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CPP Exam > Section 11 - Payroll Accounting > Flashcards

Section 11 - Payroll Accounting Flashcards

1
Q

What is GAAP?

A

Generally Accepted Accounting Principles

A set of concepts and principles issued by FASB and GASB.

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2
Q

How is Accounting for Business different than our personal checking account?

A

Accounting for Business

  • accrual accounting is utilized
  • double entry accounting for each transactions
  • data is used to create financial statements and compare the company’s financial situation to other companies

In Personal Checking we use cash accounting with single entry fro each transaction.

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3
Q

What is FASB?

A

Financial Accounting Standards Board

Since 1974, this private organization has set the standards for recording financial transactions.

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4
Q

What is GASB?

A

Government Accounting Standards Board

Sets the standards for recording financial transactions for the public sector.

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5
Q

What is the Business Entity Concept?

A

Each organization that operates separately is treated separately (under an EIN).

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6
Q

What is the Continuing Concern Concept?

A

This concept assumes a business entity to operate well into the future.

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7
Q

What is the Time Period Concept?

A

Each organization must determine its own accounting period based on the type of business it is engaged in.

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8
Q

What is the Cost Principle?

A

All goods and services purchased are recorded at the cost of acquiring them.

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9
Q

What is the Objectivity Principle?

A

Transactions must be recorded objectively to ensure personal opinions and emotions are not part of the transaction.

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10
Q

What is the Matching Principle?

A

Expenses and revenue are recoded in the accounting period in which the expense is incurred or the revenue is earned.

Ex. Power bill for July is incurred in July but the bill is received in August. That expense would be entered for July.

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11
Q

What is the Realization Principle?

A

Revenue is recognized and reported when earned, which is during the accounting period when the goods have been transferred or the service provided.

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12
Q

What is the Consistency Principle?

A

Transactions are recorded the same way today, tomorrow, next week, next month and next year.

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13
Q

What are Assets?

A

Items of value owned by the company. Can be sold for cash.

  • Current Assets - Cash and what can be turned in to cash with in 3 months
  • Long-Term Assets - Items that will take up to 3 months to turn in to cash.
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14
Q

What are Liabilities?

A

Items PAYABLE to someone else. Money that is owed to others; Money withheld from pay, but owed to third parties.

  • Current Liabilities - Bills that are due with in 3 months
  • Long-Term Liabilities - Bills that are due after the next 3 months
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15
Q

What is Owner’s Equity?

A

Capital/Net Worth. What the company is worth.

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16
Q

What is Revenue?

A

The money brought in from sales.

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17
Q

What are Expenses?

A

The costs of running the business.

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18
Q

What is Double Entry Accounting?

A

For each transaction, at least two entries are made - a Debit and a Credit. One account will increase, while another is decreased.

Debits = Credits

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19
Q

What equation provides the basis for the Balance Sheet?

A

Assets = Liabilities + Owner’s Equity

A=L+OE

20
Q

What equation provides the basis for the Income Statement?

A

Revenue - Expenses = Net Income

21
Q

What are Debit Balance Accounts?

A

A debit increases the account.

Asset Accounts
Expense Accounts

    Assets/Expenses
    \_\_\_\_\_\_\_\_\_\_\_\_\_
    Debit   I   Credit
                I
Increase  I   Decrease
22
Q

What are Credit Balance Accounts?

A

A credit increases the account.

Liability Accounts
Revenue Accounts
Owner’s Equity Accounts

           Liabilities
      \_\_\_\_\_\_\_\_\_\_\_\_\_
      Debit   I   Credit
                 I
Decrease  I   Increase
23
Q

What is the Statement of Cash Flows?

A

Where cash came from and where it went.

24
Q

What is the Notes to Financial Statement?

A

What is happening in the company that is no reflected in the statements or what needs further explanation.

25
Q

What is the Report of the Independent Accountants or Auditors?

A

Unbiased analysis as to the validity of the statements.

26
Q

What is considered the Book of Original Entry?

A

Journal

  • Contains every entry made by the company - in chronological order.
27
Q

What is considered the Book of Final Entry?

A

General Ledger

  • Period-to-Date Balance of general accounts like taxes payable
  • Used to prepare Financial Statements
28
Q

What Accounting Document replaces journals in computerized accounting systems?

A

Subsidiary Ledger

  • Period-to-date balance of individual accounts like federal unemployment taxes payable.
29
Q

What is the accounting flow?

A

Transaction —> Journal —> General Ledger —> Financial Statements

OR for computerized accounting

Transaction —> Subsidiary Ledger —> General Ledger —> Financial Statements

30
Q

What is accrual accounting?

A

The last day of pay periods and the last day of accounting periods generally do not all occur on the same day. For this reason, companies must accrue or account for payroll expenses through the end of each accounting period.

31
Q

At what periods should the accuracy of payroll by verified?

A

Balancing should be done periodically during the accounting period,

  • every payroll period
  • before filing forms 940(annually) and 941 (quarterly)
  • before sending employees their W-2s

Employees who issue or control checks on an account should not be responsible for reconciliation of that account.

32
Q

What are Internal Controls?

A

Internal controls are a system of checks and balances applied with in an organization to ensure the accuracy of its financial records and the security of its assets.

33
Q

What is Segregation of Job Duties?

A

No one person should do everything.

34
Q

What is Rotation of Job Duties?

A

What you do today won’t be what you do in a couple months.

35
Q

What is Payroll Distribution?

A

Employees only get their own paycheck - physical payout.

36
Q

What is a Phantom Employee?

A

Paying people that don’t actually exist.

37
Q

What are Negative Pay Deductions?

A

Easy way to give people money fraudulently

38
Q

What is the Internal Control Payroll Bank Account?

A

The balancing and reconciliation of the payroll bank account should be segregated from the payroll department.

39
Q

What is the internal control for Blank Checks?

A

This is a large source for fraud.

Blank checks should not be stored near the payroll department and away form the method of signature.

40
Q

What is the internal control for Time Reporting?

A

Overreporting of hours worked and incorrect classification of paid time can lead to large losses for a business. It is essential that time cards are reviewed and approved by department supervisors or managers.

41
Q

What is the internal control for Computer System Edits?

A

Identify unusual activity in the payroll system.

42
Q

What is and internal auditor used for?

A

Review efficiency of the organization’s internal control procedures and recommend changes.

43
Q

What is Group 1 Security in the controlling check fraud process?

A

Group 1 security features are manufactured into the check paper.

  • Mould Made and Fourdriner Watermarks - true watermarks
  • Overt Fibers and Planchettes - found in national currencies
  • Covert Fibers - invisible to the naked eye
  • Chemical Reactants - safety papers that produce visible chemical reactions
  • Toner Bond Enhancers - trademarked paper
44
Q

What is Group 2 Security in the controlling check fraud process?

A

Group 2 security features are printed onto the paper.

  • Screened Printing
  • Microprinting
  • Simulated Watermarks
  • Warning Bands and Security Icons
  • VOID Features
  • Prismatic Printing
  • Anti Splice Lines
  • Aniline Dye
  • Holograms and Foils
  • Thermochromic Ink
  • Nonnegotiable Backer
  • Security Lock Icons
45
Q

What is Group 3 Security in the controlling check fraud process?

A

Group 3 security is also called “Positive Pay” - bank sponsored electronic data checking. While it is the most effective security measure, it is also the most costly and labor intensive. Requires the actual one-to-one comparison of the check information.

46
Q

What is Training in the controlling check fraud process?

A

Make sure all employees know how to identify a fraudulent check.

CPP Exam (15 decks)

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