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The book value of a plant asset is the difference between the

purchase price of the asset and the sum of the yearly depreciation to date

If bonds are issued at a discount, then over the life of the bonds, the?

carrying value of the bonds will increase

If a company fails to record the adjusting entry for estimated uncollectible accounts receivable at the end of the year

Net income is overstated

A company writes a check for $167 but incorrectly records the amount in its ledger as $176. On the bank reconciliation, the error should be

added to the balance per books (you think you have less money than you actually do)

Bond discounts and premiums should be amortized to comply with

the matching principle

The matching principle

Expenses should be "matched" with revenues. This provides a timely connection between sacrifices and rewards in order to facilitate an evaluation of profitability.

The revenue recognition principle

an accrual accounting principle that states you must record revenues in the period that they are earned

The historical cost principle

States that assets should be recorded at their actual cost measured on the date of purchase as the amount of cash paid plus the value of all non-cash consideration also given. Cost is not adjusted in changes in market.

The sale of bonds above face value

will cause the total cost of borrowing to be less than the bond interest paid

Receivables Turnover Ratio

Net Credit Sales / Average Accounts Receivable

Average Collection Period

365 / Receivables Turnover Ratio

Which of the following would be deducted from the balance per books on a bank reconciliation?

Service Charges

When an account receivable is written off, the

net accounts receivable will stay the same

Supervisors counting cash receipts is an example of

Independent internal verification

Establishment of responsibility

Control is most effective when only one person is responsible for a given task.

Example: Register is short $10, if only one person was running the register, it is easy to determine who is responsible. If two more more individuals have worked the register, it may be impossible to determine who is responsible.

Independent internal verification

Involves the review of data prepared by employees. Should verify records periodically, independent employee should verify, and discrepancies should be reported to management.

Segregation of duties

implementing control procedures to clearly divide authority and responsibility within the information system function to prevent employees from perpetrating and concealing fraud

Concept of Depreciation

The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset

Depreciation accounting

It is not a matter of valuation. It is part of the matching of revenues and expenses. It retains funds by reducing income taxes and dividends

Allowance for Doubtful Accounts is a ____________ item and normally has a ____________ balance

contra-asset, credit

Reasonable Assurance

concept that recognizes that the costs of control procedures should not exceed the benefits that are expected from the control procedures

Sarbanes Oxley Act

Independent outside auditors must attest to the level of internal control. Companies must develop sound internal controls over financial reporting. Companies must continually assess the functionality of internal controls

An employee authorized to sign checks should not record

cash disbursement transactions

The matching principles

necessitates the recording of an estimated amount for bad debts

The cost of an intangible asset with an indefinite life should

not be amortized

The carrying value of bonds will equal the market price

on the date of issuance

If the amount of bad debt expense is understated at year end

net Accounts Receivable will be overstated

Internal controls are concerned with

safeguarding assets

A high receivable turnover ration indicates

customers are making payments very quickly

going concern principle

means that accounting information reflects an assumption that the business will continue operating instead of being closed or sold

cost principle

The principle that states that, when purchased, all assets are recorded at their actual cost regardless of market value.

cash realizable value

The net amount a company expects to receive in cash from receivables.

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