turnover ratio:
If sales for each month are 20% higher than the previous year, one would expect…
A prorata increase in accounts receivable, resulting in no
Change in the accounts receivable turnover ratio
Not including a sale in the current year or in year end accounts receivable would…
Why?
Decrease accounts receivable turnover ratio
equivalent amounts are not included in the numerator and denominator and the denominator has a larger impact on The ratio
Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:
A decrease may occur in the numerator through…
An understatement of sales
Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:
A decrease may occur in the denominator through…
An overstatement of accounts receivable
Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:
Can occur through a combination of…
Misstatements of sales and accounts receivable that decrease the
ratio
Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:
Recoding the consignment as sales…
Overstates both sales and accounts receivable by an identical
Amount
Thus decreasing the accounts receivable turnover ratio
Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:
Not recording the credit memo for returned merchandise…
Overstates both sales and accounts receivable by an identical
Amount
Thus decreasing the accounts receivable turnover ratio
When sales returns and allowances are recorded, how are they recorded in a journal entry?
2) when this entry is not recorded it…
Sales returns and allowances. Xxx
Accounts receivable. Xxx
2) overstates accounts receivable and decreases the accounts
Receivable turnover ratio
The level of inventory does not effect…
The accounts receivable turnover ratio
Identify an explanation for a decrease in the accounts receivable turnover ratio when compared to the prior year:
If a larger percentage of sales occurred during the last month of the year as compared to the prior year, sales for the year will…
Remain at the expected level, while accounts receivable
At year end will be higher than average level due to year end sales
Increase in effective income tax rate could…
Decrease profit when compared to the prior year
Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:
3 reasons the percentage of allowance for doubtful accounts as a percentage of accounts receivable would decrease
1 decrease in allowance for doubtful accounts
2 increase in accounts receivable
3 combination of misstatements that decrease ratio
Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:
An increase in the consignment as a sale results in…
Increase of accounts receivable
Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:
Not recording credit memos for merchandise returns…
Overstates accounts receivable
And decreases the ratio of allowance for doubtful accounts to
accounts receivable
Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:
Larger percentage of sales occurring during the last month of the year results in…
A/R at year end being higher due to average level of year end sales
This decreases the ratio of allowance for doubtful accounts to
accounts receivable
Identify an explanation for an increase in the allowance for doubtful accounts, but a decrease in the allowance for doubtful accounts as a percentage of accounts receivable:
The smaller and same percentage of sales does not…
Decrease the ratio of allowance for doubtful accounts to accounts
Receivable
Control deficiency is a condition in which operation of a control does not allow management, or employees, in the normal course of performing their functions to prevent or detect misstatements on a timely basis, what does a control deficiency not explicitly consider?
Does not explicitly consider the likelihood of loss
Material weaknesses are also…
2) however not all…
Control deficiencies
2) control deficiencies are material weaknesses
“All control deficiencies must be communicated to the audit committee” this statement is not true because…
Only significant deficiencies and material weaknesses must be
Communicated
A material weakness is determined by whether there is…
2) the actual loss identified can…
More than a remote likelihood of a material loss occurring
Due to a control deficiency
2) be either material or immaterial
In meeting the control objective of safeguarding of assets, which department should be responsible for distribution of paychecks?
Treasurer
In meeting the control objective of safeguarding of assets, which department should be responsible for custody of unclaimed paychecks?
Treasurer
Custody of payroll checks should not be performed by…
Why?
Payroll department, because they provide the record keeping
function
Under proper internal control, what 3 duties should be segregated?
1 record keeping
2 custody
3 authorization
According to AU-C 265, an auditor’s letter to the audit committee should…3
1 indicate that the audit’s purpose was to report on financial
Statements and not express an opinion on internal control
2 include definition of significant deficiency
3 restrict distribution of the report
On CPA exam question, unless specified, you should assume the question is about…
Nonpublic companies
Initial selection of significant accounting policies in emerging areas that lack authority, who would communicate this to the audit committee?
It is management’s responsibility to communicate it to the audit
Committee
The auditor does not need to communicate it, but must make sure
Management communicates it
Disagreements with management about matters significant to the entity’s financial statements at have been satisfactorily resolved. Who communicates this to the audit committee? Why?
Required, for auditor to communicate this to audit committee
In a flow chart a trapezoid represents…
A manual operation
Flowchart:
An approved voucher enters the flowchart after this step, therefore…
The voucher is being prepared and approved in this step
Flowchart:
Since a document is being prepared through a computerized billing program it is…
The sales invoice
Flowchart:
What 4 transactions occur in the computerized processing department’s computerized billing program?
1 retrieve shipping data
2 enter price data
3 prepare sales transaction file
4 prepare sales invoice
Flowchart:
A copy of the sales invoice is sent to the customer and the other copy of the sales invoice…
Informs accounts receivable department that sale has been both
Processed and shipped
Flowchart:
What file is used, when the step below includes updating master files?
General ledger master file
