Test 2

Question 1

what are the two parties involved in a transaction

Answer 1

a buyer and a seller

Question 2

What is FOB

Answer 2

either the shipping point or destination point where the rights of possession of goods changes hands

Question 3

what is boilerplate

Answer 3

the terms and conditions or the “fine print” of a contract

Question 4

what is bailment

Answer 4

transfers the rights of possession not the rights of ownership (think UPS)

Question 5

bill of lading

Answer 5

the document that shows the possession of goods changing hands

Question 6

shipping manifest

Answer 6

when you pick up goods for your business and not a 3rd party (list of goods your employee is responsible for)

Question 7

what is the difference between a bill of lading and a shipping manifest

Answer 7

bill of lading is used for a 3rd party and a shipping manifest is for in house use

Question 8

purchase return

Answer 8

if goods purchased are unusable, you send it back to the seller and basically “undo” the purchase (debit accounts payable and credit inventory)

Question 9

purchase allowance

Answer 9

when the company gives you a credit so inventory is less

Question 10

purchase discount

Answer 10

you credit inventory the discount amount

Question 11

freight in -> shipping point

Answer 11

buyer pays freight in cost

Question 12

freight in -> FOB destination

Answer 12

seller pays for freight in cost

Question 13

what are the 4 costing methods

Answer 13

1) specific identity
2) FIFO -> first in first out
3) LIFO -> Last in first out
4) weighted average

Question 14

consistency principle

Answer 14

once an inventory costing method is chosen, the company must stick with it (any change must be justified)

Question 15

conservatism principle

Answer 15

inventory should be valued at the lower of cost or market … assuming the lower market price is deemed to be long term

Question 16

Types of management Assertions

Answer 16

1) existence / occurrence
2) completeness / period
3) valuation / allocation
4) rights / obligations
5) presentation / disclosure

Question 17

who is required to make assertions on the financial statements

Answer 17

Management

Question 18

Internal Control

Answer 18

a process put into effect by an entity’s board of directors, management and other personnel that is designed to provide reasonable assurance that the accuracy/reliability of the financial statements is good

Question 19

objectives of internal controls

Answer 19

1) promote accuracy / reliability
2) promote efficiency / effectiveness
3) measure compliance with laws
* safeguard assets

Question 20

components of an internal control system

Answer 20

1) control environment
2) risk assessment
3) control activities
4) communication and information
5) monitoring

Question 21

short term assets

Answer 21

cash
accounts receivable 
supplies
prepaids
inventory

Question 22

IPO

Answer 22

initial public offering

Question 23

annual reports must contain

Answer 23

• financial statements
• disclosure notes
• management discussion
• list of board members/executives
• report on internal control tests
• auditors report

Question 24

auditor confidentiality

Answer 24

• not legal but in the auditors code of ethics
• cannot disclose any info about company unless they get the go ahead from management
• only can give away info if court asks them

Question 25

Types of Auditors Opinions

Answer 25

unqualified
qualified
adverse
disclaimer

Question 26

unqualified opinion

Answer 26

everything is good

Question 27

qualified opinion

Answer 27

everything is good except a few things

Question 28

adverse opinion

Answer 28

everything is bad

Question 29

disclaimer

Answer 29

so bad they don’t want to make an opinion

Question 30

why do companies reconcile bank accounts

Answer 30

to make sure everything checks out and as a type of internal control