Special Cards Flashcards
EUP (units started and completed, and FIFO vs WAM)
1) STARTED AND COMPLETED:
USC = units transferred out - BWIP (transferred out minus initial balance)
OR
USC = units started - EWIP (units started minus ending balance)
2) If WAM, sum initial and added during month. If FIFO, sum only added during month.
BWIP
+ Units Started (than can be completed)
- Units Transferred Out
=
EWIP
Deferred tax assets (DTA) and liabilities (DTL) (only temporary differences)
GAAP MAIOR, ADVANTAGE >> LIABILITY
GAAP MENOR, DISADVANTAGE >> ASSET
PLUS NOL
DTL : Arises when there is an excess of GAAP (paying less now on TAX side)
INCOME UNDER GAAP > Taxable Income IMPLIES in FUTURE TAXABLE AMOUNTS
revenue or gains are recognized in GAAP before they are included in taxable income (you are taking advantage).
Equity income is one example: income recognized under equity method first, but taxable requires on distributed dividends which come after.
expenses or losses are deductible for tax purposes before they are recognized under GAAP.
Accelerated depreciation can be chosen for tax purposes.
DTA: Arises when there is an excess of taxable income .
Taxable Income > Income Under GAAP implies in FUTURE TAXABLE AMOUNTS
a. Revenues or gains are included in taxable income before they are recognized in GAAP.
I) Unearned revenue received in advance, you pay tax over cash now although you will only recognize in the future.
b. Expenses or losses are recognized in GAAP before they are deductible for tax. You should pay less taxes in t, but are required to pay full in t, in the future can be deducted.
I) Bad debt expense under allowance method and warranty costs. You have to pay taxes over the full amount since you cannot deduct warranty costs accrued.
DTAs are also linked to NOL carryforward.
EUP Logic FIFO and WAM (3 situations)
3 situations
FIFO only considered work done in the current period
WAM considers that everything was started and completed in the period.
1) All material added in the beginning.
ONLY FOR MATERIAL
- BEGIN WIP:
WAM = 100% (weighted average of previous and this one)
FIFO = 0 since everything was already added (1 - completion rate of previous period which is 100%, then zero)
- Final WIP
Always 100%.
2) Material added evenly in the beginning (and conversion costs are also added evenly)
FOR MATERIALS AND CONVERSION COSTS
- BEGIN WIP:
WAM = 100%
FIFO = 1 - completion rate
- Final WIP
WAM and FIFO = completion rate
3) Material added at a specific point of time.
BWIP:
Depends: if required completion higher than existing completion, everything will be added in the period.
EWIP:
Depends: if required completion higher than final completion, everything will be added in the next period.
Production Budget (calculation)
Projected Sales in units
+ Desired ending inventory
- Beginning inventory
=UNITS TO BE PRODUCED
Shipping and packaging are what type of costs:
>> They are selling administrative expenses!
The difference between operating income between absorbing and variable costing…
Inventory change = (Equals Units Produced vs Fixed Manufacturing Overhead Cost per unit)
Joint Production Costs (technicality)
All methods are based on PRODUCED OUTPUT, do not get sidetracked by units sold even if the method is sales value.
Production budget <> Purchase Budget
- Production budget starts with sales + EI - BI to check amounts to be produced.
- Purchase budget starst with production + EI - BI to check amounts to be purchsed.
Sales-Receivable Cycle
Authorization: customer, sales, credit and billing.
Custody: shipping, warehouse
Recording: inventory control, accounts receivable, general ledger
Main documents in order of importance: Sales Order (which is then approved, used for most of the checks), bill of lading, packing slip, invoice.
Steps:
- Sales receives customer order and prepares sales order to be approved by Credit. (reconciling sequentially numbered sales orders)
- Credit performs a credit check to approve sales order and sends to sales, warehouse, shipping, billing and inventory control.
- Approved sales order is acknowledged by sales and sent to customer.
- Upon receipt of sales order, Warehouse pulls the merchandise, prepares a packing slip, and forwards both to shipping.
- Shipping verifies that goods received match sales order, and prepares the bill of lading which is sent to inventory and billing with packing slip (notifies that goods were actually shipped).
- Inventory matches vs approved sales order, and updates the inventory system.
- Billing matches the bill of lading and packing slip with sales order and prepares invoice which is sent to sales (reconciling sequentially numbered invoice transactions) and accounts receivable.
- Sales receives invoice and updates sales order file.
- Accounts receivable receives the invoice from Billing and posts journal entry to the AR file.
- Accounts receivable prepares a summary of all the invoices for the day and forwards to General Ledger for posting. GL vs AR.
Cash Receipts Cycle
A: Customer, Bank
C: Mail Room, Cash Receipts
R: Accounts Receivable , General Ledger
Main documents: remittance advice, remmitance listing, deposit slip (and approved)
- Mail room opens customer mail with checks. Remittance advices are separated
- Mail room prepares a remittance listing of all checks received and forwards to Cash Receipts.
- Cash Receipts prepares a deposit slip and deposit checks in Bank. Bank validates deposit slip.
4. Cash Receipts receives validated deposit slips and posts a journal entry to the cash receipts.
- Mail room also sends the remittance listing to GL for postin to GL, AND
accounts receivable for updating customer accounts
- Accounts receivable send account statements to customers.
Purchase-Payable Cycle
A: inventory and purchasing
C: vendor, receiving, warehouse
R: accounts pauable, general ledger
Main documents: Purchase requisition, purchase order (used for several checks), receiving report and packing slip.
- Inventory control prepares a purchase requisition when inventory approaches reorder point and sends to purchasing and accounts payable.
- Purchasing locates authorized vendor in vendor file, prepares a purchase order, and updates the purchase order file.
- Purchasing sends the purchase order TO vendor, receiving, and accounts payable. Receiving’s copy has blank quantities to force counting and recon.
- Accounts payable prepares a summary of all purchase orders issued that day and forwards to General Ledger.
- Goods arrive at Receiving with the packing slip, which then prepares a receiving report and forwards it with the goods to the Warehouse.
- Warehouse verifies if goods match receiving reports.
- Receiving sends receiving report and packing slip to inventory control for matching with the purchase requisition.
- Receiving also sends the receiving report to accounts payable for matching wi the purchase order and purchase requisition.
Payroll cycle
A: Human Resources & Production
C: Cash payments and Bank
R: Time-keeping, cost accounting, payroll, accounts payable, general ledger.
Main documents: authorized employees rates and deductions, clock cards and job time tickets (are approved by production supervisors to check if employee worked only available hours ) and ( are reconciled by timekeeping to pay only actual hours worked), hours worked by employee from timekeeping to Payroll, who then matches wth authorized list, and creates a payroll register with payment voucher, and forwards to cash payment.
Variable Overhead Variance (spending and efficiency)
Spending variance:
Actual Allocation Base * ( Budgeted application rate - Actual application rate)
Efficiency variance:
Budgeted Application Rate * ( Standard cost driver per unit * actual units - actual allocation base)
Fixed Overhead Variances
Spending variance:
Budgeted Fixed Overhead - Actual Fixed Overhead (USING BUDGETED RATE)
Production Volume variance (idle capacity variance or denominator level variance).
Budgeted Overhead - (Budgeted application rate * standard cost driver per unit * actual units)
Overhead models:
Two way
vs
Three way
vs
Four way
Two way:
Controllable
and
Uncontrollable variance
Spending + Efficiency Prod. Volume
fixed + variable
Three way (3 fields filled, one zero)
Spending + Efficiency Prod. Volume
fixed
variable 0
4 way (4 fileds filled, 2 zeros)
Spending Efficiency Prod. Volume
fixed 0
variable 0
Sales price variance
vs
Sales volume variance (and multiproduct composition)
REMEMBER TO CHANGE ORDER ON SALES VARIANCE
Sales Price Variance
AQ * (AP - SP)
Sales volume variance = SCM (AQ - SQ)
-
In case of multiproduct (has to add from both products): composed of
- Sales qty variance: SUCM * (Total AQ * SM in % - Standard unit sales)
- Sales mix variance: SUCM * (AQ - (total AQ * Standard mix %))
What is included in asset base(investment) of ROI?
> What is included in assets of business unit?
Total assets (IN USE usually) include all current assets such as cash, inventory, and accounts receivable in addition to fixed assets such as the plant buildings and equipment. (THIS MEANS: INCLUDES WORKING CAPITAL AND DOES NOT INCLUDE LAND NOT IN USE-VACANT LAND, LIKE LAND HELD FOR A CONSTRUCTION OF A NEW SITE).
Audit Risk and Control Risk
Audit risk is the risk that the external auditor may unknowingly fail to modify his or her opinion on financial statements that are materially misstated (or simply may fail to detect a significant error or weakness during an examination). Its elements are control risk, inherent risk, and detection risk.
Control risk may not be able to properly evaluate an activity because of its poor internal accounting controls.
Processing Controls
Processing controls (provide reasonable assurance that (1) all data submitted for processing are processed (2) only authorized data is processed:
Like input controls there are also limit checks, control totals.
Validation test (is not validity check which is a storage control which compares data to see if it fits a structure) . Identifiers are matched against master files to determine existence (only processed if e.g. vendor code is recognized). UNVALID ZIP CODES FOR EXAMPLE.
Completeness test. Only complete records are submitted.
Arithmetic controls (recalculation of data)
Sequence check. Computer effort is expended more efficiently when data is processes in a logical order, such as by customer number.
Run-to-run control totals. Controls are checked for each batch round of processing.
Key integrity. A record’s key is the group of values in designated fields that uniquely idenfity a record and should never be modified.
Records management.
Answer (D) is correct.
A policy that provides for the retention and periodic destruction of documents and other records is known as a formal record retention policy or a records management policy.
Lease Liability consideration when periodic lease payment happens on the commencement date
Lease reduction = Lease Payment since interest expense is zero (no time elapsed)
So the lease liability is reduced by the amount of the first periodic payment :)
Process Costing vs Job Costing (both have work in process control accounts)
and Spoilage
Process Costing - Based on Department since products are usually homogeneous.
vs
Job Costing - Based on projects.
ABNORMAL SPOILAGE IS ALWAYS RECOGNIZED SEPARATE AS A LOSS / PERIOD COST, INDEPENDENT OF THE COSTING METOD.
NORMAL SPOILAGE IS ATTRIBUTED TO COGS.
Outsourcing Benefits
Cost advantages, Access to technology (access to skilled workers), focus on core areas, Avoidance of risk of obsolescence
Operation Budget Calculation
Sales
+ EI
- BI
=Production Units
Production Units * Ratio of outsource Items
+ EI outsource items
- BI outsource items
= Units to be purchased
COGS consideration
The cost of goods sold budget shows all of the manufacturing costs of producing the company’s product, including raw materials, direct labor, and factory overhead (including factory indirect labor). These are all costs incurred in the factory during the production process. Cost of goods sold does not include advertising, research and development costs, trade discounts, or other types of selling costs.
COBIT 5 Enablers
Enablers (are interconnected):
- Principles, policies and frameworks
- Processes
- Organizational structures
- Culture, ethics, behavior
- Information (RESOURCE)
- Services, infra, applications – ORGANIZATIONAL STRUCTURE (RESOURCE)
- People, skills and competencies (RESOURCE)
COSO Cube Elements
Within the COSO Internal Control – Integrated Framework, the components are control environment, risk assessment, control activities, information and communication, and monitoring; entity structure includes entity level, division, operating unit, and function; and objectives include operations, reporting, and compliance.
Applied Overhead vs Actual Overhead
Applied overhead is the amount that is added to jobs as work is completed. This is done during the year as work is completed using the predetermined overhead rate and actual activity.
vs
Actual overhead is the amount of overhead cost that the company actually incurred.
Data life cycle
DATA LIFE CYCLE
Data capture:
Utilizing data: from an outside organization.
Data entry: new data created.
Signal reception: data is acquired that has been created by control systems within the organization.
Data maintenance:
Data is provided for synthesis and usage.
Cleansing and enrichment
Data synthesis and analytics
Creation of data value and modelling for investment decisions.
Data usage
Data in support of the enterprise.
Data publication (sending data to OUTSIDE the organization)
Data archival -Data archival involves copying data to a location where they are stored in case they are ever needed again. At the same time, the data are removed from all active environments.
Data purging (data elimination)
RECORD RETENTION POLICY
>> Helps to not saturate archival and REDUCES STORAGE COSTS.
>> For some documents, there are minimal time restrictions (like tax, 7 years)
>> Important is that the company has a defined retention policy and sticks to it.
Concept of Breakdown
Controls may fail due to breakdowns (e.g., employee misunderstanding, carelessness, or fatigue). Carelessness of the CEO in being unaware of the risk the policy cancellation presents is an inherent limitation in internal control.
Signing and distributing checks is a …. function
custodianship (treasurer and he cannot record)
Board of directors peculiarity
and
Internal Audit Objectivity
The board of directors does not attest to the effectiveness of controls; under the Sarbanes-Oxley Act, this is the responsibility of the chief executive officer and the chief financial officer.
The internal auditor’s objectivity is not adversely affected when (s)he recommends standards of control for systems or reviews procedures before they are implemented. Designing, installing, drafting procedures for, or operating systems is presumed to impair objectivity.
Stock split is not equal to stock split in the form of dividend
Stock split >> no journal entry is made
>> Stock split in the form of dividend happens when the stock dividend is more than 25% of outstanding shares, and then only cash and retained earnings are affected.
Remember on allocation of Service Department Costs
>> Direct method: you only allocate to non-service department functions.
>> Step down: allocate first the one who provides more to the other service in a proportional basis to all the other departments (service or not), then allocate the second service department (accrued of first department allocated costs) to other functional areas considering only the functional areas bases.
Recognizing Revenue on Costs of Completion
Check remaining amount of costs, divide existing current and past costs sum by the total (remaining plus existing) and this will be the percentage that should have been recognized until that period. You can do incrementally to check how much goes into each phase subtracting by the previous period.
Segment Margin consideration
Segment profitability includes everything (including traceable costs) apart from allocated common costs.
GAS (Generalized Audio Software)
VS
Integrated Test Facility
ITF - An integrated test facility involves the use of a fictitious entity, such as a dummy customer in accounts receivable, against which data transactions are processed. The results are then compared with those previously determined. This technique can be used without computer operator knowledge during routine system operation. The ITF is relatively inexpensive and requires no special processing. It is employed in auditing online, real-time systems. THE GOAL IS TO DETERMINE WHETHER A REAL-TIME SYSTEM CONTAINS ADEQUATE CONTROLS.
VS
GAS - is not live since it is running data on an external audit software, and process the data via several analytical controls.
CASE
CASE applies computers to software design and development. It permits creation and maintenance of systems documentation on the computer and the automation of a part of the programming effort. Using CASE would improve management of the development process because the CASE software maintains the links between the different components, provides built-in project management tools, and supplies automated testing aids.
Perfect information (two requests)
Expected value of perfect information: additional value expected value that could be obtained if a decision maker knew ahead of time which state of nature would occur
DIFFERENT FROM
profit or revenue with perfect information : not additional but the expected value only.
Control Risk
vs
Detection Risj
Control risk: material misstatements will not be prevented or detected by internal control
vs
Detection risk: material misstatements that occur will not be detected by audit
