Test 2 Flashcards
what are the two parties involved in a transaction
a buyer and a seller
What is FOB
either the shipping point or destination point where the rights of possession of goods changes hands
what is boilerplate
the terms and conditions or the “fine print” of a contract
what is bailment
transfers the rights of possession not the rights of ownership (think UPS)
bill of lading
the document that shows the possession of goods changing hands
shipping manifest
when you pick up goods for your business and not a 3rd party (list of goods your employee is responsible for)
what is the difference between a bill of lading and a shipping manifest
bill of lading is used for a 3rd party and a shipping manifest is for in house use
purchase return
if goods purchased are unusable, you send it back to the seller and basically “undo” the purchase (debit accounts payable and credit inventory)
purchase allowance
when the company gives you a credit so inventory is less
purchase discount
you credit inventory the discount amount
freight in -> shipping point
buyer pays freight in cost
freight in -> FOB destination
seller pays for freight in cost
what are the 4 costing methods
1) specific identity
2) FIFO -> first in first out
3) LIFO -> Last in first out
4) weighted average
consistency principle
once an inventory costing method is chosen, the company must stick with it (any change must be justified)
conservatism principle
inventory should be valued at the lower of cost or market … assuming the lower market price is deemed to be long term
Types of management Assertions
1) existence / occurrence
2) completeness / period
3) valuation / allocation
4) rights / obligations
5) presentation / disclosure
who is required to make assertions on the financial statements
Management
Internal Control
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
objectives of internal controls
1) promote accuracy / reliability
2) promote efficiency / effectiveness
3) measure compliance with laws
* safeguard assets
components of an internal control system
1) control environment
2) risk assessment
3) control activities
4) communication and information
5) monitoring
short term assets
cash accounts receivable supplies prepaids inventory
IPO
initial public offering
annual reports must contain
- financial statements
- disclosure notes
- management discussion
- list of board members/executives
- report on internal control tests
- auditors report
auditor confidentiality
- 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
Types of Auditors Opinions
unqualified
qualified
adverse
disclaimer
unqualified opinion
everything is good
qualified opinion
everything is good except a few things
adverse opinion
everything is bad
disclaimer
so bad they don’t want to make an opinion
why do companies reconcile bank accounts
to make sure everything checks out and as a type of internal control
