Ratios to Know and Analytical Procedures Flashcards
How do I calculate the “Current” ratio?
Current Assets divided by Current Liabilities
How do I calculate the “Quick-Acid Test” ratio?
Current Assets minus Inventory divided by Current Liabilities
How do I calculate the “Receivables Turnover” ratio?
Net Sales divided by Average Accounts Receivables
How do I calculate the “Inventory Turnover” ratio?
Cost of Goods Sold divided by Average Inventory
How do I calculate the “Total asset Turnover” ratio?
Net Sales divided by Total Assets
How do I calculate the “Debt-to-Equity” ratio?
Total debt divided by Total Equity
How do I calculate the “Times Interest Earned” ratio?
Net Income plus Interest Expense plus Income Tax Expense divided by Interest Expense
How do I calculate the “Cost of Goods Sold” ratio?
Cost of Goods divided by Net Sales
How do I calculate the “Gross Margin Percentage” ratio?
Net Sales minus Cost of goods Sold divided by Net Sales
How do I calculate the “Return on Equity” ratio?
Net Income divided by Total Equity
I performed analytical procedures on an equity method investment
My procedures indicate a lower than expected return
What is my best guess of why?
There might have been an:
- Error in recording amortization of the excess of the investor’s cost over the investment’s underlying carrying amount
E.g. Miscalculations in the amortization could result in a lower than expected return
What is a factor that would significantly affect my determination of the auditability of an entity’s financial statements?
The destruction of the accounting records
E.g. This would prevent me the ability to obtain sufficient appropriate evidence
What am I trying to identify by:
Tracing a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal?
I am trying to identify whether purchases were properly recorded
E.g. The “Completeness” Assertion
What ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis to express an opinion?
The Auditor’s Judgment
How could I best detect irregularities involving debits and credits to an unusual combination of expense and revenue accounts?
By performing analytical procedures designed to disclose differences from expectations
